Portuguese Central Bank’s position on cryptocurrencies
Since there is no central entity that guarantees the irremovability and finality of payment orders, virtual currency cannot be considered a safe currency, as there is no certainty of its acceptance as a means of payment. The same is to say that the Portuguese Central Bank (Banco de Portugal) does not technically recognise cryptocurrency as currency per se due to lack of monetary policy regulation.
Portuguese Tax and Customs Authority’s position
It is the understanding of the Portuguese Tax and Customs Authority that, “cryptocurrencies are not technically considered “currency” because they do not have a legal tender or liberating power in Portugal, however, (…) they can be exchanged, with profit, for real currency (…), with specialized companies for the effect, with its value, compared to the real currency, being determined by the online demand for cryptocurrencies”. Its position is, therefore, in line with that of the Portuguese Central Bank.
As such, income resulting from the sale of cryptocurrencies will not be taxable under the Personal Income Tax Code, within the scope of category E (referring to capitals), nor subject to being taxed under category G (referring to equity increases, as capital gain).
Furthermore, it is also the understanding of the Portuguese Tax and Customs Authority that the profits obtained from the sale of cryptocurrencies are not taxable under the Portuguese tax system, unless by their regularity ends up constituting a professional or entrepreneurial activity of the taxpayer, in which case it will be taxed as a qualifying income under the category B (freelancing) of the Personal Income Tax Code.
Last, but not least, the Portuguese Tax and Customs Authority issued clear guidelines in January 2019 providing many answers to questions related to dealing with cryptocurrency, reporting obligations, cryptocurrency invoicing rules, rules for initial coin offerings,etc…
European Court of Justice and VAT
Jurisprudence of the European Union Court of Justice (EJC) on bitcoin, states that its sale is an onerous activity, subject to VAT, but covered by the exemption, as with other means of payment with a liberating value . “Considering the decision handed down by the ECJ (…) the exchange of cryptocurrency for‘ real ’currency constitutes a provision of services carried out against payment, exempt from VAT”.
Thus, the Portuguese Tax and Customs Authority concludes that although “cryptocurrency remuneration is a service provision subject to VAT”, the VAT code article that defines the exemptions covers “also cryptocurrency transactions”.
In the medium-long run
It is expected that, in the medium term, cryptocurrencies will be regulated and their tax regime concretely defined. In fact, its regulation may not imply taxation of the income derived from them. However, it is expected that it may eventually pass through its classification as financial assets, and through its classification as a security or derivative – not as a currency for purchase and sale transactions – with a consequent change in the definition of a security. Should this be the case, the respective income, obtained by taxpayers who do not engage in any activity related to cryptocurrencies, could eventually be taxed as passive income, such as capital income (for examples as dividends in proportion to the original investment) or capital gains.
Conclusion
Although Portugal has great conditions, from a personal income tax and VAT standpoint, for those who income is generated through cryptocurrencies, some uncertainty remains due to the fact that there’s no regulatory framework, which in turns makes it difficult for individuals (and companies) to open bank accounts in the country to be used for the purpose of trading.
Further to the above, crypto traders opting for taking up residency in Portugal, and more specifically Madeira Island (due to is safe haven status during the Covid-19 pandemic) for tax purposes, may combine the above benefits with the ones available under the Non-Habitual Resident taxation regime, under which most the foreign sourced income is exempt.
MCS and its team has more than 20 years of experience in assisting international investors and expats making their move to Portugal and Madeira Island. Should you request our assistance do not hesitate to contact us.
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In international taxation one can seldomly have the best of both worlds. However, Portugal is proving otherwise, thanks not only to the Madeira International Business Centre, but also to the Non-Habitual Resident (NHR) tax regime.
Created in September 23rd, 2009, the NHR regime is a set of personal income tax exemptions and reduced rates aimed at people wishing to transfer their residence to Portugal. Those qualifying for the NHR regime are entitled to the above-mentioned reduced rates for a period of 10 consecutive years.
Among the several tax benefits deriving from the NHR regime, is the tax exemption on foreign sourced income (interests, dividends, capital gains, income from real estate property (rents), royalties, intellectual property income and business income) provided that: these latter types of income can be taxed in the country of origin under a Double Taxation Agreement signed with with Portugal.
