Retiring in Portugal: Is it really the dream?

Last week-end, I visited my family in France. We were having some coffee when one relative suddenly asked me: “Do you find it normal that people go to Portugal to retire and do not make taxes not in France nor in Portugal!” She goes on: “I saw on TV that Portugal put together a scheme to help its economy, but if the beneficiaries of the scheme do not pay taxes, how does it help the economy?”. 

Let alone the fact that I was surprised that this piece of news was significant in the countryside in Bretagne, far away from the main Portuguese communities established in France, I wondered: is it really scandalous? How many people really benefit from that? Did not they work their whole life and deserve a nice retirement? I also thought of the first people I met in the north, and I found it difficult to believe that they were returning to their home villages in order to escape taxes!

Credit: Fernando Ricardo

So legally, what happens?

If a intra-EU new comer arrives to Portugal and decide to spend more than 180 days per year in Portugal, she/he goes to the municipality and asks for a temporary residency of five years (after that, she/can become a permanent resident). This is what I did for myself, and it’s a very straightforward process.

If the same person was not a resident in Portugal the last five year, and lives more than 180 days per year in Portugal now, she/he can request the status of “non-habitual resident” which I discussed in a previous post. This gives the retiree 10 years of full tax exemption in her/his new country of residence! (except if the retiree worked in public work, she/he will have to pay taxes in France no matter what). After that period of ten years, the retirement benefits and other incomes will be taxed to a maximum of 56.5 % for those who earn more than 250,000 euros yearly. Now, I doubt that Portuguese retirees from French construction, factory or domestic sectors make this much money… 

The fiscal convention signed by France and Portugal provides that the retiree does not pay taxes on her/his benefits in France if her/his formal residence is Portugal. If she/he still has an address in France, I believe that taxes are due to France.

And even with this tax policy, the last report on beneficiaries of the non-habitual resident status shows that less than 10,000 retirees have benefited from the mechanism since it was established in 2009. Compared to the 16 millions retirees in France (INSEE, 2016), Portugal is far from being flooded by hordes of French retirees abusing the tax system!

As a matter of fact, none of those rights are transferred automatically. One has to voluntarily go and ask for the non-habitual resident status, and prove she/he has the right to obtain it. And same goes for retirement benefits. Papers must be filled and submitted. What some research shows, is that retirees not always know how and where to claim for their rights. And if she/he lives in Portugal and forget to submit a “certificate of existence” (sic) to the retirement fund in France, payments are suspended!

Another issue linked to this is that of medical care. As my relative suggested, “they even come back to France when they need to see a doctor”. In fact, after a lifelong career in France, workers get access to retirement benefits and to medical care. When I asked this question during fieldwork, interviewees told me that the condition to keep this access is having an address in France. But I actually read that, once in Portugal, the retiree registers in Portugal (and pay between 3.2 to 4.2% of social security contributions) so to get access to Portuguese medical care. But they can also go to France and get reimbursed. So far, it seems that some indeed do the back and forth to get access to the French medical system.

Here again, I wonder how much tax a retiree should pay if the tax 0 policy did not exist. In France, the average income of a retiree is 1,376 euros per month. For those who worked in the private sector as employee, the average drops to 1,220 euros (with 1,670 for men, 900 for women). And for those who had their own business (I met a person who used to be a butcher for instance) the average is 500 euros (660 for men, 400 for women).


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