The End of the Tax Haven for French Citizens in Portugal

Originally introduced in 2009 for foreigners residing in Portugal for at least half the year, the tax exemption—which was in effect until 2020 and was then reduced to a 10% tax rate for newcomers—is said to have attracted more than 10,000 people, mainly retirees from France, the United Kingdom, and Italy.

They have settled largely around Lisbon and in the seaside resorts of the Algarve, in the south of the country, which have contributed significantly to the recovery of the real estate market.

But times have changed. The 2008 crisis is a thing of the past. Now it is the housing shortage and soaring prices that threaten Portugal. Between 2012 and 2021, housing costs rose by 78% in Portugal, compared with a 35% increase across the European Union as a whole, according to a study by the Portuguese Francisco Manuel dos Santos Foundation.
 

In the second quarter of 2023, the median rent rose another 11% year-over-year, according to official data released last week. The influx of foreign investors has created an imbalance in the market by widening the gap between wages and housing prices, while about a quarter of the Portuguese workforce earns the minimum monthly wage of 886 euros, said Agustin Cocola-Gant, a researcher at the Institute of Geography and Spatial Planning at the University of Lisbon.

To rectify the situation, Prime Minister Antonio Costa announced the end of the arrangement that allowed foreign residents to pay very little tax on income earned in their countries of origin. So the Portuguese “Eldorado” for French retirees is now a thing of the past.
 

Or spend your retirement out of the tax authorities’ reach?
 

For French retirees looking for a new tax haven, head to Tunisia and Morocco, with their favorable tax systems and unbeatable real estate prices. 
 

As in Morocco, retirees residing in Tunisia receive a 40% deduction on the gross amount of their pension, plus an 80% reduction on the tax due, provided they transfer the funds to a Tunisian account or declare them upon import. As with Morocco, there is no “shares” system, which benefits single individuals. Nevertheless, the tax bill may end up being higher than in France for those with low incomes, as the tax brackets rise more steeply. As for housing, expect to pay around 1,000 euros per square meter in seaside resorts.
 

Just a stone's throw away, the very hospitable and French-speaking country of Senegal offers a lower cost of living compared to Europe: for example, it is possible to hire housekeeping staff for 90 euros a month. 
 

From a tax perspective, you benefit from an 80% reduction in the taxable base for foreign retirement pensions. Retirees are therefore taxed on only 20% of their pensions. Please note, however, that to qualify for this benefit, you must transfer the funds to a bank headquartered in Senegal.
Finally, for the more adventurous, Malaysia offers a total tax exemption on private retirement pensions through the “Malaysia My Second Home” or “MM2H” program, valid for 10 years and renewable. Public sector pensions remain taxable in France.