Do you intend to relocate to the best island destination in the world, Madeira, and start living in Portugal as an expat? Our team of professionals has gathered and written the five things you should know to avoid the most common mistakes the new expats make when relocating to Madeira.
1. Before living in Portugal as an expat, speak with your tax advisor at home
Portugal, and Madeira Island, offer a unique set of tax benefits from a personal taxation standpoint, known as the Non-Habitual Resident program (also known as the NHR scheme, and generally speaking, a 10-year tax holiday on your foreign income). However, before relocating, we always recommend that our clients talk with their tax advisor back home to ensure some of the following matters and questions:
- When to inform the home-country tax authority that you are no longer resident for immigration and taxation purposes.
- What will be your tax liability as a non-resident of your home country?
- Should you restructure your income to obtain a higher tax efficiency as a non-resident?
- Are there assets you need to dispose of not to trigger tax liability in the home country?
Based on more than 25 years of experience, our team of professionals is available to sit down with you, analyze your income structure and come up with a list of additional questions about your specific circumstances. This is crucial because when applying for the NHR scheme, you need to be compliant in Portugal and your home country.
2. Report your worldwide income while living in Portugal as an expat
If you permanently relocate to Portuguese territory, you will fall under tax residency rules and therefore be liable to report your worldwide income and pay taxes in Portugal, even if you are subject to NHR benefits. This is because, under Portuguese Tax Law, all those who qualify as residents, for tax purposes, in Portuguese territory must annually file their personal income tax returns to the Portuguese Tax and Customs Authority.
It should be noted that those who fail to file their tax return or file it after the legal deadline is subject to the payment of a fine, which, under the terms of Article 116 of the General Taxation Infringements Law (RGIT), can be between €150.00 (one hundred and fifty euros) and €3,750.00 (three thousand, seven hundred and fifty euros).
3. Engage a lawyer and a tax advisor
It may sound cliché, but hiring a tax advisor before your relocation to Portuguese territory is essential to understand your current income structure, whether it is compliant with the NHR exemption and what can be done so that you make the most out of the regime.
Our team at MCS is composed of four English-speaking lawyers whose careers have always been tied to advising expat clients investing in Madeira Island.
4. You are entitled to free healthcare
The overall healthcare system is world-class in general. Indeed, Portugal’s healthcare system was ranked 13th in the 2018 Euro Health Consumer Index, outperforming the United Kingdom, Ireland, and Spain.
However, legal residency is required to be eligible for the public healthcare system, as such healthcare in Madeira and mainland Portugal is only accessible to foreigners who are legal residents, i.e. EU-Citizens duly registered or third-country nationals holding a visa and having a Portuguese Taxpayer Identification Number associated to said Visa.
5. Portugal offers legal and political stability
Since 1974, Portugal’s two major centrist parties have taken turns at the helm, maintaining the country’s long history of political stability. It is not uncommon for these centre parties to create a coalition with other minor parties in recent years due to the country’s constitutional structure of premier-presidentialism.
Madeira has its own political and administrative constitution and government because it is an autonomous region. A regional executive (Governo Regional) and a legislature comprise the government’s two central bodies (Assembleia Regional). In this country, everyone has a vote in choosing their representatives in the legislature. Since 1976, the same party has held power in Madeira, and as of 2019, it has formed a coalition with its sister party to continue doing so.
The legal system in Portugal is founded on Roman-style civil law. It was mostly French law until the 20th century when German civil law began to have a more significant impact. Corporate law, administrative law, and civil procedure have all looked to European Union Law as their primary inspiration since 1986.
Angola, Brazil, Cape Verde, Guinea-Bissau, Mozambique, So Tomé and Principe, Timor-Leste, the State of Goa (India), and the Special Administrative Region of Macau (China) have all incorporated aspects of Portuguese Law into their legal systems.
Regarding economic and personal liberties, Portugal fared higher than Austria, Belgium, and Spain on the Human Freedom Index compiled by the Cato Institute. In additions, Portugal outperforms every member of the G20 on the World Index of Moral Freedom in terms of religious, bioethical, family, and gender freedoms.
Last, but not least, when it comest LGBTQIA+ equality, Portugal is ranked higher than the Netherlands, the United Kingdom,Europe’s, and Finland by ILGA-Rainbow Europe’s Index.
This article is provided for general information purposes only and is not intended to be, nor should it be construed as, legal or professional advice of any kind. Should you have any questions, please do not hesitate to contact us.
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
