Preparing for a successful move to Madeira implies long-term planning and understanding of the implications of relocation.
Our team of professionals has assisted many expats over the year. From experience, 90% of them do not plan their move to Madeira properly or fail to understand the implications of such a move. Given this, this blog post summarises the steps needed before relocating to the Island.
Obtaining a Portuguese Taxpayer Identification Number
The NIF (Número de Identificação Fiscal, also known as Número de Contribuinte) is the taxpayer identification number in Portugal. This number is used in several services such as: opening a bank account, getting health insurance, getting a phone subscription, and filling the income tax returns or other taxes or financial transactions. The NIF is also required for those renting or buying property in the Portuguese Territory. As such, we always recommend to our clients that the first thing they need to obtain is a NIF.
When obtaining a NIF for the first time, the address given at the moment of application must be the residential address of the applicant’s country of residency (i.e. a foreign address). This is because, at the moment of application, the client has not yet obtained their immigration documents.
Those residing outside the EU/EAA at the moment of NIF application must appoint a tax representative, as determined under Portuguese Tax Law.
Move to Madeira: Complying with Immigration Requirements
EU-Citizens and their families
EU/EEA citizens (along with Swiss and Andorrans) 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. As such, EU-Citizens must apply at the local city/town hall (Câmara Municipal) with jurisdiction over their residential address and provide the following documents:
- Workers
- a valid identity document
- a declaration on oath that they are employed or self-employed in Madeira (or in any Portuguese territory); or
- a declaration on oath that they have sufficient financial resources for themselves and their family members, and a health insurance policy if the country of which they are citizens has the exact requirement for Portuguese citizens.
- Pensioners
- a valid identity document
- a declaration on oath that they have sufficient financial resources for themselves and their family members, and a health insurance policy if the country of which they are citizens has the exact requirement for Portuguese citizens.
- Students
- a valid identity document
- a declaration on oath that they are registered with an officially accredited public or private educational establishment
- a declaration or other means of proof that they have sufficient financial resources and a health insurance policy if the country of which they are citizens has the exact requirement for Portuguese citizens.
Notwithstanding the above documentation legally required by city/town halls, municipal governments might request additional documentation, usually differing from municipal government to municipal government and even from administration to administration. This is where we can help navigate the bureaucracy and compliance with the documents provided.
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 an offence 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.
Non-EU-Citizens
Non-EU citizens must apply for the appropriate visa with the Portuguese diplomatic mission serving their current country of residence before relocation (or apply for the Golden Visa upon making the qualifying investment). Never apply for a visa while in Portuguese Territory as a tourist, as not all residence permits are possible under this option, and the ones available take an extremely long time to process.
Tax Residency
Definition of Tax Residency
Generally, a taxpayer is considered a tax resident in Portugal if he remains for more than 183 days. This counting refers to any period of 12 months beginning or ending in the year in question.
One is also a resident if they own housing that supposes the intention to maintain and occupy it like a habitual residence. One usually triggers tax residence rules upon obtaining the legal permit to reside in Portugal (except under the Golden Visa). As such, the address associated with the NIF must be updated accordingly.
In the event of a conflict in the definition of the tax residence, the taxpayer must take into account the criteria for its definition in the Double Taxation Agreement signed between Portugal and the country of residence.
Tax residency is essential for obtaining the Non-Habitual Status (NHR), as one must first be a resident to apply for NHR status and one has until 31st March of the year following that of registration as a resident to obtain said status.
Tax Residency and CRS
The Portuguese Tax Code requires all taxpayers who work and reside abroad to communicate the change of their tax address to the Tax and Customs Authority (“AT”) within 60 days.
This issue has become more “serious” if we consider that banks now collect and report information on bank account balances held by non-resident (for tax purposes) clients to the tax authorities. However, a large part of expat communities abroad fails to do so. This leads them to report their income earned in both countries incorrectly.
The opposite also happens: foreign banks will report the accounts held by taxpayers resident in their national Territory to their respective tax authorities, who will then communicate this information to the tax authorities of the country of origin.
This exchange of information stems from the implementation of the Common Reporting Standards (“CRS”), created by the OECD and in which Portugal and 92 other countries are involved. Offshores like the Cayman Islands, the British Virgin Islands, and the Channel Islands are also included in these jurisdictions.
These commons reporting standards aim to combat tax evasion and money laundering and can impact the tax residency status of thousands of expats. CRSs can then risk expats’ income being taxed in their country of origin and their country of residence if tax residence status is not up to date in all jurisdictions.
It is, therefore, imperative that expats update their tax residence status with the competent tax authorities.
Tax Reporting Obligations
Consequently, for a taxpayer who is a tax resident in Portugal, the Personal Income Tax, IRS, will be levied on their worldwide income. The IRS tax rate can go up to 48%.
On the other hand, if a taxpayer is not a tax resident in Portugal, the IRS tax is levied only on income obtained in Portugal, provided that they are not subject to a withholding tax.
As such, a resident taxpayer in Portugal must file the Portuguese IRS Form 3 reporting worldwide.
A non-resident taxpayer must only file a declaration when obtaining a rental income Portuguese source.
Accessing Madeira’s Regional Healthcare System
Upon becoming a resident for tax and immigration purposes on the island, expats can access Madeira’s Regional Healthcare System (SESARAM) by enrolling and the healthcare centre (centro de saúde) with jurisdiction over their area of residence. At the healthcare centre, expats must provide proof of tax and immigration residency and passports.
Exchange of Driver’s License
Expats must be aware that the exchange of their driver’s license is required under Portuguese law. For more information, please click here.
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 or require our assistance with the above, 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
