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 a 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.
Assuring an Efficient Move to Madeira
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 you 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 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’. For 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 the 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.
Miguel Pinto-Correia holds a Master Degree in International Economics and European Studies from ISEG – Lisbon School of Economics & Management and a Bachelor Degree in Economics from Nova School of Business and Economics. He is a permanent member of the Order of the Economists (Ordem dos Economistas)… Read more