Given the above, potential investors with structures in Malta or Switzerland can relocate to Portugal and have peace of mind with respect to dividends/profits distributed by Maltese and Swiss companies (such as a SICAV type company – investment company with variable capital) to their shareholders benefiting from the NHR scheme.
In fact, the Portuguese Tax and Customs Authority not only applies full tax exemption on income received from the above entities (as generally foreseen in the Portuguese Personal Income Tax Code), but has also established recently binding information to its taxpayers that dividends paid to NHR shareholders of Maltese companies and SICAVs are exempt from personal income tax in Portugal.
In the light of the Double Taxation Treaty concluded with Malta in Portugal, the tax credit provided to shareholders is assimilated to dividends, taking into account the specificity of the Maltese tax system of imputing income to shareholders.
On the other hand, and although the Portuguese Personal Income Tax Code considers the income paid by a collective investment organization, namely a SICAV, to its participants, is as capital income, in light of the Double Taxation Treaty between Switzerland and Portugal, the same income is considered as dividends.
Further to the above, the same treaty establishes a situation of cumulative tax jurisdiction for this income, with Portugal being able to exercise taxation as the State of residence of the beneficiaries, and Switzerland, as the State of the source. Therefore, under the NHR regime, income deriving from SICAVs will be exempt from taxation in Portugal.
The NHR as a stand-alone option, or together with the corporate tax incentives under the Madeira International Business Center, makes available to international investors. a higher degree of international mobility and liquidity, the latter through a low corporate tax rate of 5% applicable to international services companies.
These features of the Portuguese Tax System make it possible for one to benefit from the best of both worlds.
auctor Miguel Pinto-Correia
MCS and its team have more than 20 years of experience in assisting private clients who want to transfer residence or invest in the Autonomous Region of Madeira.
Obtaining RNH status requires a careful assessment of the income structure of the potential beneficiary.
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It is increasingly common for expats to come and spend their retirement in Madeira Island, Portugal. They bring with them not only their savings of a lifetime of work, but also their foreign pensions.
Fulfilling the criteria of tax residence in Portugal (residing more than 183 days in Portuguese territory, or, when residing less time, having a house here that can be occupied at any time in the same period of time), those who reside, for tax purposes, in Portugal, are subject to the legal obligation to annually report their foreign bank accounts and their worldwide earnings to the Portuguese Tax and Customs Authority.
It is therefore important to understand the taxation framework of foreign pensions that tax residents in Portugal are subject to.
According to the OECD Model Convention, to which most countries and territories adhere, in order to avoid double taxation “pensions and similar remuneration paid to a resident of a contracting State [in this case Portugal] as a result of previous employment can only be taxed in that State [Portugal]”. In other words, foreign pensions earned by tax residents in Portugal can only be, in most cases, taxed in Portugal.
Notwithstanding the previous paragraph, “pensions and other similar remuneration paid by a contracting State or by its political subdivision or local authority, either directly or through funds, constituted by them, to a natural person, as a result of services rendered by that person to the State, or its subdivision or municipality, can only be taxed in that State.” That is to say, foreign pensions paid to former civil servants can only be taxed by the State where the former civil servant has performed his duties.
Note, however, that the overwhelming majority of expats who come to live to Portugal will be receiving pensions derived from previous commercial or industrial activities, this means that under the law, their pensions in Portugal will be subject to progressive rates of up to 48%.
The only way to avoid such high taxation on pensions by obtaining the status of Non-Habitual Resident (NHR), which must be requested by the taxpayer on arrival in Portugal (provided that the conditions are met). Beneficiaries of the NHR regime thus have their foreign pensions subject to a fixed rate of 10% on earned pensions from foreign sources.
In addition to the benefits described above, beneficiaries of the NHR scheme may also benefit from exemptions and reduced personal income tax rates on other types of income for a period of 10 consecutive years.
auctor Miguel Pinto-Correia
MCS and its team have more than 20 years of experience in assisting private clients who want to transfer residence or invest in the Autonomous Region of Madeira.
Obtaining RNH status requires a careful assessment of the income structure of the potential beneficiary.
