Nova workboard

a blog from young economists at Nova SBE

Almost Tax Free

Since January 2013, foreign retired people do not need to pay taxes on pensions from their home country, if they live in Portugal for at least 183 days per year. The agreement can vary depending on the country, some would have to pay taxes in their country, but most of the foreign pensioners benefit from double exemption for 10 years. This cut on taxes for foreigners was based on the belief that it will make some industries, like tourism and real estate, better off. Is this political decision fair for the Portuguese people who constantly see their taxes increasing?

Before this policy, some retired people, the majority from other European countries, were already coming to enjoy their retirement in a country with a nice weather and no serious problems of safety. Yet, in the situation of exemption of tax on pensions it was expected that the number of foreigners living in Portugal would increase. This may happen because their disposable income increases. For instance, in Scandinavian countries they would have pay very high taxes, so by moving to Portugal, they would actually save a great amount by not paying them.

There are economic advantages by attracting those foreigners. They are assumed to have high income and are expected to be willing to spend a good amount of it in local commerce and services, like restaurants, for example. The real estate sector is actually increasing its sales, since the number of interested foreigners is rising. Even if they don’t pay taxes on pensions, they would pay other taxes, like VAT or taxes on property.

However, there is a sense of unfairness among Portuguese taxpayers concerning this topic and how costly it would be for the National Health Service if the retired foreigners use public health services, since they don’t pay taxes to cover it.  Portugal is now considered a tax haven for foreign pensioners but it is far away from that to the Portuguese ones.

Therefore, it will only be fair for the Portuguese people if this policy attract enough potential consumers. The money that those pensioners don’t spend on taxes on pensions can enter the Portuguese economy through consumption. This way welfare increases. Otherwise, tax revenues would not be as high as it would be without this policy.

 

Beatriz Luís

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Author: studentnovasbe

Master student in Nova Sbe

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