Portugal, once a hotspot for retirees seeking favorable tax conditions and an improved quality of life, will no longer offer tax incentives for pensions starting in 2024. The surge in expatriates, particularly retirees, has driven property prices to soaring levels, causing concerns even among locals. In response to this, Prime Minister António Costa has deemed it a ‘mandatory choice’ to end tax benefits for foreign retirees.
The change is expected to lead to a decline in the number of retirees choosing Portugal as their new home, prompting a search for alternative destinations. The question now is, where can retirees find tax advantages to sustain a dignified lifestyle with their pensions alone?
Evolution of Tax Incentives in Portugal for Pensions
Until 2020, retirees enjoyed complete tax exemption in Portugal. This led to a rapid influx of Italian retirees, convinced that they had found an idyllic paradise for their retirement years. The number of Italian retirees in Portugal soared to 3,500 in 2021, a significant increase from the less than 1,000 recorded in 2017. However, the Portuguese government reevaluated its tax policies, introducing a 10% tax rate on pensions after 10 years of habitual residence. Further, professionals and digital nomads benefited from fixed taxes of 20%.
Despite the popularity, the Portuguese government has decided to change its course, ending tax incentives for foreign retirees from January 2024. Those already benefiting from the current regime will continue to do so, but the landscape will change drastically for newcomers. However, tax breaks will be retained for those with pensions below €7,112 per year.
Understanding Tax Residency
Following the Portugal news, retirees who had considered the country must now reconsider their options. The key lies in finding new “tax havens” that offer reduced tax burdens on pensions. Understanding tax residency is crucial in making informed decisions and ensuring compliance with legal requirements.
Moving abroad and establishing correct fiscal residency is the first step in enjoying benefits without running afoul of the law. The aim is to have pension income taxed exclusively in the chosen country with the lowest tax rates. Italian tax laws, specifically Article 3 of Legislative Decree No. 917/86 (TUIR), outline the taxation rules for residents and non-residents in Italy. To be considered fiscally resident abroad, certain conditions must be met, including not being registered in Italy for more than half of the year, not having a domicile in Italy for more than half of the year, and not having habitual residence in Italy for more than half of the year.
Countries with Lower Tax Burdens for Retirees
With these considerations in mind, retirees may explore various countries for reduced tax burdens. Greece, for example, imposes a 7% tax on foreign pension income for 15 years. Croatia has a tiered tax rate of 12% for pensions up to €2,300 and 18% for amounts exceeding that threshold. Tunisia offers a favorable tax regime, with a 20% tax on 7% of pension income. Malta, Cyprus, the Canary Islands, Romania, and Eastern European countries like Bulgaria, Slovakia, and Albania also present attractive options with varying tax incentives.
Choose AB Advisor to assist you through your journey
In the quest for a new tax-friendly haven after the changes in Portugal, selecting the right guidance becomes paramount. AB Advisor specializes in two crucial aspects that can significantly impact your retirement: reducing your retirement taxes and providing professional assistance in setting up everything you need to become a fiscal resident abroad—all within a swift 30-day timeframe.
With a focus on minimizing your tax burdens, AB Advisor ensures that you make informed decisions aligned with your financial goals. Our professionals work efficiently to streamline the process of establishing your fiscal residency abroad, allowing you to enjoy the benefits of reduced taxes on your pension.
Time is crucial, choose AB Advisor as your partner in this significant chapter of your life, let us guide you towards a future with reduced retirement taxes and a well-structured fiscal presence abroad—all accomplished within 30 days.