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É cada vez mais frequente emigrantes portugueses retornarem a Portugal após uma vida de trabalho no estrangeiro, à semelhança do que vários expatriados pensionistas fazem. Consigo trazem não só as poupanças de uma vida de trabalho, mas também as suas pensões estrangeiras.
Cumprindo os critérios de residência fiscal em Portugal (residir mais de 183 dias em território português, ou, residindo menos tempo, possuindo cá uma casa que possa ser ocupada a qualquer momento no mesmo período de tempo), aqueles que residem, para efeitos fiscais, em Portugal ficam sujeitos à obrigação legal de reportar anualmente as suas contas bancárias estrangeiras e os seus rendimentos mundialmente auferidos à Autoridade Tributária e Aduaneira.
Importa, por isso, perceber o enquadramento fiscal das pensões estrangeiras por residentes fiscais em Portugal.
De acordo com a Convenção Modelo da OCDE, à qual a maioria dos países e território adere, com o intuito de evitar a dupla tributação, “as pensões e remunerações similares pagas a um residente de um Estado contratante [neste caso Portugal] em consequência de um emprego anterior só podem ser tributadas nesse Estado [Portugal]”. Ou seja, as pensões estrangeiras auferidas por residentes fiscais em Portugal só podem ser, na generalidade dos casos, tributadas em Portugal.
Não obstante o parágrafo anterior, “pensões e outras remunerações similares pagas por um Estado contratante ou por uma sua subdivisão política ou autarquia local, quer directamente quer através de fundos, por eles constituídos, a uma pessoa singular, em consequência de serviços prestados a esse Estado ou a essa subdivisão ou autarquia, só podem ser tributadas nesse Estado.” O mesmo é dizer que, pensões estrangeiras pagas a antigos funcionários públicos só podem ser tributadas pelo Estado onde o antigo funcionário público tenha exercido as suas funções.
Ora, caindo, a esmagadora maioria dos expatriados e emigrantes que retornam, no primeiro caso (i.e.: auferirem pensões por via de actividades comerciais ou industriais) quer isto dizer que ao declararem, conforme exigido por lei, as suas pensões em Portugal as mesmas estarão sujeitas às taxas de IRS progressivas que podem ir até aos 48%.
A única forma de evitar tão elevada tributação sobre as pensões estrangeiras é através do estatuto de Residente de Não-Habitual (RNH), o qual deverá ser requerido pelo contribuinte aquando da sua chegada a Portugal (desde que reunidas as condições para beneficiar do mesmo). Os beneficiários do regime RNHs vêem assim as suas pensões estrangeiras sujeitas a uma taxa fixa de 10% sobre as mesmas.
Para além dos benefícios descritos acima, os RNH podem ainda beneficiar de isenções e de taxas de IRS reduzidas sobre outros tipos de rendimentos por um prazo de 10 anos consecutivos.
auctor Miguel Pinto-Correia
A MCS e a sua equipa contam com mais de 20 anos de experiência na assistência a clientes privados que pretendem transferir residência ou investir na Região Autónoma da Madeira.
A obtenção do estatuto de RNH exige uma cuidada avaliação da estrutura dos rendimentos do potencial beneficiário.
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In recent years Portugal has been considered a safe haven for several expats and foreign investors, who in turn have contributed on a large scale to the improvement of the Portuguese economy, by investing in the real estate sector, sometimes simultaneously associated with the tourism sector, namely in local accommodation (short terms tourist rentals, known in Portugal as alojamento local), or because many wish to relocate their life and busines activity, permanently, to the country.
Several programs were launched to attract these investors and expats, including programs with attractive tax benefits such as the Non-Habitual Resident (NHR) regime, or the “Golden Visa“, a residence by investment program of which most of the investments were made through the acquisition of real estate property.
In recent years, these programs have led to an exponential increase of real estate acquisition, especially in large urban and tourist areas, which has also contributed emphatically to the growth of the tourism sector, since a large percentage of real estate acquisition has been allocated to local accommodation.
Despite the crisis arising from the pandemic outbreak of Covid-19, the “Golden Visa” maintains a good level of adherence and demand by investors. In May of this year, there was a new increase in the value of real estate investment, a total of 137 million euros, the highest monthly investment value since March 2017.
