Also with new pension tax Portugal is paradisiacal for Belgians at rest
Foreign pensioners who do not pay taxes on their pensions are in the Portuguese Government's sights. Although they are in fact only making use of an opportunity created by the country itself, they have been the subject of much criticism for some time now. Retired Portuguese people do have to pay taxes and thus live on a smaller income.
Some ten years ago, however, Portugal seemed to have a good idea of attracting pensioners from the other Member States of the European Union by granting them exemption from tax on their pensions. The reasoning was that foreign pensioners would let the money roll and thus support the Portuguese economy. The favourable measure would be valid for a period of ten years at a time.
Since then, many Belgians moved to Portugal after their careers. Belgium has a double tax treaty with the southern European country, as a result of which Belgian pensions that are taxed there are no longer taxed in our country. For retired Belgians, Portugal is therefore a kind of tax haven, as the country uses this tax exemption for retired EU citizens.
Retired Belgian civil servants do not benefit from the treaty between the two countries. The pensions of public sector employees are taxable in the State that grants them. A retired Belgian civil servant is therefore taxed in Belgium and cannot live tax-free in Portugal.
As a retired worker enjoying the tax-friendly Portuguese climate is easy. Through a Portuguese lawyer you must apply for the status of 'non- habitual resident' (NHR). After that, you will have to stay in Portugal for at least 183 days a year.
However, the Belgian tax authorities do keep an eye on the fact that you have actually moved to Portugal and do not just set up a construction to receive your pension in a fiscally friendly way. So you need to become a real Portuguese citizen. A direct debit is not enough. You must actually move and clearly show the intention not to return to Belgium. The question is whether a tax-free pension is sufficient to choose to live in Portugal.
Possibly abolished as of March
Moreover, the Portuguese Socialist Party (PS) wants to get rid of the tax-friendly scheme for retired foreigners. It has tabled a bill to introduce a tax on foreign pensions.
The favourable regime may be abolished as early as the beginning of March. From then on, a tax of 10 percent will be levied on foreign pensions. It only applies to new pensioners who apply for the NHR status after the new scheme has come into force. Those who already live in Portugal will continue to be exempt from a tax on their foreign pension," says Pierre Le Pahun, estate planner at Degroof Petercam Luxembourg. So there is no retroactive effect'.
However, even under the new regulations it is interesting to take your pension in Portugal. The 10 percent in question is still a lot lower than the Belgian pension tax, which quickly rises to 30 percent.
To become a fiscal resident of Portugal you do not have to buy a house right away, you might as well rent one. If you do have your own house, it is advantageous for donations and inheritances. Portugal does not levy gift or inheritance tax on real estate for transfers between spouses, unmarried partners (under certain conditions), and descendants in a straight line. On donations of real estate located in Portugal, you do pay a stamp duty of 0.8 percent,' says Hanne Martens, lawyer at Cazimir.
Inheritances and gifts of real estate not made in a straight line or between partners are subject to a tax of 10 percent. In the case of a donation, the stamp duty of 0.8 per cent is added and you pay 10.8 per cent. The Southern European country also has no wealth tax. There is, however, an annual tax of 0.8 per cent on rural property and from 0.3 to 0.45 per cent on other property,' says Wim Vermeulen, partner at Cazimir.
In 2017, an additional tax was added for homes with a fiscal value of more than 600,000 euros. If a house is worth more than 600,000 euros, an annual tax of 0.7 percent is levied on the value above that amount. For real estate with a value of more than 1 million euros, 0.7 percent must be paid on the bracket between 600,000 and 1 million euros and 1 percent on the amount above that.
A tax of 1.5 percent is charged on houses above 2 million euros.