LISBON, Sept 18 — Portugal is luring increasing numbers of European retirees seeking the easy life in the sun, thanks to generous tax breaks and low property prices as the debt-laden country sweetens the deal.

“Many British, German and Scandinavian seniors seeking sun already come to Portugal, in particular the Algarve, and the number of French visitors is up sharply,” said Carlos Vinhas Pereira, head of the Franco-Portuguese Chamber of Commerce and Industry.

To tempt more into exile the Lisbon has added a tax sweetener: from the beginning of 2013 all Europeans with private pensions are exonerated from Portuguese income tax on pension payments received in their home countries.

“Austerity measures that the government has imposed to satisfy the troika of creditors has contributed to lowering domestic demand, hence the idea to call outside to kickstart the motor,” said Vinhas Pereira.

Portugal’s economy contracted for more than two years under the effect of spending cuts and tax rises which the government imposed to stabilise state finances.

The tax break for foreign retirees has not gone down well with some Portuguese, who have seen their pensions and wages cut while tax bills have risen.

But for Erwin Mohr, vice president of the association of foreign property owners in Portugal, the country is already well on its way to “becoming the Florida of Europe” or a “tax haven for new retirees”.

He settled in the sun-drenched southern Algarve region 19 years ago “to escape the snow in Germany”.

“A German retired couple living in Portugal easily spends 1,500 to 2,000 a month, which easily compensates” for what the Portuguese tax is losing in taxes on pension income, said Mohr.

“Without the pensioners the economy of the Algarve would collapse,” he said.

Free Portuguese lessons

The property market is also welcoming for foreigners, with prices down nearly a third since the eurozone debt crisis struck.

“But contrary to Spain, there was no property bubble in Portugal and there are no ghost towns” noted Vinhas Pereira.

There are plenty of properties on the market as many Portuguese over-extended themselves and banks foreclosed.

At the end of 2011 there were 735,000 empty residential properties in Portugal, according to the national statistics institute.

Portuguese banks, which are looking to get these properties off their balance sheets and generate income, are offering low-interest loans to foreign buyers.

Apartments can easily be rented out to cover the mortgage payments, he added.

In Lisbon “the time to buy is now, the prices won’t go any lower,” said Pascal Goncalves of the Maison real estate agency in the capital.

There are signals the market is stabilising and about to begin picking up.

The agency offers foreigners 20 hours of free Portuguese lessons to help new arrivals overcome the language barrier and better integrate into local society. – AFP