Living in Madeira as an expat comes with its unique charm and tax responsibilities. Understanding Portugal’s tax deductions is essential for maximising savings when filing your IRS return. Here’s a comprehensive breakdown of key deductions expats should know:
1. General Family Expenses
- 35 % deductible, capped at €250 per taxpayer (or €500 for couples filing jointly).
- Single-parent households benefit from a higher rate of 45 %, up to €335.
- Covers everyday costs: utilities, groceries, communications, fuel, clothing, etc.
2. Health Expenses
- Deductible at 15 %, up to €1 000 per household (or €500 under separate filing).
- Includes medical appointments, exams, surgeries, hospital stays, meds, health insurances, gym (with prescription), orthotics, thermals, ambulance services, and more.
3. Education & Training
- 30 % deductible, up to €800 per family.
- For attendees in mainland interior or autonomous regions (like Madeira), there’s a +10 pp increase, raising limits to €1 000.
- Displaced students (living over 50 km from home) renting accommodation may deduct up to €1 100, including €400 for rent.
- Eligible expenses: nursery, school fees, books, meals, extracurriculars, private lessons, etc.
4. Housing-Related Charges
- Mortgage interest (contracted before December 31, 2011) can be deducted at 15 %, up to €296 (or €450 for low-income earners).
- Rents or leasing for permanent homes: 15 % deductible up to €600 (€900 for low-income households).
5. Elderly Care & Home Support
- Support and residence home costs for older people qualify for a 25 % deduction, up to €403.75.
- Covers those with qualifying levels of dependency and specific income limits.
6. Alimony Payments
- 20 % of judicially ordered alimony is deductible, with no upper limit.
7. Invoice-Based VAT Deductions
- VAT for specific invoice categories is deductible: car maintenance, accommodation, hairdressing, vet, gym, newspapers (15 %), public transport tickets (100 %), veterinary meds (35 %), gym VAT (30%).
- Up to €250 per taxpayer.
8. Domestic Work
- Paid domestic services are deductible at 5 %, capped at €200 per household (automatically pre-filled from Social Security info).
9. Pension Savings Plans (PPR & Similar)
- Contributions to retirement savings or public capitalisation schemes can be deducted 20 % within age-based limits (e.g., up to €400 if under 35; €300 for over 50), or up to €350 for public schemes.
10. Charitable Donations
- 25 % deduction, unlimited when donating to state, public foundations, and religious institutions.
- Other eligible charities: 25 % up to 15 % of tax liability; religious donations count as 130 % for deduction, carried over up to 3 years if needed.
11. Global Cap on Deductions
- Taxpayers must observe a total deduction cap, excluding personal and family deductions:
- No cap if taxable income ≤ €8 059.
- Between €8 059 – €83 696: cap ranges from €1 000–2,500.
- Income > €83 696: cap is €1 000.
- +5 % extra per dependent (3+ dependents).
Expats in Madeira: What to Watch For
Interior Region Rules
- Madeira is eligible for the interior-region education bonus, raising education/training deduction limits.
Invoice & e-Fatura Tracking
- Regularly check and validate deductions through e-Fatura and the Tax Authority’s personal IRS page (available mid-March), where discrepancies can be corrected until the end of March.
Displaced Student Rent
- If you or your children study away from home (50 km+), rent deductions apply, particularly relevant for students at universities in mainland Portugal.
- Keep Documentation
- Always keep valid invoices/receipts with NIF, as tax authorities require these during audits, and hold onto them for at least four years.
Tips for Expats in Madeira
- Monitor e‑Fatura regularly to confirm your eligible expenses are captured.
- Report manually those not auto‑entered, especially health, education, and housing costs.
- Max out regional bonuses, take full advantage of the +10 pp education deduction.
- Knowing the annual caps can help budget your healthcare, education, and pension contributions.
Final Thoughts on Portugal’s Tax Deductions
Mastering Portugal’s IRS deduction system can significantly ease tax burdens for expatriates in Madeira. From everyday family costs to education perks and pensions, the system offers diverse avenues to reclaim part of yearly outlays. Just be proactive with documentation and aware of deadlines (especially end-of-March) to get the most from your tax return.
Looking for help?
For personalised guidance, especially if you have unique situations like multiple dependents, cross-border income, or rare Portugal’s tax deductions, it’s wise to consult our team that is familiar with Madeira’s tax rules.
The founding of Madeira Corporate Services dates back to 1996. MCS started as a corporate service provider in the Madeira International Business Center and rapidly became a leading management company… Read more
