France-Portugal tax treaty: pensions, assets and residence

Four decisions: a move to Portugal challenged by the French authorities

The treaty protects only someone who is resident in Portugal. When the French tax authorities challenge the move, the courts look at family, home, activity and actual taxation in Portugal. These four decisions are the ones the firm relies on most often.

• Retiree registered as a non-habitual resident. A French retiree registered in Portugal under the non-habitual resident regime but declaring almost no income there, and keeping rental income in France, remains domiciled in France: Portugal not having taxed them as a resident, the test of Article 4(1) is not met and French domestic law decides (CAA Bordeaux, 5 March 2024, No. 22BX00848).
• The family stays in France. Even assuming residence in both States, a taxpayer whose children live in France in a home owned by the couple, who performs their employment contract there and spends far more there than in Portugal, has their centre of vital interests in France: the reinstated assessments stand, with penalties (CAA Paris, 28 June 2023, No. 21PA04331).
• Portuguese nationality does not protect. A Portuguese national who has lived in a house in France for fifteen years and runs two restaurants there is domiciled in France under Article 4 B of the tax code and does not prove Portuguese residence; they must declare their foreign accounts (CAA Nantes, 15 February 2022, No. 20NT02685).
• Activity in France prevails. The manager of a French company, a Portuguese tax resident under Portuguese law but housed in France, is held to be a French resident: their economic ties make France the centre of their vital interests. Hidden benefits paid to them are not dividends within the treaty, fall under Article 23 and are taxed by France (CAA Versailles, 16 March 2021, No. 19VE01222).

The rules that recur in our files

• Taxes covered (Article 2). Since the 2016 protocol, the treaty expressly covers, on the French side, income tax, corporate tax and its surcharges, CSG and CRDS; on the Portuguese side, IRS, IRC and derramas. It has no article on wealth: each State applies its domestic law, which leaves the French IFI applicable to a Portuguese resident's real estate located in France.
• Real estate (Articles 6 and 14, paragraph 1). Rents and gains on real estate are taxable in the State where the property is located. Since the multilateral instrument, the same applies to gains on shares or interests which, at any time during the 365 days preceding the sale, derive more than 50% of their value directly or indirectly from real estate located in that State.
• Other gains (Article 14, paragraph 3). Gains on other property, including shares in ordinary companies, are taxable only in the seller's State of residence. A move to Portugal nevertheless remains subject to the French exit tax on unrealised gains (Article 167 bis of the French tax code), with an automatic deferral of payment for a transfer to a European Union State; the tax is cancelled if the shares are still held two years after departure (five years where their total value exceeded EUR 2.57 million).
• Dividends (Article 11). The State of the paying company may levy at most 15% of the gross amount. On the French side, the domestic withholding tax on dividends paid to a non-resident individual is 12.8% (Article 187 of the French tax code), below the treaty cap. The payment must still be a dividend within the meaning of the treaty: the Conseil d'État held that sums paid to a Portuguese company and deemed distributed under French law, which do not meet that definition, could not bear withholding tax (CE, 4 April 1990, no. 63858, Allomat).
• Interest and royalties (Articles 12 and 13). Withholding capped at 12% for interest, reduced to 10% for interest on bonds issued in France after 1 January 1965; 5% for royalties.
• Salaries and directorships (Articles 16 and 17). Salaries are taxable in the State where the employment is exercised, except for an assignment of no more than 183 days in the tax year, paid by a non-resident employer and not borne by a permanent establishment. Remuneration of directors, supervisory board members and managing partners remains subject to each State's domestic law, double taxation being relieved under Article 24.
• Companies (Articles 4 and 7). A Portuguese-law company whose place of effective management is in France is resident in France and taxed there (CAA Bordeaux, 10 March 2008, no. 05BX01906, Madrigal Serviços Limitada).
• Relief of double taxation (Article 24). For a French resident, income whose taxation is allocated to Portugal is exempt in France but counts towards the rate applied to other income. For dividends, interest, royalties, directors' fees and artistes' income, the Portuguese income stays in the French base and France grants a tax credit, capped at the French tax on that income. For a Portuguese resident, French tax is deducted from Portuguese tax, capped at the portion of Portuguese tax attributable to the income taxed in France.
• Mutual agreement procedure (Article 26). Where taxation is not in accordance with the treaty, the case must be presented to the competent authority of the State of residence within three years of the first notification of the action, a time limit introduced by the multilateral instrument (the former two-year limit, still quoted in some commentaries, no longer applies). Arbitration may be requested if the authorities fail to agree within three years, subject to each State's reservations.
• Anti-abuse clauses (Article 31 bis). Treaty benefits may be denied where the recipient is not the beneficial owner, or where obtaining the benefit was one of the principal purposes of an arrangement. France keeps the application of Articles 209 B and 212 of its tax code.