Despite the message of confidence passed on by investors during the crisis, the global pandemic has exacerbated some socio-economic effects that were already worrying the Portuguese government, especially housing in large urban areas.
The strong demand for profitable properties, under the “Golden Visa” program, coupled with the growth of tourism activity in Portugal, and consequently the growing investment in local accommodation, has aggravated the price of housing rentals, especially in the large urban centers where the majority of real estate investment is made, and where the highest percentages of local accommodation.
On June 6, 2020, Resolution of the Council of Ministers No 41/2020 was published, approving the Economic and Social Stabilization Program, which contains measures for the conversion of local accommodation.
There is great uncertainty as to the direction of the tourism sector, how and when it will rise and how the sustainability of housing prices and rentals will be in these times of pandemic. Tourism has held back its breath, and those who have invested in local accommodation may need an oxygen balloon in the short-term.
In view of the urgency of responding to the middle-income population in obtaining affordable housing leases and the fact that the tourism sector, in particular local accommodation, is experiencing major difficulties due to restrictions on international travel, the measure of reconversion of local accommodation could be a response in order to combat both problems.
The measure itself is implemented through the Portuguese government’s support to municipal rental and sub-rental programs for more affordable rents. In these programs public entities pay 50% of the difference between the rental income paid and the rental income received, which will certainly give increased security to the landlord, because 50% of the income is guaranteed by public entities.
To the above benefit there is also an important advantage concerning personal income tax and corporate income tax exemption, on rental income resulting from the lease or sub-lease, as stipulated by Article 20 of Decree-Law No. 68/2019.
This option concerning the conversion of local accommodation into long term rentals may be even more appealing, considering the amendment to Article 3(9) of the Personal Income Tax Code, carried out by the 2020 State Budget. Such change foresees that the local accommodation does not generate a capital gain when the property is transferred back to the owner’s estate, if said property is immediately assigned to generated long term rental income.
With this measure, a potential solution remains open for investors who have earmarked their real estate investments for local accommodation, and who now want to secure a source of income, which although not as attractive as that obtained in many cases through local accommodation, is in the current scenario of economic crisis, a more sustainable and stable source of income.
auctor Pedro Marrana
MCS and its team has more than 20 years of experience in assisting corporate and private clients wishing to relocate to Madeira. For more information on our services please do no not hesitate to contact us.
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Nos últimos anos Portugal tem sido considerado um refúgio seguro para diversos expatriados e investidores estrangeiros, que por sua vez têm contribuído em grande escala para a melhoria da economia portuguesa, quer pelo investimento feito no sector imobiliário, ou do imobiliário simultaneamente associado ao sector turismo, nomeadamente apostando no alojamento local, ou ainda pelo facto de muitos realocarem a sua vida e atividade, de uma forma permanente, para o território português.
Foram lançados diversos programas para a captação destes investidores e expatriados, contemplando programas com aliciantes benefícios fiscais como é o caso do regime do Residente Não Habitual, ou programas de “Golden Visa”, onde é atribuída autorização de residência através do investimento no território nacional, tendo a maioria do investimento sido realizado através da aquisição de imóveis.
Nos últimos anos, os referidos programas promoveram um aumento exponencial na aquisição imobiliária, especialmente nos grandes meios urbanos e turísticos, o que também contribuiu de forma enfática no crescimento do sector do turismo, acima de tudo pelo facto de vasta percentagem da aquisição imobiliária ter sido alocada para o sector do alojamento local.
Apesar da crise instalada por conta do surto pandémico da Covid-19, o “Golden Visa” manteve um bom nível de adesão e procura pelos investidores, visto que em Maio do corrente ano, ocorreu um novo aumento no valor do investimento imobiliário, na ordem dos 137 milhões de euros, tendo sido o valor mensal de investimento mais elevado desde Março de 2017.
Não obstante a mensagem de confiança passada pelos investidores em plena situação de crise, a pandemia global veio a agudizar alguns efeitos socioeconómicos que já vinham a preocupar o Estado português, especialmente no campo da habitação dos grandes meios urbanos.
