Several tax incentives have become available to foreign pensioners who make Portugal their second home.

Portugal has been going through a difficult period due to the European economic crisis, something that led the Portuguese government to implement a law that already existed since 2009 but had not yet come into effect. In January 2013, a total tax exemption became available to foreigners who decide to reside in Portugal for part of the year, on their income, pensions or retirements that come from their country of origin.

The idea behind this initiative is to attract foreign investment and make the country a viable destination for those who decide to make their new home here. What initially appeared as a way to prevent foreigners from being taxed in both countries, ended up creating the necessary conditions for total tax exemption for people who meet certain criteria.

Benefits of the Non-habitual resident regime
The Non-habitual resident regime is a privileged tax treatment for foreigners who decide to live in Portugal. Under this regime, individuals qualified as non-habitual residents are eligible for special rates applicable to profit sourced from Portugal and may benefit from tax exemptions on potential foreign-sourced income.

An individual is considered as non-habitual resident when they become a tax resident in Portugal and have not been taxed as such in the last five years before qualifying as Portuguese tax resident.

Individuals who meet the necessary requirements are eligible to register as non-habitual residents and have the right to be taxed as such, for a period of 10 consecutive years, which may be renewed.

Requirements for the Non Habitual Residents Regime
To become resident for tax purposes in Portugal, in accordance with the rules established in the IRS Code, in the year in which the non-habitual resident regime begins to apply;

The presentation of a declaration by the taxpayer stating that he was not considered resident in Portuguese territory for tax purposes in any of the five years prior to the year for which the non-habitual resident regime begins to apply.

Apply for registration as a non-habitual resident after registration as a resident in Portugal for tax purposes, or until 31 March of the following year;

The Tax Authorities acknowledge that the submission of additional documentation (such as a tax certificate of residence in another country in the previous five years) will only be requested if there are doubts in the elements provided by the expatriate.

Case of a French pensioner with an annual income of £24,000.

Situation 1, in France: Let's look at the situation of a French pensioner who is tax resident in France and receives a net monthly income of ¤2 000, that is an annual income of ¤24 000. In this situation, the pensioner will be taxed a marginal tax of 14% on the annual income, a value of 2 020,87 euros. 

Situation 2, in Portugal: If the same retiree proves to reside in Portugal for more than 183 days, and that he respects the conditions of the non habitual resident regime, he can benefit from special conditions. On the French side, the status of tax resident in Portugal is not to be questioned if there is a genuine move to Portugal. In this condition, the retiree's pension will be totally exempted both in France and in Portugal, i.e. a gain of 2,020.87 euros per year will not be taxed.