The non-habitual resident regime is closed to newcomers

• Repeal of NHR. The Portuguese budget law for 2024 (Lei n.º 82/2023 of 29 December 2023, Article 317(b)) repealed the non-habitual resident regime with effect from 1 January 2024, as the Portuguese tax authority confirmed (ofício circulado n.º 90068 of 16 February 2024).
• Transitional regime. Taxpayers already registered as non-habitual residents on 1 January 2024 keep the regime until the end of their ten-year period. Article 236 of the same law also allowed late registration for those who met the residence conditions on 31 December 2023, or who became resident in 2024 on the strength of earlier commitments (employment contract, lease, property reservation, visa), provided the application was filed within the set deadlines (for 2024 arrivals, an application filed after 31 March 2025 only covers the remainder of the ten-year period).
• IFICI. The new incentivo fiscal à investigação científica e inovação (Article 58.º-A of the Tax Benefits Statute) taxes at 20% for ten years the employment and self-employment income from certain qualifying roles performed in Portugal. According to the Portuguese tax authority's guidance, foreign employment, investment, property and capital gains income is as a rule exempt; pensions are not on that list. Besides carrying on an eligible activity and earning income from it each year, the regime requires not having been resident in Portugal in the previous five years, never having benefited from NHR or already from IFICI, and not having opted for the Regressar programme (Article 12.º-A of the IRS code).
• What it means for a retiree. IFICI grants nothing to pensions: its 20% rate covers only income from an eligible activity, and the exemption for foreign-source income does not extend to pensions. A French retiree moving to Portugal today is therefore taxed on their private pension under the ordinary Portuguese rules, and the treaty offers no way back to French taxation. The comparison must be made before leaving, with a Portuguese adviser.

Two domestic laws applying side by side

• No double tax treaty. The 1971 treaty only covers income taxes. The only France-Portugal text on inheritance is the agreement signed in Lisbon on 3 June 1994: it extends to the other State, its local authorities and, subject to reciprocity, its public-law bodies active in scientific, artistic, cultural, educational or charitable fields, the exemptions provided for gifts and bequests to their domestic counterparts. It does not address double taxation of estates between private individuals.
• French side. Article 750 ter of the French tax code applies without any treaty correction: all assets, in France or abroad, are taxable if the deceased or donor was tax-domiciled in France, or if the heir or donee is domiciled in France and has been for at least six of the last ten years; otherwise, only French assets are taxable. Tax paid abroad on assets located there is credited against the French tax on those assets (Article 784 A of the French tax code).
• Portuguese side. Portugal no longer has an inheritance tax as such: gratuitous transfers fall under imposto do selo (stamp duty), at 10% (item 1.2 of the Tabela Geral), due on assets deemed located in Portugal under Article 4 of the code. That location follows its own rules: sums deposited with an institution established in Portugal are located there, undeposited cash and crypto-assets are located there in an estate where the deceased was domiciled in Portugal, and shares in a Portuguese company are only taxed if the heir is domiciled there. The spouse or de facto partner, descendants and ascendants are exempt from this duty (Article 6(e)).
• In practice. For a French retiree domiciled in Portugal, each child domiciled in France for at least six of the last ten years is taxed in France on all assets they receive, including those located in Portugal; a child domiciled outside France is taxed only on French assets. In Portugal, the property passing to the children may be exempt; if tax is actually paid there, the Article 784 A credit offsets it up to the French tax on assets located outside France. The domicile of the deceased and of the heirs should be documented during their lifetime.