As an ex-pat, moving to Madeira is a dream come true. A beautiful island in the Atlantic Ocean with stunning natural beauty, low cost of living and high quality of life with a low crime rate is something that is attractive to not just retirees, but entrepreneurs and remote workers.
With the Non-habitual residency scheme and Madeira’s Free Trade Zone, the tax opportunities for ex-pats are also an attractive positive for relocating to Madeira.
The NHR scheme is a special Portuguese tax regime that applies to the foreign income of natural persons. It was specially designed for those who wish to transfer their tax residency to Portugal, regardless of their nationality. The NHR scheme offers those who qualify as tax residents in Portugal and reduced tax rate on their personal income.
Once a natural person has successfully enrolled in the NHR scheme, they enjoy reduced tax for a period of ten consecutive years. NHR status is only granted to individuals who have not been Portuguese taxpayers in any of the previous five years.
Portugal’s Tax System for Ex-pats.
Ex-pats in Portugal can take advantage of the non-habitual residency scheme, and benefit from substantial tax savings over a period of ten years, provided they remain a tax-paying resident of Portugal for that time. This special status is awarded to anyone who relocates to Portugal, regardless of their nationality and where they qualify for their pension. NHR status can also be granted to remote workers or freelancers who choose to work from Portugal or Madeira.
Before moving to Madeira, you should consult a qualified tax advisory service. MC Contabilidade can assess your personal circumstances and income structure and determine how you can benefit from becoming a Portuguese taxpayer under the Non-habitual Residency Scheme.
NHR Tax Rates in Portugal and Madeira
Portugal and Madeira have a progressive tax scale in place, where different tax rates apply depending on the tax bracket. Income Tax Brackets in Madeira for the 2022 Financial Year apply to earnings in the following categories:
- Employment income
- Self-employment income
- Investment income
- Rental income from properties let in Portugal
- Capital gains from selling properties, assets, or shares
- Pensions in Portugal, including private pension plans
Other special and fixed tax rates may be applied to different income categories, depending on their type. Gains from Cryptocurrencies are currently not taxed in Portugal, but that legislation is subject to change. Tax status or the applicability of NHR status is based on the taxpayer’s personal circumstances.
NHR Benefits for Ex-pats in Madeira
- Tax Exemption on Foreign Sourced Income
The exemption of taxation on employment income is granted if the income has been subjected to taxation in the country where the income was generated. Under the Double Taxation Agreement, this is income that has been identified as not coming from a source within the Portuguese territory.
Net Pensions from overseas are taxed at a flat rate of 10%.
If you work as a freelancer or an independent contractor in an area deemed to be a high value-added service activity, including scientific research, artistic or technical character, then these earnings are also exempt, provided they were taxed at source, outside of Portugal, where a double taxation agreement is in place.
Tax exemption on other types of foreign sourced income, such as interest, dividends, capital gains, rental income from immovable property, royalties, income from intellectual property and business income is also included, provided this income is taxed in the country where the income was generated. These types of income may be taxed in the state of origin per the OECD model of tax convention (excluding tax havens) in cases where there is no Double Taxation Agreement.
From the experience of MC Contabilidade, exemptions relating to higher value-added activities and the application of a 10% tax rate on net pensions are not being applied by the Portuguese Tax and Customs authority. Instead, they apply it to the gross amount, which then requires the taxpayer to contest their tax settlement notice. According to the latest reports, the Portuguese Tax and Customs authority is aware of this issue and is actively looking into the matter.
Tax Exemption on Income obtained in Portugal
Income derived from high value-added activities obtained by employees and business professionals in Portugal is taxed at a flat rate of 20%
Income that is not considered to be sourced from a high value-added activity from employees and business professionals obtained in Portugal is taxed according to general taxations rules.
NHR Status Requirements
An individual may apply for NHR status in Portugal and Madeira provided they have not held tax residency in Portugal in any of the previous five years. A tax residency certificate and proof of tax paid abroad may be required during the application for Non-habitual Residency.
You are considered a tax resident of Portugal either living in Portugal or Madeira for more than 183 days (either consecutively or not) in any twelve-month period; or by having housing, at any time in a twelve-month period, which allows the presumption of a permanent habitual residence.
Non-EU/EEA and Swiss citizens are required to obtain a valid visa from the Portuguese Embassy/Consulate of their country of residence that entitles them to have a residency permit in Portuguese territory. For example, a D7, Golden Visa, a Passive Income Visa or another eligible visa.
EU and EEA citizens are required to obtain an EU/EEA Citizen Residency Certificate from the municipal office for their town or city.
Applications for the registration of Non-Habitual Tax Residency are open until 31 March of the year following that of registration as a resident. As an example. If you arrived in Madeira in July 2022, you must register for non-habitual residency until 31st March 2023.
The recognition of your NHR status is not automatic and requires a formal application to the Portuguese Tax and Customs Authority. You are required to provide documentation proving your tax residency in previous years. This may include a Tax Residency Certificate or proof of tax settlement abroad.
Why work with MC Contabilidade?
Our friendly and professional team have many years of experience working with ex-pats seeking to gain NHR status. Contact a member of the team today and let us guide you through the steps of becoming a tax resident in Madeira.