HELSINKI: Finance Ministers Petteri Orpo and his Portuguese counterpart Mario Centano signed a new tax treaty that will provide Finland more possibilities to tax Finnish pensioners living in Portugal, said an official press release.
Finland and Portugal must render the treaty effective through their respective national parliamen-tary procedures to bring the new treaty into force. 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 under the new treaty 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, for example under the Finnish TyEL law that governs pension contracts.
Where any type of pension that Portugal treats as tax-exempt income is concerned, taxation will be 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 example if work is self-employed type, under the Finnish YEL and MYEL laws that govern farmers and the self-employed, and when individual retirement account con-tracts are the reason for the pension income.
As had been agreed by the current tax treaty, the Finnish Tax Administration will collect no tax on the rental income received by people who reside in Portugal and rent out an apartment or flat located in Finland. Finland, earlier this year, has already signed tax treaties with Spain and Germany.
