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Tax benefits for pensioners and high added value professionals taking up residence in Portugal

In 2009 a new tax code was introduced in Portugal that sets out a new income tax regime for non-usual residents within the scope of Personal Income Tax (IRS). This regime approved by Decree-Law no. 249/2009 offers a number of benefits and extremely favourable conditions to anyone wishing to settle in Portugal, and is also appropriate for emigrants wishing to return to Portugal. This measure is principally aimed at attracting foreign investments and investors.

1. Main advantages of this regime

This regime permits any pensioner taking up usual fiscal domicile in Portugal, and who has not had his or her fiscal domicile in Portugal in the last 5 years, to have a tax exemption on the taxation of his or her pension for a period of 10 years, with the possibility of an extension.

Therefore, anyone receiving a pension in a European Union country, or Switzerland, or in countries with which there is a convention to prevent dual taxation with Portugal, ceases to pay tax in the source country due to the fact they have taken up usual residence in Portugal and shall not be required to pay taxes on their pension in Portugal as this new regime exempts this income from taxation.

1.1 Who does this apply to?

Regime of non-usual resident is granted to taxpayers who become residents for tax reasons on Portuguese territory and who have not been in the last 5 years, i.e., non-resident taxpayers who wish to take up permanent or temporary residence in Portugal.

As to high added value activities of a scientific, artistic or technical nature, non-usual residents may benefit from tax relief. These may be consulted under the terms of Ordinance no. 12/2010 of 7 January.

There is a significant number of foreigner nationals, notably, French citizens, who have adopted Portugal as their residence and are delighted with this choice, the quality of life and the natural charm of Portugal. Furthermore, this regime may mean that the European middle class may save 1000€ a month. In terms of the richer classes, the savings may total several dozens of thousands of Euros a year.

It should be noted that retired Civil Servants and other civil servants in general are normally taxed by the country of origin, regardless of the country of residence.

1.2 Obtaining residence on Portuguese territory for tax

purposes in any year may be acquired in different ways:

A) Permanence on Portuguese territory for over 183 consecutive or alternate days;

B) In the event of permanence for less time, the housing situation on 31 December of that year in conditions that suggest maintenance and occupation as a usual residence, the purchase of a property possibly being a decisive factor to obtain such status:

C) Being on 31 December a member of the crew of ships or aircraft at the service of the persons with residence, head offices or management in Portugal;

d) Being a member of a household provided that on 31 December of the year to which the income refers, one member of the aforementioned household is considered a resident in Portugal for tax purposes.

2. What are the benefits?

The taxpayers in the aforementioned conditions shall acquire the right to be taxed as non-usual residents for a period of 10 consecutive years after which they shall be taxed in accordance with the overall rules of the IRS tax code. This regime consists of two sets of rules:

2.1 Regarding passive income of a foreign origin:

In accordance with current rules, the passive income obtained abroad by non-usual residents is exempt (with progressive increase) of IRS in Portugal, provided they can be taxed in the Country of origin.

2.2 Regarding active income resulting from self-employed and employed work and royalties:

Employed work income obtained abroad shall be exempt in Portugal but taxes shall be paid in the source country.

Self-employed work income and royalties shall be exempt (with progressive increase) from IRS under similar conditions to those of passive income of a foreign origin.

Lawyer with 20 years experience, partner of LSC since the year 2000 and who has always focused on the German market, notably in providing advisory services to German speaking companies and individuals residing in Germany. Her activity also includes arbitration, litigation, construction and energy, having provided advisory services in a number of reference projects, such as the widening of the Bridge 25 de Abril and the modernisation of Lisbon’s German School, as well as to multinational pharmaceutical companies in arbitration proceedings related to medicines. Currently we have a team prepared to advise whoever wishes to benefit from this tax regime and we are ready to clarify any doubts that you may have with regard to the matter.

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