Relocating to Madeira: 5 steps-plan

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Relocating to Madeira: 5 steps-plan

by | Monday, 6 December 2021 | Immigration, Personal Income Tax

Relocating to Madeira

Relocating to Madeira (your dream island) is a simple process, and there are three things that you need to take into account before moving, so no mistakes are made.

First and foremost, one must understand that residency entails two aspects: tax and immigration. The concepts of tax residency and residency for immigration purposes are intertwined, and one does not necessarily imply the other.

From our experience, there are many cases where expats unknowingly register themselves as residents when their actual personal circumstances do not meet such criteria. Alternatively, some expats never register themselves as residents and end up failing to comply with EU immigration law and Portuguese tax law. This puts them at risk of fines, tax interests and, in worst cases, liable to criminal behaviour.

Given this, we prepared a step plan that will assist you in moving to Madeira.

5 Things you should do when relocating to Madeira Island

1. Hire a lawyer

It may sound cliché, but if you do not live in Madeira nor are acquainted with Portuguese and Madeiran law, a specialized expat lawyer can represent, advise and guide you throughout the entire relocation process.

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.

2. Obtain a Portuguese Taxpayer Identification Number

Any expat living in Madeira will confirm that you cannot do anything in Portuguese territory without a Portuguese Taxpayer Identification Number (NIF – Número de Identificação Fiscal). This includes renting a home, purchasing real estate property or even buying a vehicle.

Before you rush to Loja do Cidadão or a Portuguese Tax and Customs Authority’s branch, you must sit down with a certified accountant, or chartered economist, to better understand the implications and nuances concerning NIF applications.

Obtaining a NIF is quite a fast thing, but it is essential to detail your specific circumstances. Therefore, our team members will need to know (to advise you better):

  • Your plans (are you buying a summer vacation or are you moving to Madeira?);
  • Your marital status;
  • Current country of residence;
  • Do you have children?

Our certified accountants will use the information above to determine your NIF residential status (and the potential tax implications) and the need for other family members to have a NIF.

Understanding tax residency and its implications

Generally, a taxpayer is considered 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 a resident if they own housing that supposes the intention to maintain it and occupy it like a habitual residence.

In the event of a conflict in the definition of the tax residence, the taxpayer must consider its criteria 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 IRS’s Personal Income Tax will be levied on their worldwide income. The IRS tax rate can go up to 48%, although exemptions might apply for those relocating to Madeira for the first time.

Nevertheless, registration as a resident for tax purposes should only occur after one is registered for residency, from an immigration standpoint.

3. Register as a resident for immigration purposes.

EU citizens relocating to Madeira Island and living on the island (or in any Portuguese territory) for longer than three months have to formalize their right of residence by registering.

Registration for immigration purposes must occur up to 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 punishable by a fine of between EUR 400 and 1500. Registering or remaining registered without meeting the necessary conditions is punishable by a fine of between EUR 500 and 2500.

Third-country nationals should have the appropriate residency visa in order to lodge a residency permit application with the Portuguese Immigration and Borders Service.

4. After relocating to Madeira: update your tax residency status

So you have effectively relocated to Madeira from an immigration standpoint. Upon following the advice from your lawyer (or certified accountant), you ought to update your tax residency status and apply for the NHR scheme should you fulfil the requirements for the tax benefits it grants.

5. No two cases are the same!

Ask all your questions to a lawyer and certified accountant. Remember that each case is specific and not two expats’ circumstances are the same. 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, especially to safeguard your income, whenever possible, under Portuguese law.

As such, 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.

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.

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Tax advisors or a tale as old as time

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As tax advisors since 1995, we have heard our fair share of tales as old as the time of expats relocating to Portuguese territory for immigration and tax purposes, ending up not complying with Portuguese tax law and therefore facing unpleasant surprises (penalties,...

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