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Finland, Portugal Agree On Pension Taxation

by Ulrika Lomas,, Brussels

28 April 2016

The Portuguese government has finally agreed to sign an amended tax treaty with Finland that will allow the latter country to tax the pension income of retired Finns living in Portugal, concluding many years of negotiations on the matter.

Under a law introduced in 2009, Portugal 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, under a change to the tax treaty which is expected to be signed soon, it is expected that Finns residing in Portugal will in future be required to pay Finnish income tax on their pensions. Full details of the updated agreement are due to be released at the official signing, which, according to Finnish Finance Minister Alexander Stubb, will take place "as soon as possible."

Commenting on the development, Stubb said that the Finnish Government has been pursuing this issue for several years and at one stage it had been prepared to cancel the existing treaty.

"The work on reforming the tax agreement with Portugal was a long process," he observed. "Negotiations have been going on for many years, and last August I took the matter for the first time to the ministerial level. This spring, we were even prepared for the termination of the present agreement. I am very satisfied that this work has yielded a successful outcome and that a new agreement will arise."

"The agreement is in many respects out-dated," Stubb continued. "It no longer corresponds to the current OECD model tax agreement, nor to the tax agreement policy followed by Finland. The reform of the article on the taxation of pensions is particularly long overdue."

TAGS: tax | pensions | double tax agreement (DTA) | Portugal | law | agreements | Finland | Europe | Tax

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