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Digital Nomads

Digital Nomads in Madeira

Madeira offers the perfect conditions to attract digital nomads with its natural beauty, nature activities, culture and fantastic climate conditions all year round.

With reduced taxation, adequate infrastructures, competitive operational costs, safety and quality of life, Madeira positions itself to provide digital nomads with a unique package of benefits, offering a wide range of solutions to their specific needs.

Speedy internet is a must in a digital nomad way of life. Madeira benefits from a Submarine Cable Station, hosted in the “Madeira Datacenter”, operating several international optical submarine cables, allowing interconnectivity with national and international SDH networks and providing, as such, significant advantages in terms of quality, cost, bandwidth and scalability.

Another available infrastructure is the Internet Gateway provided by Marconi Internet Direct (MID). This MID offers international Internet access without any contention and uses diversity to access global backbones.

Last but certainly, not least, the IP platform has its international connectivity distributed by: 3 PoPs (London, Amsterdam and Paris), peering connections with hundreds of major international ISPs and IP transits to Europe and the USA.

All the aforementioned infrastructures combined with an easy-going island life make Madeira a unique destination within Europe to relocate as a digital nomad.

Immigration Requirements

EU-Citizens, EEA Citizens and Swiss Citizens

EU citizens 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.

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 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of an abuse of the law, fraud, or false marriage or partnership of convenience, residence rights will be refused and withdrawn.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

If you are a third-country national, kindly note that you are not entitled to perform any job to a Portuguese entity without a visa. Furthermore, before your relocation, be sure to have a proper entry visa if you plan to stay longer than the visa-free period.

At the moment, Portugal does not have any form of digital nomad visa. Given this, if you plan to stay for an extended period, alternative visas such as the passive income visa or the golden visa may be routes you may consider. It is also important to note that different visas have different minimum stay requirements.

Before your relocation, be sure to understand what type of visa is more appropriate to your specific situation and engage a Bar certified lawyer to guide you through this process.

Tax Implications

Generally speaking, those digital nomads residing up to 183 days in a given year in Madeira are not considered residents for taxation purposes. Therefore, they are not subject to personal income tax on their worldwide income.

Notwithstanding the above, if you have a real estate property (either rented or purchases) that you can occupy 183 days in a given year, or if you engage Portuguese entities as a freelancer during that period, personal income tax implications could arise. Under these circumstances, be sure to hire a tax consultant to avoid any unpleasant surprises.

Suppose you are considering a more extended stay, either as a freelancer or an employee. In that case, there are tax benefits for expats wishing to effectively relocate to Madeira, namely those foreseen under the Non-Habitual Tax Resident scheme.

Freelancers staying more than 183 days in a year

Free-lancers qualifying as residents for tax purposes, beware!

Income from a commercial, industrial, or agricultural activity and income from a sole trader (including scientific, artistic, or technical services) or intellectual rights (when earned by the original owner) may be taxed under a simplified regime or based on the taxpayer’s organized accounts.

The simplified regime will apply only to taxpayers who have opted out of organized accounts, have a turnover or a gross business and professional income lower than EUR 200,000 (for 2020) in the previous year. Under this simplified regime, only 75% of revenue is taxed, provided it arises from business and professional services listed in the table referred to in Article 151 of the PIT Code.

Under the simplified regime, the coefficient of 75% decreases by 50% and 25% in the taxation period of the beginning of activity and the following one.

The income ‘deduction’ arising from applying the coefficient of 75% is partially conditioned by the verification of expenses and charges effectively incurred and related to the activity.

Therefore, to the taxable income determined by applying the coefficients will be added the positive difference between 15% of the gross income and the sum of the following amounts (the EUR 27.000 mentioned during the meeting):

