In 2009, Portugal voted to introduce tax benefits for “non-habitual residents”.
Non-habitual residents” are individuals who establish their tax residence in Portugal on a year N (183+ days spent in Portugal during year N or Portuguese residence on 31/12/N intended to be used as a main residence) and who have not been tax resident in Portugal for the previous 5 years.
These “non-habitual residents” benefited from considerable tax advantages over a period of 10 years, such as taxation of their Portuguese sourced income at a flat rate of 20% and a general exemption of their foreign income.
In 10 years, the country has attracted a large number of French (and other!) pensioners seeking sunshine, a lower cost of living and an attractive tax system.
Taking note of the growing concern of its European neighbours, Portugal has gradually succumbed, reintroducing taxation of foreign pensions for some nationals (Finland, Sweden).
On 6 February 2020, the country finally harmonized the taxation scheme for its “non-habitual residents” retirees : from now on, foreign pensions will be taxed at a fixed rate of 10%.
However, the measure will only affect people applying for “non-habitual resident” status as of 31 March 2020.
With a tax rate that remains highly competitive in Europe and a sunshine rate of 300 days a year, it will take more than this to dethrone Portugal from its “pensioners tax haven” status.