Nearly 49,000 British expats in Portugal could be hit by changes to the country’s non-habitual residence (NHR) tax rule.
The Portuguese government has proposed to increase the tax exemption on all foreign income to 10% from zero.
The NHR tax rule, introduced in 2009, allows for a flat 20% personal income tax-rate for any earnings in Portugal; plus, a tax exemption on all foreign income, including pensions, for 10 years.
To qualify, you must spend 183 days or more a year in the country (owning or renting a property), and you cannot already be a resident.
The scheme has been very attractive to Brits, who have flocked to the southern Europe country; but will this change stem the tide?
Attractiveness
“A 10% tax charge is still very attractive compared to most other European countries and, for that matter, Portugal’s own tax regime,” Alan Beaney, investment director at RC Brown Investment Management, told International Adviser.
“This should not affect people’s decision on whether to move to Portugal or not.”
Jason Porter, director at specialist expat advisory firm Blevins Franks, concurs: “It is debatable whether this will actually restrict the number of British expatriates moving to Portugal.
“In many cases, an attractive tax regime conceals or glosses over why a particular jurisdiction might not be an attractive location for other reasons – that is not the case with Portugal.
“While 10% is obviously more than 0%, it is not 45%, the top rate of tax in the UK – the rate many UK nationals might pay if they chose to extract the majority of their funds from their pension scheme.”
Political pressure
Porter and Beaney both agree that Portugal has been under some pressure from the rest of the EU to limit the benefits of the NHR regime.
“This commenced last year, with changes designed to tax those scenarios where the pension fund is emptied within the 10-year period, to this year with the introduction of a 10% pension tax,” Porter said.
“It is the combination of NHR, the double tax treaty, and the UK’s 2015 pension freedoms which has led to this preferential position.”
Golden visas
The governing socialist party of Portugal has also proposed an amendment to the granting of “golden visas” to foreigners who invest at least €500,000 (£422,730, $550,121) in property.
At present, the scheme is open to those who wish to invest in the cities of Lisbon and Porto.
The proposals would restrict this to property based in inland municipalities, the Azores and Madeira.