  • EUR 4,104 or, when higher, the total amount of mandatory social security contributions (in part not exceeding 10% of the gross income received).
  • Staff expenses, wages, or salaries communicated to the Portuguese tax authorities.
  • Property rentals allocated to the professional activity communicated through the issue of an electronic receipt or a specific statement, whose invoices and other documents are communicated to the Portuguese tax authorities (if only partially assigned to the professional activity, it is considered only 25% of the total amount).
  • 1.5% of the tax registration value of the properties assigned to the business or professional activity or 4% of the tax registration value of properties assigned to hospitality or letting activities (if only partially assigned to the professional activity, it is considered only 25% of the total amount).
  • Other expenses with the acquisition of goods and services related to the activity, duly communicated to Portuguese tax authorities, namely: costs with current consumption materials, electricity, water, transports and communications, rents, litigation, insurance, leasing rents, mandatory fees paid to professional associations and other organizations representing professional activities to which the taxpayer belongs, travels and stays of the taxpayer and one’s employees (if only partially assigned to the activity, it is considered only 25% of the total amount).
  • Imports and intra-Community acquisitions of goods and services related to the activity.

In addition to the above deduction, the amount of mandatory social security contributions paid exceeding 10% of gross income and related to such professional activities may also be deducted from the self-employment income if not deducted for other purposes.

The contributions rate applicable to self-employees corresponds to 21.4%. The monthly contribution basis for self-employees corresponds to 1/3 of the relevant remuneration determined in each reporting period and produces effects in that month and the following two months. To determine the tax-relevant remuneration of the self-employed, it is considered the income received in the three months previous to the reporting month. The relevant revenue corresponds to 70% of the amount of services rendered. The contribution base considered for each month has a maximum limit of 12 times the value of the IAS (5,265.72 euros, value in 2020), i.e. maximum contributions per month are 21.4%x(12 IAS) = EUR 1126.86.

As a freelancer or self-employed person, it is essential to note that you will be exempt from making Social Security payments for the first 12 months from the start of your activity. Social security contributions are due between the 10th and the 20th of the month following the month they refer.

VAT in Portugal is payable by all businesses with a turnover over €12,500 on taxable services. There are three rates of IVA in Madeira:

  • General rate: 22% on taxable goods and services
  • Intermediate rate: 12% on food and drink
  • Reduced rate: 5% on bare necessities, including certain foods (e.g., meat, fruit, vegetables, cereals), books, newspapers, medicines, transport and hotel accommodation

VAT is payable to the Portuguese Tax Authority seven days after the reporting deadline periods, either quarterly or monthly.

Last but not least, invoicing must occur through a Portuguese Ministry of Finance dully approved software.

Personal Income Tax on Residents

Digital nomads who relocate for an extended period, more than 183 days, maybe liable to Portuguese personal income tax on their worldwide income. Having that said, exploring the Non-Habitual Tax Resident (NHR) route may be an option that one should consider.

Generally speaking, under the NHR scheme, foreign-sourced income is exempt from personal income tax in Portugal, provided compliance with the scheme’s requirements is observed. In addition, Portuguese sourced income may be subject to a flat tax of 20% if the activity carried out by the digital nomad is a high-added-value activity.

Cryptocurrencies

Income derived from buying and selling crypto is not taxable in Portugal; due to a somewhat ambiguous tax ruling on crypto income tax exemption. Therefore, applying for a new tax ruling is something that one should consider before relocating to Portugal.

Alternatively, your income structures should be in line with the current rules of the NHR scheme for said crypto income to be exempt from personal income taxation. One ought to seek professional tax advice on this matter before converting crypto to fiat currency as a Portuguese tax resident.

Furthermore, as of this date, banks in Portugal are not crypto-friendly. The Portuguese Blockchain Association has informed us that banks are only willing to accept fiat funds from duly accredited (by the Portuguese Central Bank) trading platforms.

Corporate Income Tax

The corporate tax rate applicable to companies in Portugal may vary, depending on which part of the Portuguese territory said companies are incorporated and domiciled. From the get-go, Madeira is the Portuguese territory with the highest tax efficiency for companies.

 Type of entity incorporatedMIBC*Autonomous Region of MadeiraPortuguese mainland
Resident entities and permanent establishments of non-resident entities5%14,7%21%
Resident entities characterized as small or medium enterprises, on the first € 25 000 of taxable profit11.9%17%

* Incorporation of entities within the MIBC – Madeira International Business Center allows for a 5% tax rate that is only applicable on taxable profit deriving from non-resident entities (otherwise, the standard rates apply) along with additional tax benefits for shareholders. For more detailed information, please click here.

auctor: Miguel Pinto-Correia, Economist

Should you have questions regarding relocation to Madeira, as a digital nomad or expat, our experienced team of lawyers and accountants is ready to assist you.

