TOP 8 COUNTRIES FOR PENSIONERS ABROAD: TAX AND LEGAL ADVANTAGES FOR EXPATS
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TOP 8 COUNTRIES FOR PENSIONERS ABROAD: TAX AND LEGAL ADVANTAGES FOR EXPATS
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The pensioners from EU and the world moving abroad, are increasingly seeking better living conditions, a good climate, a lower cost of living and reduced taxation on pensions.
Here is a guide for pensioners abroad with which to choose amongst 8 countries for their tax, legal, style and cost-of-living advantages
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Moving to live abroad as a pensioner: comparing 8 countries where to transfer your pension
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For many years pensioners have been choosing countries such as Portugal (although the recent cancellation of the preferential regime as of 1.1.2024 will lead many to adopt different choices) Spain, Greece, Cyprus, Malta and other countries where they can move to live, also in order to have a higher pension thanks to the possibility of defiscalising the pension in Italy, i.e. not paying taxes in Italy and the opportunity of being able to obtain a pension gross and pay only taxes in the country where they decide to move to live, with generally favourable and reduced taxes.
Here is a comparison of 8 countries where it is possible to move to live as pensioners essentially from a tax point of view, but certainly the choice of a country to move to live in should not be based only on tax advantages but on a complete 360 degree analysis of the chosen country.
One must start with an analysis of one's own needs, requirements, aspirations and desires and then move on to a comparison of countries in a professional manner, evaluating different aspects such as the political, economic, security, health situation, the infrastructure and transport system, the banking system, the bureaucratic system, the climate, the environment, the cost and quality of life, the language spoken.
There is no one-size-fits-all choice, there is a choice that has to be customised.
Even just from a fiscal point of view, it is not enough to choose the country with the lowest taxation on one's pension, but it is necessary to make a complete analysis of one's asset situation, in collaboration with experienced professionals, to assess also the implications on other incomes one has, on the real estate one owns, or anything else.
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Defiscalisation of pension abroad
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The pensioner resident abroad can apply to the country paying body (Inps ?for Italy) to request the application of bilateral agreements, where they exist, to avoid double taxation in order to have his pension credited gross or tax-free, and then pay tax exclusively in the country of his new residence.
Bilateral agreements against double taxation, concluded by many countries with a large number of foreign countries, ensure that one does not have to pay tax twice if one acquires residence and complies with the formal and substantive aspects required to be considered resident abroad.
The pensioner who moves abroad must therefore submit a special tax deduction application requesting the application of the bilateral agreements, obviously if he is transferred to a country with which the agreements are in force, and providing proof of tax residence abroad by means of the appropriate certificate issued by the competent foreign authority, AIRE registration for Italians, and any other conditions required by the agreement.
The detaxation process is not immediate and contemporaneous with the transfer but may take some time, as it is generally necessary to provide proof of having lived abroad for at least 6 months. Overpaid taxes, however, are recoverable within 48 months from the date the tax was levied.
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A clarification must be made, however: not all pensions are tax deductible everywhere.
One must first see whether it is a public or private pension.
These principles of transferability of the gross pension abroad are normally applicable for those who receive their pensions from private companies and institutions.
On the contrary, employees of public administrations (this is the case in Italy) cannot transfer the gross pension abroad because it will continue to be taxed in the country of the public administration where one had served.
There are, however, exceptions, based on bilateral agreements between Italy and some states, where it is possible to obtain gross public pensions: Tunisia, Senegal, Chile and Australia.
There are also some types of pensions that are not transferable abroad, such as social pensions, invalid pensions and allowances, or all those linked to income and assistance.
For this reason, but also because of different life choices, pensioners are increasingly expatriating to countries with reduced taxation, because by moving to live and taking up residence abroad, they can, if certain requirements are met, collect their pensions gross and pay taxes in the new country at the lower rate or even exempt.
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8 TOP 8 COUNTRIES FOR PENSIONERS ABROAD: TAX AND LEGAL ADVANTAGES FOR EXPATS
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TRANSFERRING YOUR PENSION TO ITALY
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Amongst many attractive special tax regimes in Italy, designed to attract people to move to the country, there is the FOREIGN PENSIONS IN ITALY WITH A 7% TAX RATE
Those who receive a pension from foreign entities (either a foreign citizen, for example, French, receiving a pension from France, or an Italian citizen residing abroad receiving a pension from Luxembourg) can benefit from a favorable tax rate if they move to live in Italy, more precisely in small towns in Southern Italy.
