“Kathleen, I’m enjoying reading about Portugal. Mexico is pleasant, but in Europe there seems to be much more to do on long weekends during retirement.
“Cost of living seems good in Portugal, but when I looked into the cost of purchasing housing with government taxes, sales taxes in general, taxes on income from being a resident alien, and such, it appears to me to take away some of the shine you put on Portugal.
“I wish you would speak about these aspects as they impact the idea of retiring in Europe, at least to me.
“Am I misunderstanding something?”
–Jack S., Mexico
As I write, I’m listening to a Portugal tax attorney detail all aspects of taxation in this country. Yes, taxes in Portugal can be high. The country taxes residents on worldwide income, imposing progressive tax bands that top out at 56.5%. You don’t get to the top rate, though, until around US$250,000 of taxable income. In other words, as a retiree, you aren’t likely to face anything like this level of taxation.
Furthermore, if you qualify for residency under Portugal’s Non-Habitual Residency program, you are exempt from tax altogether for your first 10 years of residency.
Generally speaking, if you’re an American with only pension and Social Security income, moving to Portugal or most any other country should be a tax-neutral event.
As a retiree, one tax that could affect you in this country is its property transfer tax, which can be up to 8%.
Another tax you’ll encounter regardless of your situation in the country is the local sales tax, or VAT. Most of Europe charges VAT of 20% or more; in Portugal the rate is 23%. Sales tax in most of South America, for comparison, is 15% or higher. U.S. sales tax is low compared with the rest of the world.
Continue Reading: How To Buy Rental Property In Lagos, Portugal