Madeira offers the perfect conditions to attract digital nomads with its natural beauty, nature activities, culture and fantastic climate conditions all year round.
With reduced taxation, adequate infrastructures, competitive operational costs, safety and quality of life, Madeira positions itself to provide digital nomads with a unique package of benefits, offering a wide range of solutions to their specific needs.
Speedy internet is a must in a digital nomad way of life. Madeira benefits from a Submarine Cable Station, 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.
Another available infrastructure is the Internet Gateway provided by Marconi Internet Direct (MID). This MID offers international Internet access without any contention and uses diversity to access global backbones.
Last but certainly, not least, the IP platform has its international connectivity distributed by: 3 PoPs (London, Amsterdam and Paris), peering connections with hundreds of major international ISPs and IP transits to Europe and the USA.
All the aforementioned infrastructures combined with an easy-going island life make Madeira a unique destination within Europe to relocate as a digital nomad.
EU-Citizens, EEA Citizens and Swiss Citizens
EU citizens living in Madeira (or in any Portuguese territory) for longer than three months have to formalize their right of residence by registering.
After three months in Madeira (or in any Portuguese territory), EU citizens have 30 days to register, after which they receive a registration certificate.
Failure to register is an offence punishable by a fine of between EUR 400 and 1500.
Registering or remaining registered without meeting the necessary conditions is punishable by a fine of between EUR 500 and 2500.
In the event of an abuse of the law, fraud, or false marriage or partnership of convenience, residence rights will be refused and withdrawn.
If you are a third-country national, kindly note that you are not entitled to perform any job to a Portuguese entity without a visa. Furthermore, before your relocation, be sure to have a proper entry visa if you plan to stay longer than the visa-free period.
At the moment, Portugal does not have any form of digital nomad visa. Given this, if you plan to stay for an extended period, alternative visas such as the passive income visa or the golden visa may be routes you may consider. It is also important to note that different visas have different minimum stay requirements.
Before your relocation, be sure to understand what type of visa is more appropriate to your specific situation and engage a Bar certified lawyer to guide you through this process.
Generally speaking, those digital nomads residing up to 183 days in a given year in Madeira are not considered residents for taxation purposes. Therefore, they are not subject to personal income tax on their worldwide income.
Notwithstanding the above, if you have a real estate property (either rented or purchases) that you can occupy 183 days in a given year, or if you engage Portuguese entities as a freelancer during that period, personal income tax implications could arise. Under these circumstances, be sure to hire a tax consultant to avoid any unpleasant surprises.
Suppose you are considering a more extended stay, either as a freelancer or an employee. In that case, there are tax benefits for expats wishing to effectively relocate to Madeira, namely those foreseen under the Non-Habitual Tax Resident scheme.
Freelancers staying more than 183 days in a year
Free-lancers qualifying as residents for tax purposes, beware!
Income from a commercial, industrial, or agricultural activity and income from a sole trader (including scientific, artistic, or technical services) or intellectual rights (when earned by the original owner) may be taxed under a simplified regime or based on the taxpayer’s organized accounts.
The simplified regime will apply only to taxpayers who have opted out of organized accounts, have a turnover or a gross business and professional income lower than EUR 200,000 (for 2020) in the previous year. Under this simplified regime, only 75% of revenue is taxed, provided it arises from business and professional services listed in the table referred to in Article 151 of the PIT Code.
Under the simplified regime, the coefficient of 75% decreases by 50% and 25% in the taxation period of the beginning of activity and the following one.
The income ‘deduction’ arising from applying the coefficient of 75% is partially conditioned by the verification of expenses and charges effectively incurred and related to the activity.
Therefore, to the taxable income determined by applying the coefficients will be added the positive difference between 15% of the gross income and the sum of the following amounts (the EUR 27.000 mentioned during the meeting):
- EUR 4,104 or, when higher, the total amount of mandatory social security contributions (in part not exceeding 10% of the gross income received).
- Staff expenses, wages, or salaries communicated to the Portuguese tax authorities.
- Property rentals allocated to the professional activity communicated through the issue of an electronic receipt or a specific statement, whose invoices and other documents are communicated to the Portuguese tax authorities (if only partially assigned to the professional activity, it is considered only 25% of the total amount).
