Portugal has moved to scrap tax exemptions for some foreign residents in changes that are likely to diminish the country's appeal to wealthy international pensioners.
The ruling Socialist Party introduced an amendment to this year's budget which will levy a 10% tax on the foreign revenue of British pensioners and other foreigners who move to Portugal. Those who lived there before 2020 will not be affected.
While less beneficial than zero tax, a 10% tax on foreign pension income is still lower than that charged in many other countries (including the UK), and is a significant reduction on the usual Portuguese income tax rates of 14.5% to 48%.
A 10% tax rate on pensions is still very low and remains very attractive for foreigners"
Tiago Caiado Guerreiro, a Lisbon-based lawyer who specialises in tax legislation, considers this to be a smart move to silence critics from all sides. "A 10% tax rate on pensions is still very low and remains very attractive for foreigners", he said.
The proposed changes come amid concern in Brussels over discriminatory tax regimes and visa schemes that offer EU residency and other benefits in return for property purchases or other investments.
As retired Portuguese nationals and residents outside the NHR regime cannot access similar tax breaks, there has also been pressure for change from within Portugal itself.
In the last few years, the Portuguese government has already bowed to campaigns from Finland and Sweden to allow taxation of retiree nationals with NHR status. At the time, Portugal's finance minister, Mário Centeno, pledged to standardise taxation of foreign pensions to maintain "a good fiscal relationship" with their EU neighbours.
About 28,000 people, including some 9,000 pensioners, have moved to Portugal under the NHR scheme.
Portugal is ranked the best country in the world for expatriates' quality of life by InterNations ‘Expat Destinations 2019'.