Our Opinion: 2020
A sunny retirement
Want to live a very low tax retirement? Good news: you can.
I have just returned from Greece where I learnt that the Finance ministry has submitted a draft law to its parliament that will allow it to offer a ten-year tax incentive to foreign pensioners.
The Greek chief economic adviser to the Prime Minister declared recently “we want pensioners to relocate here…… we have a beautiful country, a very good climate so why not?” To make the move particularly attractive, pensioners will see their income tax liability fall to a flat rate of only 7%.
Unfortunately, the rest of the EU have an answer for that: they don’t like it. They don’t like intra EU corporate tax competition, and they don’t much like personal tax competition either. Portugal had a go at something similar after their financial crisis, offering ten years of 0% tax on all pension income for pensioners settling in the country. This was hugely popular with other EU pensioners – and UK pensioners in particular.
EU authorities haven’t been particularly keen on this – the high tax Scandinavian nations in particular. Faced with losing significant amounts of the tax they like to get from their baby boomers, Finland has gone so far as to cancel its tax treaty with Portugal (most EU countries have reciprocal tax deals so no one is double taxed) such that private-sector incomes sourced in Finland but paid to Portuguese residents are now to be subject to Finnish levels of tax. Several other EU countries are considering similar measures. Portugal, in a sort of capitulation, now says it will charge new “non habitual residents” 10% on their pensions.
Still, 10% is a pretty good offer – if you liked Portugal you’d probably still take it over the extra three percentage points off in Greece. Otherwise you might sit back and see what comes in next.
If there is a rush to Greece (as there was to Portugal) others of the less-rich EU nations might decide to enter the fray with a new bid for the boomer loot. And as Patelis says, why not? Membership of the eurozone has made it hard for the poorer nations to attract short and long-term visitors in the way they used to – relatively weak currencies used to mean attractively high living standards for those coming from stronger currency countries to live or holiday, and low wage costs for those coming to set up companies. So they are finding new ways to get them in. As long as they are allowed to use tax to do so within EU rules, they will.
The risk for the likes of Greece and Portugal is an EU clampdown (although that hasn’t worked yet in the case of Ireland). However, the fact that formal and informal tax harmonisation remains a risk for EU countries (deeper integration has to mean proper fiscal union) should be a nice reminder that it is also an opportunity – for the UK outside the EU.
28th July 2020