Tag Archives: expat

Getting Residency Right

When it comes to relocating to Madeira Island (or Portugal), confusion arises among expats between residency for taxation purposes and residency for immigration purposes.

Although both concepts are closely related to one another, one does not necessarily imply the other.

Expats looking into effective relocation to Madeira Island must first concern themselves with obtaining residency for immigration purposes. European Union Citizens, European Economic Area Citizens, and Swiss Citizens will formalize their residency status by obtaining the Certificate of Registration for EU/EEA/Switzerland citizens (CRUE) from the municipality where they live.

EU/EEA/Swiss citizens living in Madeira (or in any Portuguese territory) for longer than three months are must, according to law, formalize their right of residence. After three months, this class of citizens has 30 days to register themselves with the municipality.

Thir-country nationals (non-EU/EEA/Swiss citizens) can only formalize their right of residency if they have applied for the necessary visa with the Portuguese diplomatic mission in their country of residence. Alternatively, they can make an investment that might qualify them for residency. With the visa obtained, third-country nationals will have a given number of days to enter Portuguese territory and apply for the residency permit matching the Portuguese residency visa issued in their passport.

In the case of residency, for tax purposes, the Portuguese Personal Income Tax Code generally considers a taxpayer to be a tax resident if they remain more than 183 days in Portuguese territory. This counting refers to any period of 12 months beginning or ending in the year in question.

Further to the above, one is also a resident, for tax purposes, if they own housing that supposes the intention to maintain it and occupy it as a habitual residence. In the event of a conflict in the definition of the tax residence, one must consider the criteria for its meaning in the Double Taxation Agreement signed between Portugal and the country of residence.

It is theoretically possible for the Portuguese Tax and Customs Authority to consider an expat as a resident, therefore liable to worldwide income taxation, even if they are not registered for immigration purposes.

Alternatively, should an expat need to update his tax residency status, from non-resident to resident, they will need to produce evidence of effectively residing in Portuguese territory for immigration purposes.

Having that said, those effectively relocating to Madeira, for tax and immigration purposes, will need to follow these steps:

  1. Getting the visa in the passport,
  2. Flying to Portugal with the visa,
  3. Applying for residency with the Immigration and Border Services, under the visa on your passport,
  4. Receiving residency card from the Immigration and Border Services;
  5. Updating tax residency status with the tax authorities, based on the residency card issued;
  6. Applying for tax benefits.

Steps 1-4 are to be substituted by CRUE (as previously mentioned above).

Last but not least, we understand that Portuguese bureaucracy (and lack of English language skills in the civil service) is daunting for expats in the relocation process. MCS team of lawyers and accountants is ready to assist you and your family in having a smooth relocation. Should you require our assistance, please do not hesitate to contact us.

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Relocating to Madeira? What not to do!

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

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15 Reasons to live in Madeira when this is over

With the prospective opening of borders and travel one destination remains eternal, the “Pearl of the Atlantic”, Madeira. This Portuguese autonomous region is not only a beautiful place to live, but also an even more beautiful place to live, find out why:

  1. Efficient healthcare system – during the COVID-19 pandemic the Regional Government of Madeira and the Regional Health Authority took quick and decisive actions to contain and curb down the pandemic. Thanks to these herculean efforts, the number of COVID-19 cases on the Autonomous Region of among the lowest in the country. Free healthcare is available to all legal residents on the island.

 

  1. Always been open for business and investors – 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 offers all investors a 5% corporate tax rate for those incorporating international services/consultancy companies in the Madeira International Business Center.

 

  1. We welcome expats – Madeira has been receiving international attention since European royalty discovered the wonders of its year-round, spring like climate and the associated health benefits. Empress Sisi of Austria, Emperor Maximilian of Mexico, and, later, Sir Winston Churchill stayed for extended periods, bringing this Portuguese island international status and notoriety. Today expats are welcomed and greeted not only with the amazing climate but also with a 10-year tax holiday, thanks to the Non-Habitual Resident scheme.

 

  1. Easy residency for non-EU/EEA citizens – The Golden Visa, a residency (and citizenship) by investment scheme designed to attract high-net worth and ultra-high-net worth individuals and their families to live in Madeira can be linked to real estate investment or company incorporation. In Madeira applications are usually processed faster than in the Portuguese mainland.

