Tax Reporting Obligations in Portugal

Tax reporting obligations in Madeira and Portugal are a serious matter for who are residents, for tax purposes, including those under the NHR (Non-Habitual Resident) status, we cannot stress enough the following warning: all worldwide income needs to be reported to the Portuguese Tax Authority, along with the corresponding taxes paid abroad and foreign bank accounts held.

Residents and NHRs status holders are therefore required to report, on a yearly basis, to the Portuguese Tax Authority the following income and it’s jurisdiction of origin:

  • Salaries (Type A Income);
  • Business or Professional Income (Type B Income);
  • Capital Income (Type E Income);
  • Real Estate Income (Type F Income);
  • Capital Gains (Type G Income);
  • Pensions (Type H Income); and
  • IBAN Numbers of Foreign (non-Portuguese bank accounts)

To the above mentioned incomes that must be declared, resident taxpayers are also required to declare corresponding tax paid and social security contributions, where applicable, and corresponding jurisdictions. This allows the Portuguese Tax Authority to analyze the income sources and apply the exemptions, under the NHR scheme, where legally applicable.

Furthermore, the double-taxation treaties signed between Portugal and other countries have exchange of information clauses that allows both parties to inform each other on the income and taxes paid in each jurisdiction.

Reporting your worldwide income allows the Portuguese Tax Authority to cross-check and randomly audit taxes declared, with the foreign information from its counterparts, and demand truthful reporting from all Portuguese tax residents.

Failure to comply with Portuguese tax reporting obligations, as a resident for tax purposes, may incur in criminal liability.

Fore more information on tax reporting obligations, implications or assistance do not hesitate to contact us at management@mcs.pt or www.mcs.pt.

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NHR Status – Law Update

An update on the NHR status has occurred through a Minister of Finance’s Ordinance 230/2019, published today, has approved a revision of the list of jobs deemed as high-added value and therefore subject to a flat tax rate of 20% under the Non-Habitual Resident status.As high-added value jobs the Portuguese Government has decided to add to the list the following professions:

  • General Manager and Executive Manager of Companies
  • Directors of administrative and commercial services
  • Directors of production and specialized services
  • Hotel, restaurant, trade and other service directors
  • Market-oriented farmers and skilled agricultural and livestock workers
  • Skilled, market-oriented forest, fishing and hunting workers
  • Skilled workers in industry, construction and craftsmen, including in particular skilled workers in metallurgy, metalworking, food processing, woodworking, clothing, crafts, printing, precision instrument manufacturing, jewelers, craftsmen, electrical workers and in electronics.
  • Plant and machine operators and assembly workers, namely stationary and machine operators

Nevertheless, workers in above-mentioned professional activities must have at least European Qualifications Framework qualification level 4 or International Type of Education Classification level 35 or hold five years of duly proven professional experience.

Under the current list the following jobs no longer qualify for the 20% flat income tax rate: architects and tax consultants. This update to the NHR status and high-added value jobs aims to attract a new set of skills to Portugal.

For more information on this matter please contact us at www.mcs.pt or through management@mcs.pt.

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Assuring an Efficient Move to Madeira

If you have moved to Madeira Island or are planning to relocate, you already know that it is a beautiful place to live and with a lot of choices to what you can do.

Nevertheless such move does require careful planning, since the island can offer many tax advantages too. The following considerations can help you avoid costly mistakes and therefore will allow you to make the most of tax-efficient opportunities in Madeira.

Tax Residency

Taking up residency in Madeira (or Portugal for that matter), means that you are liable to taxation on your worldwide income, including capital gains, and reporting of non-Portuguese bank accounts to the Portuguese Tax and Customs Authority.

Portuguese tax residency kicks in if you spend more than 183 days in Portugal, or if your have real estate property, either rented or purchase, that can be occupied by you at any time in those same 183 days.

Careful attention must be paid to these rules, especially if you are considering real estate property purchase since before purchase you will need to be correctly registered with the Portuguese Tax and Customs Authority in order to avoid any costly mistakes.

Non-Habitual Resident Status

New residents, those who did not qualify in the 5 years previously to their arrival as residents for tax purposes in Portugal, can enjoy a a 10-year tax holiday period through acquiring non-habitual resident (NHR) status.

If you aim to take up employment in Portugal, a 20% income flat tax rate may apply to those professions deemed as ‘high value-added’. Fore more information on the NHR status please click here.

Investors and Entrepreneurs

Those wishing not to immediately retire can either relocate their international services company or incorporate a new one within the Madeira International Business Centre (MIBC).The MIBC is a unique set of tax benefits targeted to international services companies, international consultants and those within IT sector can be summed up as:

  • A reduced corporate income tax rate of 5% applicable to profits derived from operations exclusively carried out with non-resident entities or with other companies operating within the ambit of the MIBC;
  • Non-resident single and corporate shareholders of MIBC companies will benefit from a full exemption from withholding tax on dividend remittances from the Madeira companies.
  • Full access to the participation exemption regime;
  • Exemption on capital gains payments to shareholders not resident in black listed jurisdictions;
  • No withholding tax on the worldwide payment of interest, royalties and services.

Restructuring your Income

One cannot assume what was tax-efficient back in their previous jurisdiction is the same in Portugal. UK ISAs, for example, are taxable for Portuguese residents (even those with NHR status).

A full analysis of your income structure must be carried in order to make sure you are suitably diversified and everything is set up in the best way for your new circumstances.

MCS as a locally-based adviser who understands the Portuguese tax regime is best placed to recommend tax-efficient solutions regarding your relocation.

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