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Portuguese tax regime for foreign pensioners is one of the ‘most harmful’ in the EU

PORTUGUESE TAX REGIME FOR FOREIGN PENSIONERS IS ONE OF THE MOST HARMFUL IN THE EUThe Portuguese regime for foreign pensioners, with a 10% Personal Income Tax (IRS) rate, is one of the most harmful to tax competition in the European Union (EU), reveals a European study.

The conclusion comes from the European Union (EU) Tax Observatory, an independent body on community taxation which, in a report released this Monday (22nd), indicates that “the most striking trend in European tax competition is the increase in the number of regimes of personal income tax aimed at foreign natural persons”, which have risen from five in 1995 to 28 today.

“A provisional classification suggests that the most harmful are the Italian and Greek individual schemes with high net worth, the high-income scheme in Cyprus and the pension schemes in Cyprus, Greece and Portugal” , says the EU Tax Observatory.

Concretely, according to the structure, “these schemes have long durations, great tax advantages and only target very high-income individuals or do not have an impact on real economic activity in the Member State”.

Altogether, these preferential regimes now apply to more than 200,000 beneficiaries in the EU, estimates the independent body, which speaks of total fiscal costs for the European Union of 4.5 billion euros a year.

“This sum is equivalent to the Erasmus program budget”, compares the EU Fiscal Observatory in the report.

In the case of Portugal, the non-habitual residents regime (NHR) was created in 2009 and applies to workers with high added value, but also to pensioners who receive pensions from abroad, including Portuguese who have worked abroad and who return to Portugal for reform.

Reformulated in 2012 and amended in 2020, the NHR regime provides for the application of a 10% personal income tax rate on foreign pension income, in accordance with the most recent amendment.

The NHR also gives workers with professions considered to have high added value, the possibility of benefiting from a special IRS rate of 20%.

Each non-habitual resident can benefit from this tax regime for a maximum period of 10 years.

In the report released today, the EU Tax Observatory notes that “tax competition is increasingly taking the form of preferential or strictly targeted tax regimes, in addition to general rate cuts” at the community level.

To reverse these trends, the framework suggests reforming the European code of conduct “to make it a binding instrument, and extending its mandate to the taxation of personal income, as well as non-preferential corporate taxation regimes that lead to higher levels generally low taxation of multinationals”.

Furthermore, “in the absence of a coordinated approach – which is always the ideal solution – Member States could consider unilaterally taxing their expatriates, which, under certain conditions, can mitigate the effects of preferential tax regimes. on the income of natural persons”.