Because of the various articles in the press about the favourable taxes on your pension in Portugal, we recently received many questions. Therefore, this article will explain how your Belgian pension is taxed in Portugal.
Update October 2023. The favourable regime will be abolished. Anyone moving to Portugal after 31 December 2023 will no longer be able to benefit from the NHR regime. Those who move before 31 December 2023 and meet the conditions can still apply for the favourable regime until 31 March 2024.
A favourable regime for new residents in Portugal
Since September 2009, new national residents in Portugal can enjoy a whole range of personal income tax benefits, including income from employment, dividends and pensions. For instance, there is a full tax exemption on income from non-Portuguese pensions for the first 10 years from the time you become a national resident of Portugal.
Update February 2020: the Portuguese socialist party PS submitted a proposal to increase the tax on non-Portuguese pensions to 10%. This was proposal has since been approved. However, a transitional measure applies. New residents can still enjoy the full exemption until 1 March 2020. If you already became a resident in 2019, you have time until 31 March 2020. If you became a resident between New Year and 29 February, you can still register under the old regime until 31 March 2021.
What are the conditions?
To take advantage of this tax regime, you must:
-being a tax resident under Portuguese law;
-and not to have been a tax resident in Portugal for five years prior to your application.
For example, you are a tax resident under Portuguese law if you live in Portugal for more than 183 days a year. Or you have a residence in Portugal before 31 December of the year you wish to become a resident. This residence may be a owned or rented property. So there is no investment condition.
A pension accrued outside Portugal qualifies for the favourable regime. So with a Belgian pension, you can in principle enjoy the exemption.
You must meet the residency requirements every year to keep the exemption. For example, if you fail to meet the residency requirements during your fourth year in Portugal, you will lose the exemption for this fourth year. However, you can regain eligibility for the favourable regime in the fifth year, but the fourth year is permanently lost. So in this situation, you only enjoy the exemption for 9 years.
How do I apply for the favourable regime?
First of all, you should register as a resident with the local tax office or the Loja do Cidadão (marital status). Afterwards, you can submit your application online at the Direcção de Serviços de Registo de Contribuintes (Portal das Finanças).
For this, you have time until no later than 31 March of the year following when you became a resident in Portugal. For example, if you become a resident in Portugal on 1 September 2019, you have time until 31 March 2020 to submit your application.
What about Belgian taxes on your pension?
The double taxation treaty between Belgium and Portugal determines which country may tax which income. A distinction is made between pensions accrued in the private sector and pensions accrued in a government position.
According to the double taxation treaty, only Belgium has taxation rights on pensions from a Belgian government job. This means that if you worked as a civil servant for the Belgian state, your pension will only be taxed under Belgian law. Emigrating to Portugal will then have no impact on the taxability of your pension.
However, if you accrued a pension in the private sector, only the country of your tax residence has the taxation rights. This means that if you are resident in Portugal under the double taxation convention, Belgium may not tax your pension. Your pension will then only be taxed according to Portuguese rules. If you then qualify for the 10-year exemption, you will not pay taxes on your pension anywhere.
When is my tax residence located in Portugal?
The question then becomes when you are a tax resident under the criteria of the double tax treaty.
The double taxation treaty provides that if you have a permanent residence features, you are considered a Portuguese resident. A permanent residence is a owned or rented property.
If you also have a permanent residence in Belgium - for example, a flat that you do not rent out - your tax residence is in the country where the centre of your life interests is located. This is the country with which your personal and economic relations are closest.
For example, it looks at your personal and economic relationships. Where do you interact with your family and friends? Where do you manage your assets?
In case the centre of your life interests is not clear, we look at the number of days per year you spend in either country. The country in which you spend the most number of days per year will be your tax residence. If that rule too does not provide a solution, one takes the country of your nationality as the criterion.
Important: It is recommended that you inform the Pension Service of your move two months before you leave. On the website of the federal pension service find more information.
How do I place my tax residence in Portugal?
In order to establish your tax residence in Portugal, you will have to cut ties with Belgium as much as possible. Specifically, you will therefore live permanently in Portugal and 'really' live there. If you register in Portugal and actually still regularly reside in Belgium, you risk domicile fraud. You will then be considered a Belgian tax resident by the Belgian tax authorities. As a result, you will receive an assessment on all your income.
Thus, there are a number of legal presumptions that determine that you are still a Belgian resident for tax purposes. As you were registered in the Belgian population register during your stay in Portugal, there is a presumption that you are resident in Belgium. If you return to Belgium within two years, the tax authorities will presume that you never intended to leave Belgium. These presumptions are rebuttable.
Does your property in Belgium remain your family home? If so, there is an irrefutable presumption that you are a Belgian national resident. Even if your partner remains in Belgium, the tax authorities will assume that you still live in Belgium for tax purposes.
To enjoy the tax exemption on your pension in Portugal, you must first become a tax resident in Portugal under Portuguese rules. This means you must live in Portugal for more than 183 days a year, either in your property or in a rented house. You also need to have accumulated a private pension. Finally, according to the criteria of the double taxation treaty between Belgium and Portugal, you must also be tax resident in Portugal. In concrete terms, this means that you will reside permanently in Portugal, with no intention of returning to Belgium.