Based on Article 24-ter of the TUIR:
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As reiterated by the Revenue Agency itself, “The nationality of the subject transferring is irrelevant, as access to the regime is allowed both to a foreign citizen and to an Italian citizen, provided that the prerequisite of fiscal residency abroad for the period indicated by the provision is met and the last residence was in a country with which agreements of administrative cooperation in the tax field are in force (essentially, in addition to European countries, countries with which Italy has signed a Convention to avoid double taxation)”.
If the individual receives, in addition to foreign source pensions, an Italian pension from INPS, they can still enjoy the 7% favorable treatment on foreign pensions, while the INPS pension received from Italy will be taxed according to the ordinary rules.
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TRANSFERRING YOUR PENSION TO SPAIN
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From the tax point of view, first of all, it must be considered that Spain, like Italy, is a country that applies worldwide taxation, i.e. taxing all income wherever it is produced and not only that produced in the country of residence, unlike countries with territorial taxation and a non-dom tax regime such as Malta.
For Spain, one is tax resident if one stays in the territory for more than 183 days, if one's activities or centre of economic interests is based in Spain, if one's spouse or minor children habitually reside in Spain, unless one can prove otherwise.
This entails the obligation to pay tax in Spain on all income generated in the world and to apply a declaratory regime to assets wherever they are located in the world.
In Spain, as extensively explained in the guide to income taxation and taxation in Spain, there is a territorial autonomy in the different Communities in terms of taxation, which can favour competitiveness between the different regions but creates a truly varied and differentiated system of taxation on income and assets.
Spain has a tax system with three levels of government where part of the personal tax is ceded to the autonomous communities. The total tax applicable will be a calculation of general state tax rates and regional tax rates.
Some analyses of tax competitiveness between different communities show that the most fiscally attractive communities are, for example, Madrid and the Canary Islands.
The Canary Islands are a favourite destination for pensioners. Taxes to be paid on retirement income in the Canaries are calculated using a tax bracket system, as in Italy, but lower percentages are applied to the brackets. The difference with the rest of Spain is that in the Canaries the area of non-taxation is a little higher, thus paying tax on a lower income.
Residents are required to declare and pay tax on assets wherever they are owned (real estate, current accounts, investments, insurance, etc.) if the value exceeds a certain threshold, currently set at EUR 50,000.
One is required to declare even if there is no tax to pay.
Non-declaration or delayed declaration is subject to very high fines (EUR 5,000-10,000) while there are very high fines for unpaid taxes.
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TRANSFERRING YOUR PENSION TO PORTUGAL
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Portugal is, or perhaps was, always a popular destination to move to, chosen not only by retirees for the culture and beauty of its landscapes but also by young remote workers or digital nomads, by families looking for a welcoming destination or by entrepreneurs seeking different incentive schemes.
The Algarve or the cities of Porto and Lisbon or the autonomous regions of the Azores or Madeira are among the most popular destinations.
From the tax point of view, first of all, it must be considered that Portugal, like Italy, is a country that applies worldwide taxation, i.e. taxing all income wherever it is produced and not only that produced in the country of residence, unlike countries with territorial taxation and a non-dom tax regime such as Malta.
We have already extensively illustrated how to move to live in Portugal in the guide to residence and taxation.
However, the Portuguese government has made a significant change of direction and decided to eliminate the preferential regime for non-regular residents, which it said was justified by the fact that the tax advantage was perceived as an injustice to Portuguese pensioners and by the fact that it had a strong impact on the real estate market, both on house sale prices and rents.
The NHR programme for NON-HOME RESIDENTS has been CANCELLED by the Portuguese government as of the fiscal year 2024 and, therefore, taxation on pensions will no longer be at zero or 10% but according to the ordinary rules.
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TRANSFERRING YOUR PENSION TO GREECE
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Greece attracts for its culture, history and traditions, for its climate, sea, beaches and relatively low costs.
From the tax point of view, first of all, it must be considered that Greece, like Italy, is a country that applies worldwide taxation, i.e. taxing all income wherever it is produced and not only that produced in the country of residence, unlike countries with territorial taxation and a non-dom tax regime such as Malta.
For Greece, one is tax resident if one stays in the territory for more than 183 days, if one's activities or centre of economic interests is based in Greece.