 

  1. Stress free life – Day-to-day life in Madeira is stress-free for locals, expats, and tourists alike, and the cultural offerings are immensely diverse for an island. Museums with Flemish and religious art, churches hosting organ music festivals, monthly symphonic orchestra and chamber music concerts, gastronomical and traditional folk festivals throughout the year, and recurring art exhibitions are just some examples of Madeira’s active cultural scene.

 

  1. International connections – Unlike many island paradises, Madeira’s Cristiano Ronaldo Airport connects you directly not only to Lisbon, Portugal’s capital, but also to every other major European capital—including Paris, Brussels, London, Berlin, and Zürich… one reason Madeira is a favorite holiday destination among British, German, French, and Scandinavians.

 

  1. Solid real estate market – even with the COVID-19 pandemic, Madeira housing prices are on the rise in the first quarter of 2020, confirming the Island’s position as an investment destination. Funchal’s civil parishes of Sé and São Martinho apartment rents can yield, accordingly to the latest statistics available, a monthly rental income (long-term rental) between EUR 1,800 to EUR 2,000 for a EUR 270,000 investment in 196 m2 apartment. Should you opt for short-term rentals, in the likeness of AirBnB, the same well-located apartment can yield between EUR 500 and EUR 1,000 per week.

 

  1. Pristine nature – Despite its proximity to Morocco, the island’s nearest continental neighbor, Madeira’s climate is humid (around 75% humidity year-round), thanks to its UNESCO World Heritage-protected, prehistoric Laurissilva Forest, which covers 20% of the island’s 741 square kms. This forest has more than 1,600 kms of irrigation channels accompanied by footpaths that once connected the entire island’s countryside.

 

  1. Easy communication – Thanks to the strong British presence on the island, most Madeirans speak English, and Madeira was the first territory in Portugal to implement compulsory English education starting with primary school. English, alongside French and German to a lesser extent, is the main second language spoken by locals.

 

  1. Low cost – Madeira is one of the most affordable places to spend time in this part of the world. Utility costs are lower here, too—electricity is as much as 21.8% lower than in the Algarve, internet 11.2% less costly. And VAT is one percentage point lower than on the Portuguese mainland.

 

  1. Existing expat community – There are many expats in Madeira and most of them are from the UK, Germany, Austria, France and to a smaller extent Scandinavia, Canada and the US. Moreover, there are a lot of people who are interested in moving to the island, especially from these mentioned countries.

 

  1. Laws and Rights – According to the Cato Institute’s Human Freedom Index, Portugal ranked among the Top 20 Countries, surpassing France, Spain and Greece pertaining economic and personal freedoms. As for religious, bioethical, family and gender freedoms, Portugal ranks in the world Top 3 in the World Index of Moral Freedom, surpassing all the G20 countries in these fields.

 

  1. LGBTQ+ safe – Portugal is among ILGA-Europe’s Rainbow Index Top 10 European countries in respect to LGBTQI equality, surpassing countries like, The Netherlands, Denmark, Sweden and Germany.

 

  1. Quality of Life – Madeira’s capital, Funchal, is the city with the best quality of life, and where you can enjoy a cosmopolitan and yet calm island life. The Portuguese consumer association has ranked Funchal as the second-best city to live in Portugal.

 

  1. The ever spring climate – Madeira is characterized by an all year-round spring-like weather which make it so famous among its residents and visitors. During Summer, Spring and Fall, temperatures vary between 17ºC (62.6ºF) and 24.ºC (75.2ºF). As for the Winter months temperatures will vary between 14.ºC (57.2ºF) and 20.ºC (68ºF). It is easy to understand why Madeira is famously known as the “Pearl of the Atlantic”. Also note that the number of hours of sunshine per year reaches values as high as 3300, a 70% larger value than the ones found in northern Europe.

MCS and its team have more than 20 years of experience in assisting those wishing to relocate or incorporate in Madeira island. Do not hesitate to contact us should you have any questions!

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Applying for NHR

Applying for NHR in Madeira (or Portugal for that matter) is a straightforward process that nevertheless requires experienced assistance, given that tax residency relocation does require a careful analysis of one’s income structure and jurisdictions involved.

Generally speaking the Non-Habitual Resident (NHR) scheme is a 10-year tax exemption granted by the Portugal to all those wishing to relocate to Portuguese territory, regardless of their nationality, and who have not qualified as resident, for tax purposes, in the last 5 years prior to application.

