Let’s Talk About Portugal’s 10% Tax on Foreign Pensions?

Portugal’s annual State Budget Law for 2020 introduced a change to the ”non-habitual resident” (NHR) tax regime. The provision imposed a 10-percent tax on foreign-source pension income. This was expected in light of concerns raised by some European Union (EU) countries over discriminatory tax regimes resulting in zero-taxed income.

More information about Non-Habitual Tax Residency Status in Portugal here:

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DERREN JOSEPH:
Previously? Obviously? Well, most popularly, everyone who speaks well, the NHR talks about, Hey, big change recently, pensions used to be tax-free. Foreign pensions. You receive a foreign pension, all good tax-free to Portugal, but now it’s taxed at 10%. Can you talk us through, can you talk about that, please?

AUGUSTO PAULINO:
Sure. Basically, the change was introduced in the law in order to at least try to address the concern of other jurisdictions that were, I would say upset with Portugal because the patient income would be exempt either in the country of source or in Portugal. And the regime was adjusted and forced. Now that the pension income from a foreign source is subject to a flat rate of 10%, which is still a good tax rate. But anyway, it’s no longer exempt or fully exempt. Just, just also an additional comment that has to do with the fact that this, this, this changing the law was introduced in a way that does not, well, it’s not the application to those who are previously registered as a non-habitual residence in Portugal, meaning that those that were already in the 10 year period, still F full exemption for patient income. And basically, this has been enforced since 2024 new texts residents since March 2020. And, and of course, this could be, an additional tax leakage for pension income, namely for pension income deriving from private pensions, because those usually entered the double tax treaties would only be taxed in the jurisdictions where the taxpayer is resident, which in such case will be in Portugal and no, no taxation, of course, source, of course, we may have some specific situations in case of US nationals because there are always special rules. In this case, we may imagine that we have a specific base. We respect a specific question with respect to a patient from, patient income from the US.

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