`Europe's Florida' Sparks Rift as Portugal Lures Pensioners

(Bloomberg) -- After a lifetime of long Swedish winters and hefty tax bills, Dan Wikstrom’s dream of a comfortable retirement in the sun has come true. Not in a Caribbean tax haven, but in Portugal, a far more convenient four-hour flight away.

The 63-year-old former executive is among a growing number of northern Europeans lured south by a flat income tax rate of 20 percent and 10 years of tax-free pension payments. For Wikstrom that means doubling his retirement income, to around $12,000 per month.

“Do I feel guilty? Of course not,” Wikstrom, who used to work for a Swedish energy company, said in a telephone interview from Cascais, a coastal resort about 18 miles west of Lisbon, where he now resides.

Portugal introduced the incentives nine years ago in an attempt to bring back expatiates and attract highly skilled foreign workers. But their appeal to wealthy pensioners has caused tension within the European Union.

Finland has said it wants to end its tax treaty with the Iberian nation, creating a headache for Portuguese Finance Minister Mario Centeno. Centeno chairs the group of EU nations that share the euro, of which Finland is a member.

Sunshine & Golf

It’s not just about the money. Great golfing resorts, 300 days of sunshine per year and plenty of ocean views also help explain the success of the program, which had attracted a total of 10,684 foreigners by the end of 2016, according to Portugal’s finance ministry. Wikstrom followed 777 Swedish nationals who made the move last year.

`Europe's Florida' Sparks Rift as Portugal Lures Pensioners

“The Swedes have always enjoyed coming to Portugal, but they are coming in much bigger numbers these days,” said Bjorn Jacobsen, who runs Swedish real estate broker Fastighetsbyran in Cascais. The 42-year-old, who moved to Portugal with his wife in 2015, credits an improving economy, a booming real estate market and the perception of Portugal as a safe place -- it ranked third in the 2017 Global Peace Index after Iceland and New Zealand -- for the rise in arrivals.

Equal Treatment

The program’s growing success highlights a fundamental difference in the way EU states approach social security. Nordic nations with generous welfare policies allow citizens to deduct pension contributions during working lives, only to tax incomes after retirement. In southern European states like Portugal, such deductions are generally available only for a minority who have set up a private pension.

“This is a question of equal treatment for all pensions paid out by the Finnish pension system,” Finance Minister Petteri Orpo said in a recent email. His Swedish counterpart, Magdalena Andersson, voiced similar criticism last year when she said that Swedes were free to move to Portugal because of the climate, wine or even the fado music, but not to avoid paying taxes.

`Europe's Florida' Sparks Rift as Portugal Lures Pensioners

Centeno has played down such complaints, telling Bloomberg Television’s Francine Lacqua on April 20 that his country’s tax incentives were “quite marginal.”

“We will work together with all those countries to clear these subjects,” Centeno said, without elaborating.

Portugal’s so-called non-habitual residents program has also caused tension at home, with the Socialist government coming under fire for providing tax breaks to foreigners while many of its citizens struggle financially -- Portugal’s tax burden reached a 22-year high in 2017, according to a report by the public finance council. Critics also complain that the influx has helped bolster real estate prices, which according to the country’s statistics office rose 9.2 percent in 2017.

Portugal’s Left Bloc party, which along with the Communists supports the minority Socialist government in parliament, sees the non-habitual residents program as one of the main factors behind rising real estate prices, a party spokeswoman said in an emailed statement. It will propose changes to this regime and to the golden visa program in the negotiations for the next budget.

“When you don’t tax one group of people you end up having to increase the tax burden on another group. That’s unfair,” said Ricardo Cabral, a professor of economics at Portugal’s University of Madeira.

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