A forte procura por imóveis rentabilizáveis, por parte dos investidores do programa dos “Golden Visa”, aliado ao crescimento da atividade turística em Portugal, e consequentemente do crescente investimento no alojamento local, veio a agravar a crise na sustentabilidade do arrendamento habitacional, especialmente nos grandes polos urbanos onde é efetuado a maioria do investimento imobiliário, e onde se encontram as maiores percentagens de alojamentos mobilados para turistas.
A 06 de Junho de 2020, foi publicada a Resolução do Conselho de Ministros n.º 41/2020 na qual foi aprovado o Programa de Estabilização Económica e Social, onde consta uma medida de Reconversão de Alojamento Local.
A realidade atual é de uma grande incerteza quanto ao rumo do sector do turismo, de como este se irá reerguer, em quanto tempo, e como será a sustentabilidade do alojamento local nestes tempos de combate à pandemia. O turismo susteve a respiração, e quem investiu no alojamento local poderá necessitar a curto-médio prazo de um balão de oxigénio.
Tendo em conta a urgência de dar resposta à população com rendimentos intermédios, na obtenção de arrendamento habitacional, e pelo facto de o sector do turismo, nomeadamente do alojamento local, estar a atravessar grandes dificuldades devido às restrições nas deslocações internacionais, esta medida de reconversão de alojamento local poderá ser uma resposta por forma a combater ambas as dificuldades.
A medida em si é concretizada através do apoio do Estado Português a programas municipais de arrendamento e subarrendamento com rendas mais acessíveis, sendo que as entidades públicas comparticipam em 50% a diferença entre a renda paga e a renda recebida, o que dará certamente uma segurança acrescida ao senhorio, pelo facto de 50% da renda ser garantida pelas entidades públicas.
Ainda acresce uma importante vantagem pela isenção de tributação em sede de IRS ou IRC, sobre os rendimentos prediais resultantes do contrato de arrendamento ou subarrendamento, conforme estipulado pelo artigo 20.º do Decreto-Lei n.º 68/2019.
Esta opção pela reconversão do alojamento local para o arrendamento poderá ser ainda mais apelativa, tendo em conta a alteração do n.º 9 do artigo 3.º do CIRS, levada a cabo pelo Orçamento de Estado de 2020, passando a não ser considerada como mais-valia a transferência para o património particular do empresário de bem imóvel habitacional que seja imediatamente afeto à obtenção de rendimentos da categoria F.
Com esta medida, fica em aberto uma potencial solução para os investidores que destinaram os seus investimentos imobiliários ao alojamento local, e que pretendam agora garantir uma fonte de rendimento, que embora não seja tão atractiva como a que era obtida em muitos casos através do alojamento local, é no atual cenário de crise económica, uma fonte de rendimento mais sustentável e estável.
auctor Pedro Marrana
A equipa da MCS conta com mais de 20 anos de experiência em consultoria fiscal a empresas e indivíduos. Se necessitar da nossa assistência entre em contacto connosco.
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Starting July 1, Madeira and Porto Santo, Portugal, will be open to international travelers. To ensure security for both visitors and residents, all people traveling to the Atlantic islands will have to either present a negative test done within 72 hours prior to departure or be tested upon arrival (without any costs; COVID-19 tests on arrival will be paid for by the Madeira Government).
The Madeira Islands, Discover Madeira says, are focused on being a COVID-safe destination and are working with SGS, a world leader in certification, to ensure good practice across the destination to minimize risk in the wake of COVID-19 (coronavirus).
In May, Madeira developed a good practices document to deal with COVID-19. These measures are intended to provide comfort to those who travel and, ultimately, for the wellbeing of all. These three initiatives—to cover testing costs, partner with SGS in certification and develop a good practices document—form the destination’s plan to ensure a safe vacation for all visitors.
Good to know: According to Discover Madeira, the Portuguese island had very few cases of COVID-19 and acted quickly to control the virus on the archipelago. Portugal, overall, has been commended for its response to coronavirus. At present, Madeira has registered 90 positive cases of COVID-19, 67 recovered cases and no deaths.