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Digital Nomad Paradise

Madeira Island, has asserted itself as a digital nomad paradise not only due to its tax friendly policy towards corporations and individuals, but also due to its internet connection and infrastructure.

Madeira benefits from a Submarine Cable Station, hosted in the “Madeira Datacenter”, operating several international optical submarine cables, allowing interconnectivity with national and international SDH networks and providing, as such, significant advantages in terms of quality, cost, bandwidth and scalability.

Another available infrastructure is the Internet Gateway provided by Marconi Internet Direct (MID). This MID offers international Internet access without any kind of contention and using diversity in the access to international backbones.

The IP platform has its international connectivity distributed by: 3 PoPs (London, Amsterdam and Paris), peering connections with hundreds of major international ISPs and IP transits to Europe and the USA.

Further to the above, and as of 2021m Madeira is also benefiting from the EllaLink connection.

EllaLink is a optical platform offering secure high capacity connectivity on a low latency transatlantic route (<60 ms round-trip delay time between Portugal and Brazil), linking major terrestrial and subsea hubs in Europe and Latin America. EllaLink is a privately funded and independent company committed to providing services on a Carrier Neutral, Open Access basis.

EllaLink will provide telecoms connectivity between Europe and Latin America connecting key financial centres, major data centres and the key population’s areas. EllaLink will be providing the first-ever direct fibers between the two continents with a point of presence in Sines, Madrid, Lisbon, Marseille, Barcelona, Fortaleza, São Paulo and Rio and onward connectivity to the USA, Europe, Asia, and Africa and the Middle East.

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Madeira is open for business

Starting July 1, Madeira and Porto Santo, Portugal, will be open to international travelers. To ensure security for both visitors and residents, all people traveling to the Atlantic islands will have to either present a negative test done within 72 hours prior to departure or be tested upon arrival (without any costs; COVID-19 tests on arrival will be paid for by the Madeira Government).

The Madeira Islands, Discover Madeira says, are focused on being a COVID-safe destination and are working with SGS, a world leader in certification, to ensure good practice across the destination to minimize risk in the wake of COVID-19 (coronavirus).

In May, Madeira developed a good practices document to deal with COVID-19. These measures are intended to provide comfort to those who travel and, ultimately, for the wellbeing of all. These three initiatives—to cover testing costs, partner with SGS in certification and develop a good practices document—form the destination’s plan to ensure a safe vacation for all visitors.

Good to know: According to Discover Madeira, the Portuguese island had very few cases of COVID-19 and acted quickly to control the virus on the archipelago. Portugal, overall, has been commended for its response to coronavirus. At present, Madeira has registered 90 positive cases of COVID-19, 67 recovered cases and no deaths.

Of volcanic origin, its location provides a mild climate and sea all year round, in addition to scenery of mountains, valleys and cliffs, all covered by the Laurissilva vegetation, named Natural Heritage of Humanity by UNESCO. The archipelago is formed by a set of islands, the main and only inhabited being Madeira and Porto Santo.

in Travel Agent Central

Offering unique corporate and personal tax advantages to expats and digital nomads, Madeira is a reference in Portugal for those looking to work and live in the sun. We at MCS have more than 20 years of experience in assisting companies, expats, digital nomads and entrepreneurs relocating to the Pearl of the Atlantic.

 

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Portugal’s E-Residency

In an effort to promote investment in the country and attracting digital nomads, freelancers, startups and digital entrepreneurs, the Portuguese Government approved Resolution of the Council of Ministers no. 30 / 2020, which sets ou the Action Plan for the Digital Transition (“PATD”) on April 21, 2020. This plan is in line with policies defined by the European Union for the period 2021-2027, aiming at innovation, digitalization, economic transformation of the Single Market.

Under said plan the Government has establish 12 sub-plans to be carried out in accordance with the foreseen digital transition strategies, two of them being of extreme importance for investors and expats alike: the E-Residency Program and the Free Tech Zones.