Greece, in order to attract people to its country and stimulate economic growth, has provided for a preferential scheme for foreign pensioners (not for Greeks) with a flat taxation of foreign-source pensions at a rate of 7 per cent for 15 years.
The requirements to pay tax on a concessional basis are
- spending more than 183 days per year in Greece
- transfer tax residence to the country
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- not having been resident for 5 years in the last 6 years preceding the transfer
- having the availability of a property.
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TRANSFERRING YOUR PENSION TO BULGARIA
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Over the years Bulgaria has been proposed by many professionals or relocation agencies and chosen by retired Italians as the country to move to live in because of its low cost of living and the prospective taxation of pensions at only 10%.
From the tax point of view, first of all, it must be considered that Bulgaria, like Italy, is a country that applies worldwide taxation, i.e. taxing all income wherever it is produced and not only that produced in the country of residence, unlike countries with territorial taxation and a non-dom tax regime such as Malta.
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In reality, the advise did not take into account certain legal and fiscal aspects to be taken into consideration in order to verify the possibility of being subject to the favourable 10% regime and, in particular, did not consider a correct reading of the bilateral convention between Bulgaria and your country to avoid double taxation. (see here the case for Italy and the DTA interpretation)
The text of the treaty on double taxation between Italy and Bulgaria is clear on the point even though it imposes, in reality, a different definition of resident subjects by Bulgaria compared to the OECD model, deeming resident the natural person who possesses Bulgarian nationality.
Clarity on this point was provided in 2023 by the Italian Revenue Agency, which stated that in order to be tax resident in Bulgaria and to be able to apply the treaty for the avoidance of double taxation, it is not enough to have a residence permit and to be registered in the registry of the resident population, but one must also have Bulgarian nationality.
A new determination and a change of course on the part of INPS and the Italian Revenue Agency, which certainly entails and will entail considerable problems for all pensioners moving to Bulgaria!
The INPS has given its new interpretation, which came after defiscalising the pensions until 2022 of those who had moved to live in Bulgaria, and decreeing that from now on only those who also have Bulgarian citizenship will be taxed.
He then left it to the Inland Revenue to deal with the past, i.e. it will be seen whether they will issue the requests to recover the tax deductions already made over the years!!!
A person's tax residence is a very different concept from citizenship.
Citizenship, moreover, is not a process that can be obtained simply and in a short time.
In this case, several requirements are needed, including at least 5 years of residence in Bulgaria and knowledge of the Bulgarian language, in addition to the technical time needed to complete the obtaining procedure.
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TRANSFERRING YOUR PENSION TO MALTA
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Malta has a favourable climate with many days of sunshine a year and temperatures in winter that generally never fall below 10 degrees, a splendid sea as well as a truly incredible historical and artistic heritage with its 7000 years of history that make a visit to the small archipelago a continuous discovery in an alternation of natural and historical beauty.
Thanks also to its proximity to Italy, it is increasingly attracting foreigners and especially Italians to move to the archipelago, including pensioners who find themselves living in an environment with traditions and culture often close to Italy and where knowledge of the Italian language is widespread.
From a fiscal point of view, there are basically two taxation systems in the world.
The most widespread tax system is that of 'worldwide taxation' which is based on taxation on a worldwide basis according to which income produced anywhere in the world by a resident individual is subject to taxation, and not only that produced in the territory of the State. This system is in force in Italy but also in the countries analysed above.
Different is the system of taxation on a 'territorial' basis, which applies to individuals who are not domiciled in a state and who are required to pay tax in their country of residence only on income produced there .
Malta and Cyprus adopt this system on a territorial basis.
Malta enjoys a territorial tax regime, which is very different from worldwide, and certainly more advantageous and attractive.
This allows persons who decide to move to live on the archipelago who are resident but not domiciled (this excludes Maltese citizens and those who take up permanent residence in the territory) to enjoy the advantageous non-domiciled or non-dom tax system.
Generally speaking, the non-dom regime in Malta provides that persons who are ordinarily resident but not domiciled in Malta are subject to income tax on income generated in Malta, on income generated outside Malta but received in Malta and on capital gains generated in Malta. No tax is payable on capital gains generated abroad but remitted to Malta.
As a pensioner, one can either pay taxes according to the ordinary taxation regime in force in Malta, with rates that are certainly more advantageous than in Italy, or join a special regime with taxation at 15%.
