When the financial crisis hammered Portugal's economy, hundreds of thousands of its people left,taking advantage of the European Union's rules on free movement to find work in countries that were hit less hard.Now Portugal is welcoming older people going in the other direction, not for jobs but for a warm, cheap retirement.
Well-off baby-boomers are flocking to Lisbon, Sintra and the Algarve, drawn in part by Portugal's tax exemptions on foreign income.Under its non-habitual-residency scheme, pensions from abroad can be drawn tax-free for a decade.Bilateral double-taxation agreements are intended to ensure that income does not end up being taxed twice.
But some countries, seeking to boost domestic demand by luring wealthy immigrants,have arranged matters so that they can avoid paying any tax on income earned outside their country of residence, such as pensions, capital gains and rent.To qualify, foreign pensioners who move to Portugal need only stick around for six months a year and register as tax-resident.
Portugal is not the only EU country where foreign pensioners can find a sweet deal.France taxes some pensions taken as a lump sum at 7.5%; with judicious use of private health insurance,pensioners can also avoid paying the social charges of 9.1% normally levied on pensions.Malta exempts pensions of up to 13,200 euros ($15,200) from tax altogether, with a flat rate of 15% above that.
State pensions are often excluded from generous exemptions but Cyprus taxes all pensions at 5%,making it particularly attractive for retired civil servants. It also allows people to withdraw their entire pension pots as a lump sum tax-free.Governments elsewhere are cross about being undercut. Portugal's most vocal critics are the Nordics.