Portugal’s New Tax Exemption Scheme Lures Expats

For Europeans looking for a slice of the good life, Spain has long been the most popular destination. At the time of the last census in Spain, almost 12% of the country’s population was born overseas, up from less than 1% only a few decades earlier.

These days Spain is home to over 700,000 Romanians and Moroccans, not to mention numerous Brits and, somewhat surprisingly, Ecuadorians. In total, Spain tops out at over 5 million residents that were born in other countries. This is in contrast to Portugal, which boasts less than a million migrant citizens; under 5% of the total population.

However now it seems this may be set to change, with Portugal being an ever more attractive destination for wealthy expats thanks to a new tax exemption system which compares very favourably with that offered by Spain. If it catches on, there is every chance that Portugal could wrestle the crown from Spain as Europe’s most tempting expat destination.

Part of the problem experienced by expats in Europe is the concept of “double taxation”. For example, a Brit who has retired to Spain, will find their pension is taxed firstly in the UK and then secondly in Spain. Not surprisingly this double tax grates on the expat community and can have a significant impact on the disposable income of expats.

Many other expats have successfully managed to retire early, living off the proceeds of property or share portfolios in their home country. However these expats too are finding themselves taxed twice as this income originates from outside Spain.

True, Spain does have a temporary tax exemption for new expats moving to the country, whereby foreign sources of income aren’t taxed for the first five years. However Portugal’s offer is far more generous and effectively doubles this tax-free period to ten years. Even more excitingly, the tax payable at the end of this exemption period is only payable for a further ten years in total.

It should therefore come as no surprise that with a similarly enviable climate, Portugal is tempting ever more expats who have retired successfully thanks to some form of overseas revenue. The tax implications in Portugal are less than half that expected in Spain, and for a very similar experience overall.

However it’s not just retirees who are set to benefit from Portugal’s generous tax ruling. A special tax rate for highly qualified expatriate workers is also more generous than that on offer in Spain. Professionals such as doctors and engineers pay a maximum tax rate of 20% in Portugal; which contrasts favourably with Spain’s current 24% tax rate.