RETIREMENT: FOREIGN PENSIONERS EXEMPT FROM INCOME TAX IN PORTUGAL

Foreign pensioners will become exempt from paying income tax from January 2013, a measure initially introduced in 2009 but which the fiscal administration refused to apply after “raising doubts” about its clarity, Luis Leon from Deloitte told PDV.

Foreign retirees who reside part of the year in Portugal will become exempt from paying tax on their pensions (Photograph: Jorge Firmino/PDV)

Foreign pensioners who reside part of the year in Portugal will become exempt from paying income tax on their pensions and thus avoid double taxation, after ruling coalition parties PSD and CDS-PP clarified a law that has existed since 2009 but which the fiscal administration had refused to apply.

The law, which will be enacted in January 2013, had not been applied because the fiscal administration “raised doubts” concerning its clarity, according to Luis Leon, associate partner at Deloitte.

“The delay in enacting the law can only be explained by bad faith on behalf of the fiscal administration”, he said. “The law remains as it was but with the only difference that it has now been clarified.”

Social Democrat MP Paulo Batista Santos, who has been following the process of alterations to the Tax Code closely, said the law aims to attract foreigners to set their second residence in Portugal.

Attracting foreigners is very important for us because they usually have significant purchasing power and contribute to tourism-related activities”, he said. “Rather than penalising them, the new law will encourage those who want to set up their residence here.

Indeed, as reported by daily newspaper Público, the English, Irish, residents of Scandinavian countries and emigrants, continue to be those who most invest in second homes in the Algarve, with traditional tourism markets still closely watching out for opportunities in the areas of Praia da Rocha and Alvor – Portimão’s most touristic areas.

Deloitte’s Luis Leon added that the law was aimed at transforming Portugal into the “Florida of Europe”, where pensioners could spend their retirement years.

The law was clarified by both ruling parties, PSD and CDS-PP, while PS, PCP and BE abstained. But despite the law having finally been clarified and supported by a broad consensus, the fiscal administration has yet to settle an unknown number of cases of people demanding non-habitual resident status, which remain unresolved since 2009.

“We do not know the exact number of unresolved cases. That has to do with the tax administration”, says Batista Santos. “But our desire is that this law will help resolve these cases.”

“Gold” visas

A new legislation to extend long term visas to non-residents willing to invest in Portugal is further evidence of the country’s willingness to attract foreign investors to help meet its fiscal targets.

The new visa eligibility rules, created by Minister for Foreign Affairs Paulo Portas, include buying a Portuguese property worth at least €500,000, creating 30 or more jobs or transferring at least €1m in capital. The “gold” visas will have to be renewed annually and the person has to reside in Portugal at least 30 days a year.

The measures were announced by Paulo Portas at the Ministry for Foreign Affairs and in the presence of over 30 non-European ambassadors.

“This law comes at an appropriate time, amid the financial crisis that Portugal is dealing with”, PLMJ lawyer Rita Assis Ferreira told PDV.

However, foreign investment may not be enough to help Portugal meet the bailout targets demanded by the EU-ECB-IMF troika of international creditors. Portugal’s recession in 2013 is expected to be 1.8%, according to a recent forecast by the Organisation for Economic Co-operation and Development (OECD).