Of volcanic origin, its location provides a mild climate and sea all year round, in addition to scenery of mountains, valleys and cliffs, all covered by the Laurissilva vegetation, named Natural Heritage of Humanity by UNESCO. The archipelago is formed by a set of islands, the main and only inhabited being Madeira and Porto Santo.
in Travel Agent Central
Offering unique corporate and personal tax advantages to expats and digital nomads, Madeira is a reference in Portugal for those looking to work and live in the sun. We at MCS have more than 20 years of experience in assisting companies, expats, digital nomads and entrepreneurs relocating to the Pearl of the Atlantic.
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Not many investors think of company formation in Portugal, and those who consider Portugal might to know why Madeira is the place to be.
“Portugal’s history is made of discoveries, entrepreneurship, creativity and permanent innovation. Portugal is a modern, sophisticated, and future-oriented country. Capable of combining tradition and innovation in what we do in a surprising way. A welcoming country, filled with sunshine, breathtaking landscapes, and a unique gastronomy. Open and multicultural, the country can gather the best of its experience and knowledge to originate solutions that push forward global businesses. Portugal, a country that will surprise you.”
One thing that surprises all investors in Portugal is its corporate tax system, more specifically the one available under the Madeira International Business Centre (MIBC).
A favourable tax landscape
Developed in the 1980s, the MIBC was conceived by the Portuguese Government to attract international investment, namely international services providers in the areas of international trading, e-business and telecommunications, management services, consulting services, as well as the ownership of intellectual property, the development of real estate investments or the holding of participations.
Type of entity incorporated | MIBC | Autonomous Region of Madeira | Portuguese Mainland |
| Resident entities and permanent establishments of non-resident entities | 5% | 20% | 21% |
| Resident entities characterized as a small or medium enterprises, on the first € 25 000 of taxable profit | 13% | 17% |
Add the competitive corporate taxation regime to the tax benefits available to expats and former Portuguese emigrants wishing to relocate to Portugal, the Non-Habitual Resident (NHR) tax regime. And one will find a comprehensive and desirable tax regime to expand one’s international business to Portugal. In fact, under the NHR tax regime those qualifying can benefit from a unique personal income tax treatment over a 10-year period, which included the possibility of enjoying a 10-year tax exemption on almost all foreign source income.
Company formation / incorporation
Generally speaking, in order for one to incorporate a company in Portugal, the following steps need to be followed:
- Verify the business name and make a reservation with the Portuguese Commercial Register.
- Appoint a legal representative for the company in Portugal.
- Draft the Articles of Association with information about the owners, business activities, etc.
- Open a bank account for depositing the share capital.
- Apply for licenses and permits in accordance with the company’s activities.
- Register for tax purposes and social contributions in Portugal.
Those looking into incorporating a company within the MIBC need to apply for a MIBC license. The license’s application (to be submitted in Portuguese language) must be filed to Sociedade de Desenvolvimento da Madeira, the official concessionaire of the MIBC, in two copies, addressed to the Cabinet of the Vice-President of the Regional Government of Madeira in the name of an existing company, in Portugal or abroad, or of a company to be incorporated. Branches of existing companies may also be licensed.
All relevant information concerning the activity to be performed by the company must be included in the license application, namely:
- Company name and address.
- Activity to be undertaken and respective NACE code (European nomenclature of the Economic Activity).
- Total value of the investment.
- Indication of the number of jobs to be created.
In the case of a successful application, the license is deemed to be granted in favour of the company once the applicant furnishes proof of the formation and registration of such company. All documents in support of the license application must be duly translated into Portuguese and legalized.
Types of companies
Most investors opt for a private limited company (sociedade por quotas – LDA) where liability is limited by the contribution to the capital. LDA type of companies must established by at least two founders with a minimum share capital of EUR 2, although it is recommended that it should be at least of EUR 1000. All the shareholders must bring a contribution to the capital and their liability is limited to that contribution. Management of the company is assured by a director appointed by the general meeting of the shareholders.
Sole investors, lacking a business partner, can opt to incorporate a sole shareholder company (sociedade unipessoal por quoatas – Uni. LDA). Under this type of company, the minimum share capital is EUR 1, although it is recommended that it should be at least of EUR 1000. Uni. LDA’s liability is limited by the contribution to the capital.
