Madeira, Portugal’s Atlantic jewel, is increasingly attractive to expats and international investors for its natural beauty, quality of life, and favourable tax conditions. Understanding the Madeira income tax rate is crucial for anyone planning to relocate or invest on the island. This article explains how income is taxed in Portugal in 2025, including how expats can benefit from Portugal’s tax system and regional reductions.
Table of Contents
- The Personal Income Tax System in Madeira
- Residency and Who Pays Tax in Madeira
- Capital Gains, Dividends, and Investment Income
- Additional Surcharges
- Tax Compliance in Madeira
- Thoughtful Tax Planning for Relocation
- Madeira Income Tax Rate: Conclusion
The Personal Income Tax System in Madeira
Madeira applies Portugal’s national Personal Income Tax regime (Imposto sobre o Rendimento das Pessoas Singulares, or IRS) with critical regional adjustments. In 2025, Madeira residents will benefit from lower rates in the initial brackets, which can offer real savings compared to the mainland.
The Madeira income tax rate is progressive; the lowest rate is applied to annual income up to €8,059, and the normal rate is 9.1%. As income rises, rates increase gradually. The next bracket, from €8,059 to €12,160, is taxed at 11.55%, while income between €12,160 to €17,233 is taxed at 15.4%. Between €17,233 and €22,306, the rate is 17.5%, and from €22,306 to €28,400, it rises to 22.4%. Higher rates continue at 24.85% up to €41,629, then 36.98% up to €44,987, followed by 40.95% for income up to €83,696. Above this threshold is taxed at a top marginal rate of 46.56%.
The system also includes fixed deductible amounts at each bracket, ensuring effective taxation remains fair and proportionate.
Residency and Who Pays Tax in Madeira
Anyone who becomes a tax resident in Madeira, typically by living in Portugal for more than 183 days in a calendar year or having a permanent home there on December 31, is taxed on their worldwide income. On the other hand, non-resident income is only taxed on Portuguese-sourced income, usually at a rate of 25%.
Classifying as a resident entitles you to benefit from the progressive Madeira income tax rate and applicable deductions.
Capital Gains, Dividends, and Investment Income
Capital income, including interest, dividends, and royalties, is usually taxed at flat rates of 28% or more, with capital gains also falling into this category. However, exemptions or credits may apply if there is a tax treaty with the country of origin, and the income was already taxed.d
Income earned within Incomegal, such as rental income from property or employment, is always subject to the standard Madeira income tax rate.
Additional Surcharges
Portugal also applies a solidarity surcharge to higher income levels. A 2.5% rate applies to income between €80,000 to €250,000, while income above €250,000 is taxed at a 5% surcharge. These additional taxes apply nationally and are not subject to regional reductions.
Municipal surcharges on business income (derrama) may apply, especially for company directors and self-employed professionals operating through Portuguese entities.
Tax Compliance in Madeira
All residents must report their worldwide income annually through the Modelo 3 form, typically filed between April and June for income earned in the previous year. In addition, residents must report foreign bank accounts and declare taxes paid abroad to claim any applicable tax credits. Failure to comply with these obligations may lead to penalties, and Portugal participates in the automatic exchange of financial information under global transparency frameworks.
Thoughtful Tax Planning for Relocation
Madeira Island
Before moving to Madeira, obtaining a Portuguese tax identification number (NIF), reviewing your global income and asset structure, and determining whether treaty protections apply is highly advisable. Legal and tax structuring, for example, setting up holding companies or real estate SPVs through Madeira’s International Business Centre, can also reduce your overall tax exposure.
Madeira Income Tax Rate: Conclusion
The Madeira income tax rate remains competitive compared to other EU jurisdictions. With lower initial brackets and regional deductions, Madeira offers a compelling fiscal environment for private individuals and international investors.
For tailored advice and efficient tax planning, we encourage you to book a consultation with our experts at Madeira Corporate Services. Let us help you make the most of your move to Madeira, strategically and securely.
FAQs about the Madeira Income Tax Rate
1. What are the Madeira income tax rates in 2025?
In 2025, Madeira applies progressive income tax rates starting at 9.1% for annual income up to €8,059. Rates increase through brackets, reaching a top marginal rate of 46.56% for income above €83,696. Residents benefit from reduced rates in lower brackets compared to mainland Portugal.
2. Do expats in Madeira pay tax on worldwide income?
Yes, expats who are considered tax residents—typically those living in Portugal for more than 183 days annually—are taxed on their worldwide income. Non-residents are only taxed on Portuguese-sourced income at a flat rate, usually 25%.
3. Are there additional taxes besides income tax in Madeira?
Yes. Portugal applies a solidarity surcharge: 2.5% on income from €80,000 to €250,000, and 5% above €250,000. These apply nationally. Municipal surcharges (derrama) may also apply to business income, especially for company directors and self-employed professionals.
The founding of Madeira Corporate Services dates back to 1996. MCS started as a corporate service provider in the Madeira International Business Center and rapidly became a leading management company… Read more
