The waiting game is over. After Finland, Sweden wants to end a tax treaty signed with Portugal in 2002 and tax Swedish pensioners who have moved to Portugal in recent years and have benefited here and there from tax exemptions.
The decision was announced on Monday by the Swedish government, headed by Social Democrat Stefan Lofven, who will propose the end of this convention to his country’s parliament, as Portugal has not yet ratified the new rules agreed between the two states in May 2019.
If the proposal is adopted from January 1, 2022, Swedish pensioners who are beneficiaries of the Portuguese Non-Habitual Resident System (RNH) will be taxed on IRS in Sweden and will no longer benefit from the benefits of this program out there as a ‘Tax Eldorado’ “.
Stockholm has long been critical of the particular IRS regime, as the reforms paid in Sweden to those who moved to Portuguese territory are not taxed in Portugal and at the same time the Kingdom of Sweden itself is prevented from taxing them on its territory, z because of the combination of the rules of the RNH program with the rules of the Tax Convention that previously existed.
Sweden managed to convince Portugal to sign an amendment to the 2002 Convention (in force since late 2003) in May 2019 to tax Swedish pensioners, and it wasn’t long before it ratified the text. Conversely, with Lisbon taking time to ratify in the Assembly of the Republic, the Swedish government has decided to act unilaterally, faced with Portugal’s passivity, in order to pursue what was bilaterally agreed more than a year and a half ago.
With the end of the previous tax treaty, Sweden will be able to tax IRS retirees who will continue to receive pensions that are paid under the national system and that are IRS exempt in both countries.
Sweden is doing the same thing as Finland in 2018, precisely because Portugal also left a convention in the drawer and Helsinki refused this gesture and broke the original agreement, which was almost half a century old.
After signing the amendment to the original agreement with Sweden, in 2020 the Portuguese government changed the rules of the pension system to tax their pensions received in another country at a tax rate of 10%. Even so, the application of this single tax rate is viewed by Sweden as an inadequate move, giving Swedish emigrants an advantage over those who remain in Sweden.
The problem that has arisen in recent years is the combination of the original rules of the 2002 Convention with the rules that Portugal later created with the regime of non-habitual residents.
The convention should avoid double taxation cases (and, conversely, prevent taxpayers from staying on neutral ground where they do not pay on either side).
At that point, the two countries agreed that some pensions would be taxed at source (that is, in the country where they are paid) and others would only be taxed in the state of residence of the person. This enabled a Swedish pensioner living in Portugal to be taxed on the IRS here.
When Portugal introduced the new tax system in 2009, that framework changed as the country began not to apply IRS to retirees living on Portuguese territory and receiving pensions paid in their country of origin. Since the tax treaty also prevented Sweden from taxing pensions at source, these pensioners were excluded from taxation, the IRS was zero. It is this difference that Sweden denies for reasons of fair taxation between nationals.
Portugal is not the only destination in Sweden that also wants to tax pensioners moving to Greece, where foreign pensioners benefit from a minimum rate of 10%.
After the decision known on Monday, the PUBLIC asked the Portuguese government for a reaction and waited for an answer from the Ministry of Foreign Affairs.