Treaty between Finland and Portugal terminated by Finland. Belgians still welcome!
The Finnish government decided on 13 June 2018 to terminate the double taxation convention between Portugal and Finland of 1970 (the ‘DTC’). As a result, the DTC will no longer be effective from 1 January 2019. A new convention was signed in November 2016, but has not yet been ratified by the Portuguese parliament.
Reason for the termination is the DTC’s provisions on the taxation of pensions in particular, which were no longer consistent with Finland’s tax treaty policy. Indeed, under the DTC, the residence state had exclusive taxing rights for pensions. And as Portugal’s internal law offered a full exemption for foreign pensions under the ‘non habitual residents’-regime, this resulted in a double non-taxation for Finnish nationals migrating to Portugal at retirement age.
The termination has relevance for Belgian taxpayers as it can be construed as another confirmation that Portuguese residents under the ‘non habitual residents’-regime retain full treaty benefits, also under the Belgium-Portugal convention of 1969. This convention contains similar provisions as the DTC, prohibiting Belgium to tax pensions of former Belgian employees now residing in Portugal. Unlike Finland, however, Belgium has not shown any intention to terminate the convention with Portugal. This is because Belgium negotiated alterations to the current convention, i.a. to allow Belgium to tax pensions of retired independent workers, without affecting pensions of retired employees.
As a result, Portugal remains a desirable destination for Belgian residents looking to retire under the sun. Indeed, a full exemption of employee pensions (including one-off payments) is only one of many advantages of Portugal, such as a lack of gift- and inheritance tax, no wealth tax, relatively low cost of living, etc.