Finnish Expats In Portugal Face Higher Taxes

Finland will have “more possibilities” to tax Finnish pensioners living in Portugal under a recently revised bilateral double taxation avoidance treaty, the Finnish Government has said.

The new agreement was signed on November 7 by Portuguese Finance minister Mario Centano and his Finnish counterpart Petteri Orpo, who declared himself “very pleased” with the new text.

The revised treaty will allow the Finnish tax authority to tax a wider range of pensions paid from Finland to Finns, many of whom have taken up residence in Portugal to take advantage of the generous tax incentives on offer to foreign retirees in the country.

As things stand, the tax agreement restricts Finland to taxing the pension income of Finnish expats in Portugal who were formerly employed in the public sector.

Portugal currently grants 10-year tax holidays to foreign pensioners who meet certain criteria, an incentive that has lured retired expats from all over Europe, including Finland.

However, this issue is a particularly sensitive one in Finland because a number of wealthy Finns have allegedly taken up residence in Portugal to substantially reduce their exposure to tax on their pensions.

The Finnish Government has been pursuing changes to the treaty for several years and at one stage it had been prepared to cancel it, according to former Finance Minister Alexander Stubb, who said earlier this year that the existing agreement, which dates from 1970, “is in many respects out-dated” and “no longer corresponds to the current OECD model tax agreement.”

However, the treaty still needs to be ratified by both countries before it can come into force.