Portugal introduced a favorable tax regime in 2009 to attract foreigners from the EU. The country was hit hard by the financial crisis and foreign consumers were more than welcome.
Retired EU citizens who moved to Portugal were not required to pay tax on their pension for 10 years. In 2020, the exemption was removed, but a reduced tax rate of 10 percent was replaced.
The idea behind that system was that although retirees pay no – or still little – tax on their pension, they usually spend generously and keep the Portuguese economy running extra.
But in the meantime, the downside of the tax-favorable scheme has become clear. According to Portuguese Prime Minister Antonio Costa, attracting retirees from outside Portugal is contributing to the increase in house prices, while his country is facing a real estate crisis.
Costa called the measure fiscally unfair. Sticking to it would “indirectly increase housing prices,” the prime minister said in an interview with TV channel CNN Portugal. The favorable tax regime would cease to exist from January 1, 2024. Costa emphasized that the exemptions already granted remain in force.
Double tax treaty
About 10,000 people have already taken advantage of the favorable tax regime, mainly French, British and Italians. About a thousand Belgians also moved to Portugal after their retirement. Belgium has a double tax treaty with Lisbon, which means that Belgian pensions taxed in Portugal are no longer taxed in Belgium.
The double tax treaty between Portugal and Belgium applies not only to the statutory pension, but also to group insurance (second pillar) and pension savings (third pillar). It is important that you are definitively deregistered from the Belgian national register and deregistered from the tax authorities before the payment is made. If this is not the case, you will be taxed as a tax resident of Belgium.
Golden visas
Earlier this year, the Portuguese government approved a plan to end the ‘golden visas’, a system to attract wealthy people from outside Europe. They receive a Portuguese passport if they make a capital transfer of at least 1.5 million euros, create ten workshops or invest at least 500,000 euros in real estate. This measure also created upward pressure on the housing market.
Between 2012 and 2021, the cost of housing in Portugal rose by 78 percent, compared to 35 percent across the EU. And even now, prices continue to rise. In the second quarter of 2023, the median rental price increased by 11 percent year-on-year, according to newly published official statistics. To denounce this, thousands of Portuguese marched through the streets of Lisbon and about twenty other cities on Saturday.