According to a report from the European Union (EU) Tax Observatory, an independent body on community taxation, “the influence of these regimes is all the more important as their number is constantly increasing. Between 1995 and 2020, the number of schemes for high-income foreign individuals increased from five to 26, with a tax cost of at least €4.5 billion per year and more than 200,000 beneficiaries.
“The most aggressive schemes identified by our study are the Italian and Greek high-income schemes; the Cyprus high-income scheme; the pension schemes of Cyprus, Greece, and Portugal”, explains the EU Tax Observatory.
Concretely, according to the structure, "these schemes have long durations, great tax advantages and only target very high-income individuals or do not have an impact on real economic activity in the Member State".
"This sum is equivalent to the Erasmus programme budget", compares the EU Fiscal Observatory in the report.
In the case of Portugal, the non-habitual resident regime (NHR) was created in 2009 and applies to workers with high added value, but also to pensioners who receive pensions from abroad, including Portuguese who have worked abroad and who are returning to Portugal for retirement.
Reformulated in 2012 and amended in 2020, the NHR regime provides for the application of a 10 percent personal income tax rate on foreign pension income, in accordance with the most recent amendment.
The NHR also gives workers with professions considered to have high added value the possibility of benefiting from a special IRS rate of 20 percent.
Each non-habitual resident can benefit from this tax regime for a maximum period of 10 years.
The EU Tax Observatory notes that "tax competition is increasingly taking the form of preferential or strictly targeted tax regimes, in addition to general rate cuts" at the community level.
To reverse these trends, the framework suggests reforming the European code of conduct "to make it a binding instrument, and extending its mandate to the taxation of personal income, as well as non-preferential corporate taxation regimes that lead to generally low taxation of multinationals".
Another suggestion in the report is for better coordination between Member States: "In the absence of a coordinated approach -- which is always the ideal solution -- Member States could consider unilaterally taxing their expatriates, which, under certain conditions, can mitigate the effects of preferential tax regimes".