Tax treaty between Portugal and Finland has been signed

Tax Administration Bulletin, 11/11/2016

The finance ministers of Portugal and Finland have signed a new Treaty for the avoidance of double taxation. It is similar to the recently concluded treaty with Spain.  It is expected to enter into force in 2018. This requires that the parliaments of both countries approve of its revised provisions.

The revised provisions of the treaty will bring about an extension of Finland's taxing rights:  Finland will be the country of taxation for almost all pension payments sourced in Finland and paid to beneficiaries in Portugal. This has not been the case under the current treaty because Finnish tax has so far only been collected on pensions, paid for employment with a public organisation, to an individual living in Portugal.     

According to the provisions of the new treaty, the country that eliminates double taxation is, by way of exception, the source country. This means that if an individual is a resident of Portugal, and an organization in Finland pays him or her the pension, the Finnish tax on it is subject to a deduction that equals the amount of tax paid in Portugal.  

The treaty has a transition period of three years, during which the current treaty's Article on pensions will continue to be applied.  However, that Article can only be applied if the country of residence imposes tax on the pension. If it doesn't, the provisions of the new treaty will be applied on the pension income with no transition period.

The new treaty also includes a number of other revisions. Among them is the new provision allowing Finland to collect tax on both rental income and capital gains, derived from a residential flat in a housing company located in Finland, when these are received by a Portuguese resident.

For more information, see the news released by the Ministry of Finance: Finland signs tax treaty with Portugal