In recent years, many pensioners from Europe have moved to Portugal. One reason for this is the substantial tax relief granted to newly arrived citizens. The motivation for this is obvious. The government wants to create significant incentives for retirees to invest in the local real estate market and spend their money in Portugal.
If you buy a property in Portugal, you must register with the municipality of your Portuguese residence within a 3 months period. You already need a tax number for this registration. This is your old tax number from UK or Germany. That means when you register as a resident, you are still tax-deductible in your "old" country.
The basic condition for acquiring the special status is a tax residency in Portugal. The requirements are met if you are in Portugal for more than 183 days in a calendar year or have property on 31 December that suggests that you have your habitual residence there.
When you meet these requirements, you must report as a "resident" to the Portuguese tax authorities. However, the Portuguese legislator has linked the tax relief to the special status of "non-ordinary tax resident" (residente não habitual). After the registration as a resident taxpayer in Portugal, you can apply for the special status until 31st March of the following year.
Under the UK/Portugal tax treaty, UK State Pension and the majority of other pension income is taxable only in Portugal. As it comes from a foreign source, this makes it tax-free for non-habitual residents. Civil service pensions and other UK income and gains – which are taxable in the UK under the treaty – are also exempt from Portuguese taxation under NHR rules. This remains the case even if they are not actually taxed in Britain.
The special tax status is limited to 10 years. The status is acquired from the year in which the application is made. With the acquisition of the special tax status, the Portuguese State exempts your pension from the tax.
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