On the other hand, if investors opt to incorporate a public company (sociedade anónima – SA) which requires a minimum share capital of EUR 50 000. SA companies and at least 5 shareholders. Like LDAs their liability is limited to their contribution to the capital. The management of this type of companies is assured by a board of directors which is monitored by a supervisory board, both appointed by the general meeting of the shareholders. In addition, SA companies are required, by law, to appoint a certified public accountant.
Other types of companies can be incorporated under the Portuguese Commercial Code, such as limited partnerships and general partnerships, nevertheless these are seldomly chosen by investors and their partners.
auctor Miguel Pinto-Correia
MCS and its team has more than 20 years of experience in assisting corporate and private clients wishing to invest in Portugal or within the Madeira International Business Center. For more information on our services please do no not hesitate to contact us.
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Portugal is asserting itself as a major start-up destination in Europe, and with that hundreds of techies are willing to relocate to Europe’s oldest country. But it is not just the Web Summit’s new capital, Lisbon, who’s attracting new residents, the Algarve and Madeira are also getting their share. The southern Portuguese most richest regions have an agreement with Saint Peter (all-year-round good weather) and therefore are attracting not freshly retired residents from Central and Northern Europe every year, but also digital nomads looking for good weather and inspiration.
A Land of Tax Opportunities
Smart Tax Incentives for New Residents
The Portuguese Government is not relying on the country’s “good looks” to attract investment, in fact, it has resorted to an interesting tax policy aimed at luring and securing foreign investment in the long term. The tax policy? Portugal’s Non-Habitual Resident (NHR) Regime.
The NHR Regime is a special tax residency status, applicable to all those who fall under the following conditions, regardless of nationality or age:
- Be a tax resident under Portuguese domestic legislation; and
- Not have been taxed as a Portuguese resident in the five years prior to taking up residence in Portugal.
Provided you check the previous requirements, you can benefit from a total tax exemption on foreign source employment, professional, dividends, interest, capital gains and rental incomes. As for pensions, these are taxed at a flat rate of 10%. All you need to do is to make sure that those incomes are either taxed at source, in accordance with the applicable tax treaty or that are not deemed as derived from Portugal nor from a tax haven (in the case of dividends, interests, capital gains and rents).
In case you work in Portugal and earn either employment or professional income from a Portuguese source, then those incomes will only be liable to a 20% flat tax rate, provided the job performed is deemed as a high-added value profession by law.
Reduced Tax Costs for International Businesses
Apart from the NHR Regime applicable to anyone relocating to Portuguese territory and complying with the regime’s conditions, digital nomads, freelancers, international consultants and international services providers can reduce their tax-related operational costs through the International Business Center of Madeira. This preferential and highly efficient tax regime grants significant advantages to companies structured in Madeira Island, of which I highlight the following:
- 5% corporate tax (against mainland’s 21% or Madeira’s 20%), in all international operations.
- Total exemption from withholding tax on dividend remittances from the Madeira companies, for non-resident shareholders.
- Exemption on capital gains payments, for non-resident shareholders.
- Access the participation exemption regime.
Why Madeira, of all other places in Portugal?
Weather: Geographically located off the coast of Africa, Madeira is certainly European. The currency is the euro, the culture is European and politically speaking Madeira is 100% Portuguese. And yet the climate is sub-tropical with temperatures rarely dropping below 20 degrees centigrade even in the winter, and a high level of rainfall in the mountainous interior ensures the island is very green for the majority of the year.
Reduced operational costs: Madeira offers low operational costs when in comparison with other European countries. In fact, the cost of human resources and the price of several goods and services are very competitive when directly compared with other European locations, allowing companies to face considerably lower costs when establishing operations in Madeira.
Connectivity: Business wise, Madeira has a highly qualified workforce and most of the people speak and understand the English. Add that to the fact the its Cristiano Ronaldo Airport connects you to most of European capitals (Paris, Amsterdam, Vienna, Zurich, London, Berlin…) and it is easy to understand why the tech start up scene is developing.
