If you are considering relocating to Madeira Island (Portugal), there are a few simple steps that you ought to follow to avoid tax and immigration complications regarding residency on the island.
There are many cases where expats, unknowingly registered themselves as residents when their actual personal circumstances do not meet such criteria.
Alternatively, there are expats who never register themselves as residents and end up complying with EU immigration law and Portuguese tax law. This puts them in risk of fines, tax interests and, in worst cases, liable to criminal behaviour.
Residency for immigration purposes
EU citizens living in Madeira (or in any Portuguese territory) for longer than 3 months have to formalize their right of residence by registering.
Registration for immigration purposes, must occur up to after 3 months in Madeira (or in any Portuguese territory), EU citizens have 30 days to register, after which they receive a registration certificate. Applications are filled with at the local city/town hall (Câmara Municipal) with jurisdiction over their residential address.
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.
Third-country nationals should have the appropriate residency visa o order to lodge a residency permit application with the Portuguese Immigration and Borders Service.
Residency for tax purposes
Generally, a taxpayer is considered to be a tax resident in Portugal if he remains more than 183 days. This counting refers to any period of 12 months beginning or ending in the year in question.
One is also resident if he/she owns housing that supposes the intention to maintain it and to occupy like habitual residence.
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.
Consequently, for a taxpayer who is a tax resident in Portugal, the Personal Income Tax, IRS, will be levied on his or her 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 a withholding tax. As such, a resident taxpayer in Portugal is required to file the IRS Form 3 reporting his/her worldwide income earned and corresponding taxes paid.
A non-resident taxpayer will only have to file a tax return if obtaining income from a Portuguese source.
What not to do?
Do not register yourself with the Portuguese Tax and Customs Authority, for tax purposes, not with your local Town/City Hall, for immigration purposes, without consulting a lawyer or a tax adviser. The concepts of tax residency and residency for immigration purposes and intertwined and one does not necessarily imply the other.
A tax adviser, or a lawyer, will be able to fully understand your situation and income structure and advise you on the best course of action so that you ought to take. This is important, specially to safeguard your income, whenever possible under, under Portuguese law.
Our team of lawyers, economists and accountants has more than 20 years of experience and is able to provide expats an integrated approach to investment and relocation to Madeira Island by operating as one-stop-shop. Through MCS expats are able to deal in an huge array of matters such as personal and corporate income taxation in Madeira, immigration (including Golden Visa), company incorporation, legal assistance with real estate purchase/rental and succession.
auctor Miguel Pinto-Correia
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