As the law stands, expats residing in Portugal do not have to pay any tax on their pensions, whether the fund is located in Malta, France, Germany or elsewhere in Europe. This has many advantages, not least the fact that it allows retiree expats in Portugal to draw a stable and tax-free income for ten years.
The following categories of income are eligible for NHR tax-exemption:
- Royalties, dividends, pensions and interest from non-Portuguese based income.
- Certain categories of salary.
However, it is important to note that the following income sources are still subject to Portuguese taxation:
- Capital gains from sale of securities.
- Income from countries that do not share a double tax treaty with Portugal.
- Portugal-sourced income (taxed at a flat rate of 20%).
But NHR confers so much more benefit than simple exemption from tax on foreign income, it also allows for the possibility of potential double tax exemption, as well as the prospect that if you establish a new business or profession, you may be able to enjoy tax-free interest and dividends. Importantly, NHR status also entitles the holder to other benefits of tax residence, including access to the Portuguese state healthcare system.
The important thing to remember is that if you live in Portugal and already enjoy NHR status, there is no need to worry as you will not be affected by any changes and you can continue to make the most of the current rules that entitle you to zero tax on your foreign pension income.
Furthermore, news of the proposed changes should not cause alarm for those who haven’t yet made the move. Context is everything: the Portuguese government set up its NHR programme with the specific goal of attracting wealthy retirees to Portugal. It is highly unlikely that it will look to be implementing any kinds of measures that deter such retirees from living in Portugal and spending their hard-earned savings. British expats, for example, are worth many millions of Euros to the Portuguese economy each year, and it is clear that Portugal still wants this money to be funnelled into its financial system. It is simply the case that the next generation of retirement savers who move to the country may have to be extra prudent about their wealth management choices when they emigrate. For these reasons, authoritative and trusted advice is essential to ensure that pensions, savings and other financial vehicles work smoothly and efficiently in the expat’s interests.
Whatever changes are made; Portugal is likely to remain one of the world’s most desirable retirement destinations. In fact, Forbes magazine recently ranked the Algarve as the best place on earth to retire to.
Lastly, although it is clear that the Portuguese government can and indeed may make the proposed changes – meaning it’s essential for affected parties to be suitably prepared – it is by no means a done deal.
This communication is for informational purposes only and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.
The rules relating to pension transfers and inheritance tax could be set to change after HM Revenue & Customs (HMRC) announced that it is to review its guidance on the matter following a number of concerns raised by the Office of Tax Simplification (OTS) in a review published on July 5 2019.
It’s currently winter, which means it’s also cold and flu season. Sometimes, despite trying to avoid the germs as best you can, you just can’t help falling ill. And when that happens, you realise the value of quality healthcare.