The E-Residency Program, similar to the one implemented by Estonia in 2014, aims at facilitating access by non-Portuguese to Portuguese services such as company formation, banking, payment processing, and taxation. The program will give the e-resident a smart card which they can use to sign documents and carry out business in the country.

Portugal’s E-Residency Program, foreseen to be launched in early November this year, will allow investors to submit all the needed documentation for application in exchange for residency kit, if said application is approved.

The other important measure foreseen in the PATD is the creation of Free Tech Zones, physical spaces/locations where high-end technologies (such as 5G or self-driving vehicles, for example) can be tested and displayed.

Free Tech Zones will be managed in such a way that specific legislation and regulations will be enacted in order guarantee that enough legal flexibility exists to promote research and development (R&D).

Both these programs are expected to actively promote the development of Portuguese tech companies and research centers through the acceleration of development and testing processes and the creation of Portuguese knowledge and intellectual property.

In this way, these programs will promote Portugal’s positioning in R&D, national resources and participation in international projects, as well as the attraction of innovative projects, foreign investment related to emerging technologies and qualified workers.

The existence and development of such programs can be integrated with Portugal’s attractive taxation system available not only for individuals but also to companies, i.e. the Non-Habitual Tax Resident (NHR) program and the Madeira International Business Center (MIBC).

E-Residents that, at a later stage, wish to relocate to Portugal can benefit from a set of personal income tax exemptions or flat rates, depending on their income source, while those looking into incorporate a company can opt for the MIBC framework, allowing their business to benefit from Europe’s lowest corporate income tax rate, i.e. 5%.

auctor Miguel Pinto-Correia

MCS and its multidisciplinary team, with over 20 years of experience, has been assisting investors and expats wishing to make a move to Portugal. Fore more information about our services do not hesitate to contact us.

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Rising after Covid-19

Rising after Covid-19, a “new era” with some economic uncertainty, requires a wise decision to invest in certain frameworks that could alleviate the tax burden, and therefore your personal and/or corporate operational costs.

Madeira has the right tools to help you and your international business to have a head start after the coronavirus outbreak. These tools take the shape of extremely competitive tax benefits targeting personal income and corporate income.

High-mobility workers, entrepreneurs, and digital nomads alike, whose job does not depend on being in an office or a specific geographical location over a long period of time will find solace in the Non-Habitual Tax Resident (NHR) regime.

Created in the late 2000s the NHR regime comprises of a 10-year tax holiday on all foreign-sourced income for those effectively transferring their tax residency, i.e. spending more than 183 non-consecutive days a year in Madeira; or having a house that can be deemed as a permanent abode during the same time frame.

Under such a taxation exemption scheme, NHR status holders are able to benefit from a 0% tax on foreign salaries/free-lancer income; 0% tax on foreign interests/royalties/dividends; a flat tax of 20% on local salaries/free-lancer income for high-added value jobs; and even a flat tax of 10% on pensions (should it be the case). NHR status is granted to everyone, regardless of their nationality, and assuming that one was not tax resident in Madeira in the 5 years prior to the  application.

The above personal income tax benefits combined with a high-standard quality of life in Madeira has been attracting expats.

Digital nomads will be please to know about the high internet speed connections available on the island thanks to its geographical location (the island’s international connectivity is distributed by: 3 PoPs (London, Amsterdam and Paris), peering connections with hundreds of major international ISPs and IP transits to Europe and the USA). While others might be pleasantly surprised by the its culture, nature, history, gastronomy, and stress-free city buzz.

From a corporate income standpoint, the same high-mobility entrepreneurs and digital nomads can, together or separately from the NHR scheme, benefit from the lowest corporate income tax rate in Europe, just 5%, by incorporating a company within the Madeira International Business Centre (MIBC).

The MIBC, is a type of a EU approved state aid available to all duly licensed company operating in Madeira and whose main source of profit are non-resident entities or other MIBC companies.

All of the above mentioned benefits can be coordinated through and with the Golden Visa scheme, a residency by investment scheme created by the Portuguese Government in order to attract non-EU/EEA citizens and their respective families to Madeira.

Should you be interested in any of these programs MCS’s multi-disciplinary team has more than 20 years of experience in assisting expats and international companies wishing to relocate or operate in Madeira. Do not hesitate to contact us for more information.

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