Under the NHR regime, qualifying taxpayers are granted the following the benefits on their foreign income:

  • Taxation exemption on employment and freelancer (self-employment) income if it is subject to tax in the source country, in accordance with the applicable Double Taxation Agreement, or are considered not to be derived from a Portuguese source.
  • Pensions are subject to a flat tax rate of 10%. In case they are subject to tax in the source country, in accordance with the applicable Double Taxation Agreement, a tax credit under applies.
  • Freelancer income derived from high value-added service activities, with a scientific, artistic or technical character, are also exempt if effectively in the country of source, with which Portugal has Double Taxation Agreement or, in the absence of such agreement, when the income is not to be considered obtained in Portuguese territory.
  • Taxation exemption on other types of foreign sourced income (interests, dividends, capital gains, income from immovable property (rents), royalties, intellectual property income and business income) if: these can be taxed in the country of origin under a Double Taxation Agreement concluded between Portugal and the respective State or; if these types income may be taxed in the State of origin in accordance with the OECD model of tax convention (excluding tax havens) in cases where there is no Double Taxation Agreement.

For one to apply for the NHR regime, one must first be deemed as resident, for tax purposes, in Portuguese territory. This means acquiring Portuguese tax residence. Either by having lived for more than 183 days (consecutive or not) in Portugal in any period of 12 months starting or ending in the relevant year; or having a house, at any time throughout the 12-month period, in such conditions that allow to presume the intention to hold and occupy it as the habitual place of  residence.

Applying for NHR: Step by step

The first step regarding NHR application is to obtain a Portuguese Taxpayer Identification Numbers (NIF) as non-resident in Portuguese territory. In order to do this, applicants need to provide proof of residency abroad through a government issued document. Non-EU-Citizens must also appoint a tax representative when applying for a NIF.

Only once you have obtained residency can you apply for a NIF as resident in Portuguese territory. Change of residency status with the Portuguese Tax and Customs Authority can only be done by presenting proof of said residency, i.e. by presenting a residency permit card issued by the Portuguese Borders and Aliens Service (SEF) or a EU/EEA-Citizen Residency Certificate issued by the City or Town Hall with jurisdiction over the applicant’s residential address. Furthermore, proof of real estate purchased or rental agreement (short-term tourist rentals are not accepted) may also be requested.

Upon change of residency status, from non-resident to resident, for tax purposes you will be able to apply for the NHR status until March 31st of the following year. Please note that if you have appointed a tax representative you now ought to dismiss such representative.

In order to apply for NHR status one must firstly apply for a password to access the Portuguese Tax and Customs Authority website, through which the application is to be submitted by your tax consultant. Any random audits carried to the said application are notified on the tax authority’s website and ought to be replied there too.

Why is a tax consultant needed?

Did you know that Portugal, and therefore Madeira, blacklists and penalizes, through taxation, income deriving from more than 80 different jurisdictions including all British Overseas Territories and British Crown Dependencies? Did you know that the Portuguese fiscal year matches the calendar year? Did you know that not all types of pensions maybe exempt from taxation? Did you know that even though you are an NHR you are still obliged to file tax returns in Portugal?

The above-mentioned small details can become a headache if your income structure and relocation dates are not analyzed and adjusted, if needed, on a timely manner in order to comply with the NHR scheme rules.

Therefore, when thinking about relocating to Madeira, having a tax consultant that fully understands the nuances and variables surrounding the NHR scheme and the implications arising from such relocation, including those deriving from migration rules and double taxation treaties.

For more information on these matters please do not hesitate to contact us. MCS’s team has been assisting expats relocating to Madeira for over 20 years.

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blue hydrangea macrophylla close to the ocean

EU Citizens – Residency Requirements

EU citizens who remain in Madeira (or in any Portuguese territory) for longer than 3 months have to formalize their right of residence by registering.After 3 months in Madeira (or in any Portuguese territory), EU citizens have 30 days to register, after which they receive a registration certificate.They must apply at their local town hall (Câmara Municipal) 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 same 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 same 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 same requirement for Portuguese citizens.

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.For further information please and assistance in complying with immigration requirements in Madeira, please do not hesitate to contact us management@mcs.pt and request a fee quote.

Our team at MCS, with more than 20 years of experience in the sector, is able to assist you with your relocation to Madeira. For more information click here, for information our services click here.

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