Portugal holds on to Europe’s best kept (pensions) secret


The government’s proposals for next year’s State Budget were made public at midnight yesterday (Friday) and contrary to all expectations there are no changes to the non-habitual tax tax regime (NHR) which gives foreign residents a 10-year tax amnesty on their pensions.

The regime has come under heavy fire from northern EU member states like Finland and Sweden.

Indeed, Finland has already pulled its nationals out of the NHR (click here).

Only last month, reports suggested major changes were in the pipeline (click here).

It was suggested that the government was considering applying a tax rate of anything from 5% to 10% on all pensions income for any NHR newcomers.

The news caused “concerns”, explains Algarve tax lawyer Pedro Rosado “even though there was no indication that the eventual changes would affect NHR residents already benefitting from the scheme”.

Real estate agents’ association APEMIP was among a number of entities that cried out against any changes, stressing the major part that NHR has been playing in reviving Portugal’s property market.

But still people worried – to the point that a number who had been planning to become NHR residents in 2018 “queried whether to push plans forwards and apply this year”.

Pedro Rosado – who lectures in tax law at the University of the Algarve – advised all his clients to ‘wait and see’ what the October State Budget held.

He told the Resident today that “there is no mention of the NHR tax regime in the budget proposal.

“There are changes proposed to various aspects of taxation in the proposal, for example a reduction in the IRS rate on rental income from long term lets, but there is no mention whatsoever of the NRH tax regime”.

The proposed budget (OE 2018) will now be put forward for parliamentary proposal, but Rosado is confident that Europe’s best kept secret (as it has been dubbed by international tax advice experts PriceWaterhouseCoopers) will remain unchanged.

“It was the Socialist Party that was under pressure from other member states about NHR and as it is they who have put forward the budget proposal and decided not to make changes to NHR. It is therefore highly unlikely that opposition parties will see this as a priority.

“The main opposition parties, the PSD and the CDS who are jointly responsible for the existence of the NHR tax regime have never shown any desire to change it or to increase the tax rates. As for the left wing parties CDU and the Left Bloc who have approved the budget in previous years, they are more concerned about the reduction in IRS rates and increases in pensions.

“Considering NHR has not been addressed in the state budget proposal made by the PS government that was under pressure to do so, it would make no sense for other parties to make such proposals. And even if they did, it is not likely that they would be approved”.

“However, we should now wait until November 28th – the expected date for approval of the budget – to be totally sure that everything will remain unchanged with regard to NHR” he said.

Pedro Rosado added that there were other very positive aspects of the new budget for both foreign residents who lived here before they could take up the advantages of NHR, and new residents who “did not apply within the stipulated time-frame”.

He explained: “New progressive taxation scales have been proposed that will benefit those on lower incomes and could mean less tax for some foreign residents”.