Finland signs tax treaty with Portugal

Ministry of Finance 7.11.2016 19.59
Press release
Finland signs tax treaty with Portugal

Finance Ministers Petteri Orpo and Mario Centano signed a new tax treaty between Finland and Portugal. The new agreement will give Finland more possibilities to tax Finnish pensioners living in Portugal. For the new tax treaties to come into force Finland and Portugal must render them effective through their respective national parliamentary procedures.

Under the current treaty, pensions to residents of Portugal are only taxed in Finland in the case of former public-service employees. The revised clauses allow for Finnish taxation of other types of pensions, too. In these circumstances, the country that eliminates double taxation is, by way of exception, the source country of the pension income. This means that the tax paid in Portugal on a Finnish pension to a Portuguese resident is deducted from the Finnish tax on that income.

The new tax treaty has a transition period of three years. During these three years, the clauses of the current treaty continue to apply when the pension income is related to work in the private sector (e.g. under the Finnish TyEL law that governs pension contracts).  A condition, however, is that Portugal is taxing the pension. Where a type of pension that Portugal treats as tax-exempt income is concerned, taxation is carried out as agreed in the new treaty without a transition period. The transition is not applied on any pension income that is not connected with an individual's past employment for an employer (e.g. if work is self-employed type, under the Finnish YEL and MYEL laws that govern farmers and the self-employed, and e.g. when individual retirement account contracts are the reason for the pension income).

As had been agreed by the current tax treaty, the Finnish Tax Administration collects no tax on the rental income received by people who reside in Portugal and rent out an apartment/flat located in Finland. The revised clauses allow for Finnish taxation.

Finland has already earlier this year signed tax treaties with Spain and Germany, further information here.

More information:

Antero Toivainen, tel. 02955 30098, antero.toivainen(at)vm.fi
Ville Valkonen, tel. 044 56 72201, ville.valkonen(at)vm.fi