Digital Nomads

Generally speaking, those digital nomads residing up to 183 days in a given year in Madeira are not considered residents, for taxation purposes, and therefore not subject to personal income tax on their worldwide income.

Notwithstanding the above, should you have a real estate property (either rented or purchases) that you can occupy in 183 days in a given year or should you engage Portuguese entities as a free-lancer during that time period then personal income tax implications could arise. Under these circumstances be sure to engage a tax consultant in order to avoid any unpleasant surprises.

If you are considering a longer stay, either as a free-lancer or an employee, there are tax benefits for expats wishing to effectively relocate to Madeira, namely those foreseen under the Non-Habitual Tax Resident scheme.

Digital nomads wishing to relocate for an extensive period, more than 183 days, may be liable to Portuguese personal income tax on their worldwide income. Having that said exploring take 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 some requirements are met under the scheme’s rules. In addition, Portuguese sourced income may be subject to a flat tax of 20% if the activity carried our by the digital nomad is deemed as a high-added value activity.

Personal Income Tax as a Freelancer

Income from a commercial, industrial, or agricultural activity and income from a sole trader (including scientific, artistic, or technical services) or from intellectual rights (when earned by the original owner) may be taxed either in accordance with a simplified regime or based on the taxpayer’s organized accounts.

The simplified regime will apply only to taxpayers who, not having opted for 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, the above income is taxed on 75% of income arising from business and professional services listed in the table referred to in Article 151 of the PIT Code. As an incentive for taxpayers joining the simplified regime, the coefficient of 75% is reduced by 50% and 25%, in the tax period of the beginning of activity and in the following one. The applicable personal income tax rate might be progressive (up to 48%) or flat at 20% (under NHR scheme conditions).

The income ‘deduction’ arising from the application of 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 (aproximatly EUR 27.000):

• EUR 4,104 or, when higher, the total amount of mandatory social security contributions (in the 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 hotel 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 expenses 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 amount of 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 to 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 in the following two months. For the determination of the relevant remuneration of the self-employee, it is considered the income received in the three months previously to the reporting month. The relevant remuneration 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 important 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 must be paid between the 10th and the 20th of the month following the month to which they refer.

VAT in Portugal is payable by all businesses with a turnover in excess of €12,500 on taxable services.

VAT is payable to the Portuguese Tax Authority seven days after the reporting deadline periods, either quarterly or monthly.

Cryptocurrencies

Income derived from buying and selling crypto is not taxable in Portugal, as of this date. Nevertheless the Portuguese Central Bank is set to regulate crypto-trading platforms and given how old (2015) and somewhat ambiguous the tax ruling on crypto income tax exemption is, an application for a new tax ruling is something that you should give a thought before relocating to Portugal.

Alternatively, your income structures should be in line the current rules of the NHR scheme for said crypto income to be exempt from personal income taxation. Tax advice on this matter should be sought after prior to any conversion to crypto to fiat currency as Portuguese tax resident.

Furthermore, as of this date, banks in Portugal are not crypto-friendly and 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, the Madeira is the Portuguese territory with the highest tax efficiency for companies.

* Incorporation of entities within the MIBC – Madeira International Business Center allows for a 5% tax rate is only applicable on taxable profit deriving from non-resident entities (otherwise the normal rates apply) along with additional tax benefits for shareholders. For more detailed information, please click here.

VAT