Understanding Lump-Sum Pension Payments under Portugal’s NHR Regime: A Binding Tax Interpretation

At GoalSeek, we closely monitor developments that affect expatriates and international professionals living in Portugal—especially those benefiting from the Non-Habitual Resident (NHR) regime. One recent informação vinculativa (binding ruling) issued by the Portuguese Tax Authority (Process 19986) sheds light on the treatment of lump-sum pension payments from abroad, specifically from Germany.

This is a relevant topic for many NHR beneficiaries who are former employees of foreign companies and are now receiving retirement benefits structured as one-time capital payments instead of monthly pensions.

✅ The Case in Focus

A Portuguese tax resident under the NHR regime (valid 2015–2024) requested clarification on how a lump-sum pension payment from a former employer in Germany would be taxed in Portugal. The amount would be transferred directly to a Portuguese bank account in a single installment.

🔍 Key Points from the Ruling

1. No Automatic Exemption under NHR:
   While pensions may benefit from the NHR exemption, lump-sum pension payments do not automatically qualify. Their treatment depends on how the pension was structured and whether contributions were taxed at the time they were made (“at entry”).

2. Categorization of Income:
   These lump-sum payments are not considered “pensions” under Category H unless they meet strict criteria defined in Article 18 of Law 27/2020 (e.g., actuarial calculation, predictable payments).
   Instead, they are usually taxed as investment income (Category E) under Article 5 of the Portuguese Personal Income Tax Code (CIRS).

3. Impact of the Double Tax Treaty (DTT) with Germany:
   According to the Portugal–Germany DTT, such lump-sum payments fall under Article 22 (“Other Income”), which assigns exclusive taxing rights to the country of residence—Portugal, in this case.
   Therefore, Portugal must tax this income, and the exemption method under Article 81(5)(a) of the IRS Code (which requires the other country to have taxation rights) does not apply.

4. Taxation Details:

   • If the pension contributions were not taxed at the time of payment (i.e., tax-deferred), then:

     • The capital may be partially exempt (1/3 of the amount, capped at €11,704.70).

     • The investment income (i.e., growth) is fully taxable under Category E.

   • If contributions were already taxed, then only the income component is taxable.

💡 Practical Implications for NHR Beneficiaries

This case underscores that not all foreign pensions are treated equally under the NHR regime, particularly lump-sum disbursements. If you’re planning to withdraw retirement funds structured as a capital payment, especially from Germany or another DTT partner, it is crucial to:

• Review your pension plan structure.

• Confirm whether contributions were taxed in the past.

• Obtain official documentation showing the breakdown between capital and income.

• Assess whether the income qualifies as a “true pension” under Portuguese law.

🧾 How GoalSeek Can Help

At GoalSeek, we provide clear and actionable tax guidance to expatriates and international professionals navigating the complexities of the NHR regime and cross-border income. If you’re unsure about the tax treatment of a pension payout—or any other foreign income—our team is ready to assist you with tailored advice and full compliance support.