The termination of the bilateral tax treaty between Portugal and Sweden – what will change ?

The Swedish Parliament recently approved the Government’s proposal to terminate the Double Tax Treaty (DTA) with Portugal, which has existed since 2003.

The said Convention allowed Swedish pensioners, under the tax status of non-habitual resident (NHR), a tax exemption from the Portuguese and Swedish point of view in recent years, notwithstanding the more recent taxation of pensions at 10% under the same tax status changed in the meantime.

In this sense, in 2018 Sweden advanced a request to review the agreement and in May 2019 a protocol was signed to amend the DTA, with Sweden having revised its regulations so that pensions would be taxed in Sweden.

Due to Portugal’s lack of ratification, Sweden denounced the tax agreement concluded between the parties.

On 16 June 2021, Portugal was notified by Sweden of the termination of the agreement between these countries, which took effect on 1 January 2022.

The agreement between Portugal and Sweden expired on 31 December 2021, and Sweden will start taxing pensions on 1 January 2022.

In terms of Personal Income Tax (IRS), pension income from Swedish source earned by Swedish citizens resident in Portugal, which previously was not subject to tax, may now be subject to Swedish withholding tax.

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