Portugal: the tax haven for foreign pensioners

There are more than the pastries, the traditional food or the well-known “ginjinha” of Lisbon that seduces foreign citizens. For sure the sun, the beach and the tranquility that this country provides are strong reasons to make a step further, but we also have to agree that there is nothing more “sexy” than tax advantages, right?

In fact, the tax regime assigned to those who have the status of non-permanent resident is very attractive and is one of the reasons why foreign citizens are seeking Portugal to retire.

What is exactly the non-permanent resident status?

The regime of non-permanent residents was approved in 2009 by the Portuguese government with the objective of attracting qualified non-resident professionals that are developing high added value or important intellectual property, industrial knowledge or know-how, as well as beneficiaries of pensions obtained abroad.

This regime quickly became a gimmick for foreigners seeking a safe and seafront location that is ready to welcome them aboard to live their retirement at the fullest. In fact, since 2009, an increasing number of foreign pensioners choose Portugal to live in the grip of this regime of exception.

But what is this regime so special?

Well no one withstands a good set of tax advantages, right?

A tax exemption on pensions is granted by the Portuguese government during 10 years to foreign pensioners and that makes the number of non-permanent residents increase from year to year.

But in the end, we have to face that in order to get access to this interesting status, you must comply with certain rules. You can apply for registration as a non-permanent resident who meets the following conditions:

  • Become legally resident in Portugal,

  • Live in the country at least 183 days per year,

  • Have not had fiscal residence in the country in the last 5 years.

Want to know more about this non-permanent resident status? Click here (available in Portuguese only).

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Non-permanent resident status and its tax advantages

According to this statute, the income that comes from other country (except offshore) is exempt from tax when it is effectively taxed in the country of origin.

In addition to the advantages explained, we can also talk about:

1. Exemption from payment of taxes that are applied to income that was obtained outside Portugal. This is applied to non-permanent residents and may be extended for 10 years.

As if this advantage was not, in itself, attractive, it can be renewable. But what are the cases in which this exemption from taxation on income earned abroad applies:

  • Where income is taxed in the State of origin in accordance with the double taxation convention concluded by Portugal with that State.
  • When you buy / lease your dream house in Portugal, financing the purchase only with the monthly amount that you do not pay on retirement taxes in your country of origin.

2. The inexistence of a tax on fortune. (And on the succession of goods located outside Portugal).

3. Exemption from payment of interest and dividend taxes.

4. Exemption from payment of taxes in situations of inheritance and donations. In the case of donations, it should be emphasized that this is only possible once the transaction has no money value, is free, and in favor of the spouse, descendants or ascendants.

However, it is important to note that if you hold a property with a value of more than 1 million euros, you will still have to pay the annual stamp duty of 1%.

Less known advantages: The payment of the municipal property tax (IMI)

The number of foreign buyers in Portugal has increased from day to day but there are other tax advantages that are less known. We speak for example of the fact that Portuguese legislation encourages real estate investment for urban rehabilitation.

In practice what the Portuguese government encourages is the urban rehabilitation through the exemption of “IMI” that can be extended up to 5 years after the purchase of the property.

Have you already thought about buying this kind of property and get this tax exemption?

Now that you know your tax advantages, let's see what the average costs are when you live in Portugal

Living is Portugal is considered to be cheap. However, your costs will always vary if you live your life like a queen or a king.

For this exercise we considered medium values that are charged in the country and most of them can be lower than what is here presented.

House2 160 EUR/m2, Source: INE, May 20181 658 EUR/m2, Source: INE, May 20181 501 EUR/m2, Source: INE, May 2018
Building expenses50 EUR / month40 EUR / month40 EUR / month
Energy80 EUR /month80 EUR /month80 EUR /month
Water20 EUR /every 2 months20 EUR /every 2 months20 EUR /every 2 months
TV/Internet30 EUR / month30 EUR / month30 EUR / month
Transportation30 - 60 EUR /month30 - 50 EUR /month30 - 50 EUR /month
Health insurance40 EUR /month40 EUR /month40 EUR /month
Food200-300 EUR /month200-300 EUR/month200-300 EUR/month
Restaurant7 EUR / per person5 EUR / per person6 EUR / per person
McDonalds Menu6 EUR / per person6 EUR / per person6 EUR / per person
Beer1,10 EUR1,10 EUR1,10 EUR
Milk0.75 EUR0.75 EUR0.75 EUR
Cinema7 EUR /per person7 EUR / per person7 EUR / per person

Already convinced to move to Portugal? The food and wine are already on the table and ready to welcome you.