Finland decides to terminate its tax treaty with Portugal

Finland terminated its taxation agreement with Portugal as an effort to stop tax exemption for Finnish pensioners living in Portugal has not made progress. The termination will take effect from the start of 2019.

The President approved the bill regarding the termination on Wednesday and will issue the termination notice on Thursday, said a government press release issued on Wednesday.

The treaty is not consistent with Finland’s current tax treaty policy as it, for example, restricts Finland’s right to tax private pensions received in Portugal from Finland.

Under the taxation agreement made in 1970, Portugal has the right to tax them or grant them tax exemption. The exemption in Portugal requires an application by the new resident. Finland had the right to tax pensions paid to government employee living in Portugal.

In 2016, Finland negotiated a new taxation agreement with Portugal, which would give Finland the right to tax all pensions paid from Finland to Finns living in Portugal. The new agreement would have affected some 200 to 300 Finnish retirees in Portugal, and with it Finland would have obtained tax revenue amounting to several millions annually.

In 2015, Finnish media revealed that several Finnish industrial executives had moved to Portugal for retirement. Their annual pensions range from 400,000 to 700,000 euros, which they are able to receive tax free.