The dilemma of French retirees

It’s hard to get more cosmopolitan than Praia da Luz. Even the ambient hubbub seems multilingual in the streets of this magnificent village in the south of Portugal. English, French, Spanish, German… there’s only one language missing: Portuguese. The televisions in the bars and restaurants set the tone. The English BBC prevails here over RTP1 and TVI, the two most-watched Portuguese channels in the country. The only option to hear a few words in the local language is to listen to the shopkeepers’ discussions. Jean-Pierre isn’t going to interrupt them. This Franco-Swiss who has been living here for eight years has tried to learn the language of his new homeland, without much success. “Except grateful And good day, “I don’t know how to say much,” admits this 84-year-old retiree, who is nevertheless trilingual. But if this smiling former architect only mumbles a few words in the language of Fernando Pessoa (a great Portuguese poet), he has a perfect command of the language of love. It was in Praia da Luz that he met Dominique, with whom he has shared his life for five years. “We met each other through one of my cousins. She lived here, in the Algarve region, for tax reasons,” says the dashing Nancy native.

No tax for ten years

Taxes… For French retirees, Portugal has long been a good deal. Jean-Pierre takes out his calculator: “I would have saved 45,000 euros in taxes after spending ten years in Portugal.” The person responsible for this kitty can be summed up in three letters: RNH. This acronym hides the very attractive status of “non-habitual resident”. Introduced following the financial crisis of 2008, the RNH has long offered foreign retirees the possibility of transferring their tax residence to Portugal on condition that they live there at least 183 days per year. In return, these expatriates paid no taxes for ten years. A system designed to allow this small country hit by recession to attract new capital to revive a slowing economy. But last November, the former socialist government ended this exemption, which it presented as a “social injustice”, with immediate effect from 2024. Those who have benefited from it for less than ten years will be able to complete it, but for the others, the tax idyll is over. More than 163,000 French retirees living in Portugal face a dilemma: stay or leave?

Jean-Pierre wouldn’t trade the Algarve sun for anything in the world. He has two years left. His secure residence is full of perks: swimming pool, sauna, gym, etc. His 450 euros in monthly charges give him the right to high-end comfort that he intends to extend. “I didn’t pay taxes for eight years,” he rewinds, his voice drowned out by the cries of children happily splashing around downstairs from his apartment. “It seems normal to me to stay and have to pay one day or another.” The cost of living remains profitable anyway. A coffee rarely exceeds a euro and the price of a dinner at a restaurant is also much less expensive than in France.

The dilemma is more acute for other retirees, especially since it is not limited to economic reasons. A stone’s throw from Praia da Luz, Erik and his wife Patricia enjoy the joys of a life made up of beach trips, motorbike rides and games of pétanque with the local French community. “We immediately liked Lagos,” smiles this former Air France executive. “The Portuguese are very welcoming and the surrounding area is magnificent.” The 66-year-old young retiree praises the quality of life and security of this highly sought-after region, where the sun shines more than three hundred days a year. When retirement time came around in 2019, Erik and Patricia were hesitant to settle in Thailand, the United States or Mauritius. Today, they do not regret this less distant choice, but the couple cannot guarantee that they will stay in Portugal at the end of their RNH. “There are still some disadvantages,” Erik admits. “What you earn in taxes, you pay into mutual insurance. The public hospital can be overloaded and so you sometimes have to go through the private sector, which is expensive.” Retirees’ routine medical appointments are therefore often made during their rare trips to France.

A costly counterpart

Perched in her brand new rectangular modern house overlooking Cadaval, a town famous for its pear production, Agnès made a radical decision when she realized that the NHR hid a high tax rate. “It’s three times higher than in France,” laments the woman who is not on her first move. With her husband Pierre, she did not hesitate to put her brand new home up for sale. The Norman native took the initiative because she fears that the end of tax advantages will lead to a drop in prices in the real estate market. The retiree does not feel like a profiteer: she participates in the economic life of Portugal in her current expenses, especially since the local VAT exceeds that in force in France. The beautiful building and its infinity pool have not yet found a buyer. In the meantime, the gîte that Agnès created there is full. Because this former debt collection manager knows how to build customer loyalty with her breakfasts. “I get up at 5 a.m. to make my own bread,” she boasts. No rest for this hyperactive grandmother: her children and grandchildren are also entitled to five-star meals when they come to visit her.

“I am not a profiteer”

Michel is also thinking about packing his bags. This biker has been riding his bike all over Portugal since 2018. That year, he made the Algarve his main residence. This former business leader is now hesitant to cross the border. “Taxes in Spain are lower,” assures this Frenchman tattooed from his arms to his legs. “My ten years of RNH expire in eighteen months. I still have time, so I’m not racking my brains too much for the moment.” Michel doesn’t care about the criticisms of those around him who present expatriates as profiteers. “I pay my social security in France and, as a former boss, I gave a lot to Urssaf,” he admits. In his eyes, the French are eternally envious. No matter, the globetrotter has his mind elsewhere anyway. In October, he left for several weeks in Costa Rica to keep a promise he made to himself: to live two summer seasons a year until the end of his life.

It seems too early to know whether Erik, Michel or Agnès are isolated cases. Portugal is at a crossroads, but one thing is certain: the RNH has successfully attracted many French retirees; 163,850 in 2022. Will the curve decrease? “People don’t just come to save money, they also come to enjoy Portugal’s exceptional living environment,” explains Rosa. This real estate agent who has specialized for years in selling properties for the French has not, for the moment, noticed a contraction in the market. However, acquisitions by residents of the European Union fell by 13.5% last year*. Catia, a tax lawyer, feels this change. According to her, some French people respond to the Portuguese dilemma by going into exile: “We have clients who finish their RNH and leave to discover that the tax brackets are increasing faster than in France. » Their destinations: Greece, Tunisia or even Italy. Especially since, beyond the tax, settling in Portugal has become more expensive. From March 2020 to January 2022, housing prices exploded by 27.5% and make buying a house practically impossible for retirees with modest pensions and for the Portuguese.

Young people are getting involved

This surge in prices, particularly in Lisbon and Porto as well as in the Algarve, is complicating the lives of many Portuguese. “We are now faced with general discontent around the growth of the real estate sector driven, in part, by the NHR system,” analyses Luis Filipe Gonçalves Mendes, a geographer at the University of Lisbon. Is that enough to make the French scapegoats? Not really. Even though Portugal is also experiencing a breakthrough of the extreme right – the Chega party reached almost 10% of the vote in the last European elections – the immigration of French retirees is not necessarily viewed badly by the Portuguese. Local resentment is more focused on the overtourism that is disproportionately affecting certain regions of the country.

The attractiveness of this little corner of Europe could, however, receive help from an unexpected ally. “The scores in the last elections of LFI and RN do not make me want to return,” says Agnès. In any case, political situations are changing so quickly, in France as in Portugal, that it is becoming difficult to plan ahead.” Tax lawyer Catia finds this concern among the vast majority of her retired clients. She also notes that many young French people are settling in the country of the Carnation Revolution. The center-right government formed after the legislative elections of March 2024 has even resurrected the RNH to attract them. In its new version presented three weeks ago, this tax advantage will no longer concern retirees but highly qualified workers, whose tax will be capped at 20%. Azulejos, cod and fado are increasingly attractive. A second airport should also see the light of day near Lisbon, the capital, in the coming years. Whether for a week’s stay or a year-round stay, Portuguese attractiveness still seems to have a bright future ahead of it.

* National Institute of Statistics.