In terms of international communications connectivity, Madeira is connected to a Submarine Cable Station connecting Europe to Africa and the Americas, hosted in the “Madeira Datacenter”, operating several international optical submarine cables, allowing interconnectivity with national and international SDH networks and providing, as such, significant advantages in terms of quality, cost, bandwidth and scalability.
Safety: Madeira is Portugal’s safest region, with a criminality rate of just 26 criminal cases per thousand inhabitants.
auctor Miguel Pinto-Correia
MCS has more than 20 years of experience in assisting private and corporate clients making their move to Portugal. Find out how we can help and do not hesitate to contact us.
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EU Nationals
An EU national moving to Madeira, must register his/her car if one is the holder of the registration certificate, the owner of the vehicle, or a user of a vehicle one does not own (e.g. a family member). One can use your vehicle here while it is still registered in your previous home country. An EU national has 20 working days to register your car in Madeira, following the car import into Portuguese territory. One can register his/her car at any customs office by showing the Vehicle Tax (Imposto Sobre Veículos – ISV) and by submitting the vehicle customs declaration (DAV) with the Portuguese Tax and Customs Authority.
Please note that if one changes his/her country of residence to Portugal, one has 12 months from the date you transfer residence to Portugal to request an exemption from the payment of vehicle tax.
If one buys a car abroad, transit registration plates issued in another EU country will be recognized in Portuguese territory for the purposes of driving one’s car back to his/her place of residence (temporary importation).
One can only use his/her car in Madeira for the maximum period of 90 days, after the entrance in Portuguese territory, under the condition that it is driven only by the owner of the vehicle.
Vehicles owned by a private individual, who has transferred his/her residence to Portugal, may be exempt from vehicle tax (ISV) if they meet the following criteria:
- individuals over 18, resident in the country from where are transferring the residence for a minimum period of 6 months, consecutive or otherwise
- that has paid the vehicle tax in the country of your former residence and did not benefit from any type of reimbursement scheme when left that country
- owner the vehicle in the country of your former residence for at least 6 months prior to transferring to Portugal, starting from the date on which the vehicle registration document was issued, or from the date on which the leasing contract was signed, as relevant.
An EU national registering and using his/herr car in Madeira, must pay:
- Resgistration Tax (ISV); and
- Road Tax (IUC).
The following categories of vehicles are exempt from vehicle tax but must be registered in Madeira:
- vehicles whose owner has transferred his/her residence from another EU country, or from a third country to Portuguese territory
- vehicles brought by diplomats who are returning to Portugal
The following categories of vehicles are exempt from road tax:
- motor vehicles and motorcycles owned by foreign states, diplomatic and consular missions, international organizations, and specialised European agencies and their officials
- motor vehicles and motorcycles which are older than 20 years or are public museum pieces, and are occasionally used for no more than 500 kilometres a year
- non-motorised vehicles, exclusively electric or powered by non-combustible renewable energies, special non-carrying goods vehicles, ambulances and vehicles dedicated to the transport of patients under applicable regulations, hearses and agricultural tractors
Step by step
- When importing a car into Portuguese territory one must obtain the following documents: registration certificate and the European Certificate of Conformity (COC);
- Upon arriving to Portuguese territory the vehicle needs to be submitted to vehicle inspection;
- Obtain approval from Madeira’s Regional Directorate for Economy and Land Vehicles concerning the legality of the vehicle’s documents;
- Submit all the vehicle’s documents to the Portuguese Tax and Customs Authority and pay the respective tax;
- Once tax is paid the car owner will then receive the new license plate numbers, which he/she will then have to obtain (from an authorized producer) and fix the new license plates to the car;
- Deliver to Madeira’s Regional Directorate for Economy and Land Vehicles the documents produced by the Portuguese Tax and Customs Authority and obtain the Single Vehicle Document (DUA);
- Once the DUA is obtained one must register the vehicle with the National Car Registry;
- Once the vehicle is registered, pay the road tax.
translator Miguel Pinto-Correia | fons Ekonomista
Our team at MCS has more than 20 years of experience in assisting investors and expats alike relocating their business and life to Madeira, Portugal. Should you need assistance, in dealing with the bureaucracy, namely from a tax standpoint we are here to help you.
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