Swedish pensioners who have moved to Portugal have, under certain circumstances, not been liable to pay tax for their Swedish occupational pension income. The reasoning behind it was that the tax treaty between Sweden and Portugal gave Portugal — and Portugal alone — the right to tax occupational pensions when the recipient lived in Portugal. When, in 2009, Portugal changed its legislation and under certain circumstances allowed tax exempt status on service pensions, the effect was that Swedish pensioners who moved to Portugal could, in certain cases, receive an occupational pension without needing to pay tax either in Sweden or in Portugal.
The tax treaty has now been changed so that occupational pensions can be taxed in the country from which they are disbursed. Occupational pensions disbursed from Sweden to persons residing in Portugal may thus be taxed in Sweden. Even in those cases where the conditions for tax exempt status in Portugal had not been met, and taxation therefore took place in Portugal, Sweden will be able to tax Swedish occupational pensions.
The effects of the change will be that taxation in Sweden on occupational pensions will take place as if the person was still resident in Sweden. For emigrants who have severed their material connection with Sweden and have a limited tax liability in Sweden, however, the tax rate in Sweden will be 25% under the special tax that applies to persons residing abroad (SINK in Swedish).
In those cases where the conditions for tax exempt status in Portugal had not been met and Portugal taxed the income, the Portuguese tax will be deducted from the Swedish tax. The same applies if Portugal changes its rules so that occupational pensions cannot be received on a tax-free basis in Portugal.
As regards pensions that were not previously taxed in Portugal, taxation may take place in Sweden as of the date the amending protocol enters force and becomes applicable. This can take place at the earliest as of 1 January 2020. As regards pensions that are subject to taxation in Portugal, taxation in Sweden can take place as of 1 January 2023. This later date also applies to the currently tax-exempt pensions if Portugal — which it was previously interested in — begins taxing these.
In recent years, there has been a lengthy discussion between Sweden and Portugal. Even if the tax revenue has had no major impact on the country’s finances, the question has been high on the agenda of Minister for Finance Magdalena Andersson.
In approximately half of the European tax treaties, Sweden has the right to tax Swedish occupational pensions. As a rule, however, taxation in the country of residence also occurs. The treaty between Sweden and Portugal likely would not have been amended if Portugal had taxed the income.
For the protocol to be valid, it must be submitted to the Riksdag for approval. Since the issue is not a controversial one, the likelihood of the Riksdag approving the protocol is high.
One interesting question is how quickly Portugal will process the amending protocol. Portugal signed a similar protocol with Finland in November 2016. However, Portugal has not yet sent the notification required for the amendment to take effect. This has led to Finland cancelling the tax treaty between Finland and Portugal, and to Finland thus having the right to tax Finnish pensions as of 1 January 2019. The fact that taxation of Finnish pensions took longer than two years and that the countries now lack an applicable tax treaty is considered a failure, and hardly a path Sweden will choose lightly.
Johanna Glimmerbeck och Hanna Ekelund arbetar på PwCs: kontor i Örebro respektive Stockholm med individbeskattning och frågor i internationell kontext och är särskilt specialiserade kring arbetsgivarfrågor vid gränsöverskridande personal.
Johanna: 072-353 02 92, firstname.lastname@example.org
Hanna: 070-929 44 45, email@example.com