Tax-Free Retirement In The Heart Of Europe

Anyone who is nearing or at retirement age wants to protect his or her hard-earned pension. Many want to do this in a safe country with a warm climate, friendly people and a great lifestyle.

Written exclusively for Expat Network by Luis da Silva of Algarve Senior Living


Now one country has made it easy to do all the above. The third safest country in the world. The one with the seventh friendliest people. And the twelfth-best healthcare. The lowest cost of living in Western Europe. And the lowest property purchase taxes of any southern European country.

Portugal, voted the world’s best golfing destination and Europe’s best beach destination by the World Travel Awards, has approved legislation aimed at attracting foreign residents and investors to the country. The Non-Habitual Resident (NHR) law allows qualifying individuals who have not been resident in Portugal during the previous five (5) years, to become resident in the country and receive a private pension or non-Portuguese income, tax-free for a period of ten (10) years.

The formal requirement for residency is spending at least 183 days in the country. A long-term rental contract is just as acceptable as proof of residence as buying a property.

Under the NHR law, a flat rate of 20% (much less than half the highest taxpayer rate of tax) will be levied on any income originating from Portuguese sources and from a list of eligible professions.

According to most double tax treaties (conventions) taxation of pension income occurs in the country where the person is resident. It thus follows that, under the NHR law, most foreign income will be tax-free. Occupational pensions, as long as deemed not to be sourced in Portugal, are exempt under the NHR law. An important exception to the law involves pensions paid to anyone previously employed by their government. People who fall into this category can nonetheless offset any tax due using the double taxation treatment between Portugal and the country of origin.

The process for eligible applicants (i.e. those who meet the prerequisites explained above) is simple: it involves registration with the local Finanças (or tax office) in order to obtain a tax number, indication of a place of residence (either proof of ownership or of a long-term rental contract) and an online request. Applications are taking a few weeks to approve.

The NHR law provides an excellent solution for pensioners as well as liberal professionals such as consultants, company directors, doctors, dentists, architects and engineers, technology professionals or even cryptocurrency traders.

The possibility of a tax-free pension, the absence of inheritance or gift tax, limited wealth taxes (there is currently a real estate tax with exemption levels set at €600,000 per person or €1.2 million per couple), access to the state health system for residents and EU citizens, and the availability of quality and cost-effective private health, have earned Portugal’s Algarve region the accolade of the “Best Place in the World to Retire” four years in a row (2014-2018) from the Overseas Retirement Index.

Because of some pressure from other EU countries, it is mooted that the Portuguese government will implement a 5-10% tax on the currently tax-free NHR regime. Even if this is the case, the NHR status will remain Europe’s most tax-advantageous retirement and specialised expatriate worker regime. The NHR is an excellent tool for efficient tax planning. With Brexit looming and possible changes to the legislation, anyone looking to obtain maximum benefit from their pension or professional fee income, should seriously investigate the regime as soon as possible.

As the most important step in the process is to ensure that any applicant has somewhere to live, anyone interested should ensure they are in touch with a suitably experienced company with access to both long-term rentals and properties for sale. A rent-before-you-decide option is often the best way to reach a decision. If you do not know the country, beginning with a Discovery Tour of candidate areas and properties, is a practical way to check out options. During this trip, potential residents can meet with NHR experts to answer any questions and decide what benefits might apply to their specific circumstances.