In 2012, then modified in 2014, in fact new rules were introduced in MALTA with a special regime - the Malta Retirement Programme - for PENSIONERS who are EU/EEA/Swiss citizens (excluding Maltese citizens) but also for NON-EU citizens which guarantees a favourable tax status :
- Fixed tax rate of 15% on any foreign source of income that is received in Malta, by them or their dependants, subject to a minimum annual tax of €7,500 and a further €500 for each dependent family member and caregiver.
The main conditions are:
- receive a foreign pension in Malta that must constitute at least 75% of the beneficiary's taxable income.
- to purchase or rent a property in Malta or Gozo which must serve as his or her main residence with a minimum value in Malta of €275,000 or in the south of Malta and Gozo of €220,000. Alternatively rent at a minimum annual rent of €9,600 if the property is located in Malta and €8,750 if the property is located in South Malta or Gozo.
- have Health Insurance
- be present in Malta for at least 90 days per calendar year, calculated over a period of 5 years. In addition, they may not stay in any foreign jurisdiction for more than 183 days per year
- Pay a government fee of €2,500 by submitting a specific application to the Competent Authority through an authorised representative (A Maltaway partner is on the list of authorised representatives).
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TRANSFERRING YOUR PENSION TO CYPRUS
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Cyprus, like Malta, has a territorial taxation system.
As we have seen in more detail in the guide to residency and taxation for moving to live in Cyprus, the taxation of personal income varies from 20% to 35% with a non-taxation up to €19,500.
Non-residents or non-domiciled residents pay no tax on interest, dividends or rental income wherever produced outside of Cyprus.
However, one is considered domiciled for the purposes of such taxation when the person has been tax resident for a period of at least 17 years in the last 20 years.
In Cyprus, income from foreign source pensions is taxed at a rate of 5%, with an exemption for the first EUR 3,420.
In order to transfer residence one must have a long-term lease or purchase a property as well as health insurance.
Under the current double taxation convention it is only possible to obtain a gross Italian pension, i.e. tax-free with taxation of the pension in Cyprus at the reduced rates indicated above.
It is not possible in Cyprus, as in most other countries, to obtain defiscalisation of State or public pensions.
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TRANSFERRING YOUR PENSION TO TUNISIA
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Tunisia is one of the few countries that also allows tax exemption for public pensions and for this reason has attracted many pensioners over the years.
Under Tunisian tax law, if the conditions are met as a non-domiciled tax resident, the gross taxable income on pensions is reduced by 80%, so that tax is only paid on 20%.
The maximum rate applicable on pension income is 7%.
Certain conditions must be met
- not have been a tax resident in Tunisia for the previous five years
- rent or buy a house
- stay for more than 183 days or, if you have stayed less than 183 days, have a dwelling that indicates an intention to occupy it as your usual residence.
Only when you have obtained the status of non-habitual resident from the Tunisian authorities will you be able to obtain the pension benefits with the abatement mentioned above.
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Contact Maltaway for international professional advice on moving abroad as a retiree with your pension
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It is difficult in general to give a list of the best countries to move to or to make a ranking of the best countries to change your life in.
Obviously there is no one-size-fits-all choice, but it depends on one's needs and desires.
To evaluate a country to move to live in, you need to take into account several elements, the order or prevalence of which obviously depends on the interests, goals and personal motivations that drive everyone to move to live abroad, and reading our useful guide to moving to live abroad can certainly help you in choosing a country.
Becoming aware of one's objectives and how to make a choice to expatriate can be useful, but certainly the assistance of an expert professional at one's side helps one to make a comparison between the different countries, also from a legal and fiscal point of view, to avoid making rash or wrong choices, to understand the path to follow, to overcome administrative and bureaucratic obstacles, to be in order from the point of view of residence and taxation but also health and pension, and to achieve one's objectives.
Moving abroad can turn out to be an obstacle course without professional advice from those with a long and extended international expertise, of those who are familiar with the legal and tax regulations of the various countries involved, who are able to check existing treaties, get to the bottom of issues, read the rules and of those who are able to know the legal and tax regulations of the different countries involved, to check the treaties in place, to get to the bottom of the issues, to read the rules and understand the tax implications.
Otherwise, there is a risk of making decisions to transfer abroad without knowing all the aspects and implications, or of making legal and tax choices that turn out to be wrong and with even heavy consequences and penalties.
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?PENSIONERS ABROAD CONTACTS MALTAWAY
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