- 1.5% of the tax registration value of the properties assigned to the business or professional activity or 4% of the tax registration value of properties assigned to hospitality or letting activities (if only partially assigned to the professional activity, it is considered only 25% of the total amount).
- Other expenses with the acquisition of goods and services related to the activity, duly communicated to Portuguese tax authorities, namely: costs with current consumption materials, electricity, water, transports and communications, rents, litigation, insurance, leasing rents, mandatory fees paid to professional associations and other organizations representing professional activities to which the taxpayer belongs, travels and stays of the taxpayer and one’s employees (if only partially assigned to the activity, it is considered only 25% of the total amount).
- Imports and intra-Community acquisitions of goods and services related to the activity.
In addition to the above deduction, the amount of mandatory social security contributions paid exceeding 10% of gross income and related to such professional activities may also be deducted from the self-employment income if not deducted for other purposes.
The contributions rate applicable to self-employees corresponds to 21.4%. The monthly contribution basis for self-employees corresponds to 1/3 of the relevant remuneration determined in each reporting period and produces effects in that month and the following two months. To determine the tax-relevant remuneration of the self-employed, it is considered the income received in the three months previous to the reporting month. The relevant revenue corresponds to 70% of the amount of services rendered. The contribution base considered for each month has a maximum limit of 12 times the value of the IAS (5,265.72 euros, value in 2020), i.e. maximum contributions per month are 21.4%x(12 IAS) = EUR 1126.86.
As a freelancer or self-employed person, it is essential to note that you will be exempt from making Social Security payments for the first 12 months from the start of your activity. Social security contributions are due between the 10th and the 20th of the month following the month they refer.
VAT in Portugal is payable by all businesses with a turnover over €12,500 on taxable services. There are three rates of IVA in Madeira:
- General rate: 22% on taxable goods and services
- Intermediate rate: 12% on food and drink
- Reduced rate: 5% on bare necessities, including certain foods (e.g., meat, fruit, vegetables, cereals), books, newspapers, medicines, transport and hotel accommodation
VAT is payable to the Portuguese Tax Authority seven days after the reporting deadline periods, either quarterly or monthly.
Last but not least, invoicing must occur through a Portuguese Ministry of Finance dully approved software.
Personal Income Tax on Residents
Digital nomads who relocate for an extended period, more than 183 days, maybe liable to Portuguese personal income tax on their worldwide income. Having that said, exploring the Non-Habitual Tax Resident (NHR) route may be an option that one should consider.
Generally speaking, under the NHR scheme, foreign-sourced income is exempt from personal income tax in Portugal, provided compliance with the scheme’s requirements is observed. In addition, Portuguese sourced income may be subject to a flat tax of 20% if the activity carried out by the digital nomad is a high-added-value activity.
Income derived from buying and selling crypto is not taxable in Portugal; due to a somewhat ambiguous tax ruling on crypto income tax exemption. Therefore, applying for a new tax ruling is something that one should consider before relocating to Portugal.
Alternatively, your income structures should be in line with the current rules of the NHR scheme for said crypto income to be exempt from personal income taxation. One ought to seek professional tax advice on this matter before converting crypto to fiat currency as a Portuguese tax resident.
Furthermore, as of this date, banks in Portugal are not crypto-friendly. The Portuguese Blockchain Association has informed us that banks are only willing to accept fiat funds from duly accredited (by the Portuguese Central Bank) trading platforms.
Corporate Income Tax
The corporate tax rate applicable to companies in Portugal may vary, depending on which part of the Portuguese territory said companies are incorporated and domiciled. From the get-go, Madeira is the Portuguese territory with the highest tax efficiency for companies.
|Type of entity incorporated||MIBC*||Autonomous Region of Madeira||Portuguese mainland|
|Resident entities and permanent establishments of non-resident entities||5%||14,7%||21%|
|Resident entities characterized as small or medium enterprises, on the first € 25 000 of taxable profit||11.9%||17%|
* Incorporation of entities within the MIBC – Madeira International Business Center allows for a 5% tax rate that is only applicable on taxable profit deriving from non-resident entities (otherwise, the standard rates apply) along with additional tax benefits for shareholders. For more detailed information, please click here.
auctor: Miguel Pinto-Correia, Economist
Should you have questions regarding relocation to Madeira, as a digital nomad or expat, our experienced team of lawyers and accountants is ready to assist you.