Portuguese Income Tax on Military Retired Pay and Social Security

Military retired pay. Article 21(2) of the 1994 U.S.-Portugal income tax convention makes a pension paid by a government in respect of services rendered to it taxable only in that country, unless the recipient is both a resident and a national of the other country. A U.S. retiree living in Portugal owes no Portuguese income tax on retired pay; one who is also a Portuguese national is taxable on it in Portugal, and the United States, which keeps taxing its citizens, gives credit. The exemption has a condition. The saving clause, in paragraph 1(b) of the protocol signed with the convention, lets Portugal tax its residents as if there were no treaty, and paragraph 1(c)(ii) keeps the Article 21 exemption only for individuals who are neither citizens of Portugal nor have immigrant status there. A retiree who acquires Portuguese immigrant status loses the treaty's protection and is taxed under Portuguese law. U.S. Social Security. Article 20(1)(b) says social security benefits and other public pensions paid by one country to a resident of the other, or to a U.S. citizen, "may be taxed" in the paying country. It does not say "only", so Portugal, as the country of residence, may also tax U.S. Social Security received by a Portuguese resident, with relief from double tax under Article 25. VA disability compensation is not named in the treaty, and Portugal's treatment of it was not researched for this entry. It is exempt from U.S. tax under 38 U.S.C. 5301.