Tag Archives: madeira island

Golden Visa in Madeira

Golden Visa in Madeira is on the rise. Here’s why.

According to Investment Immigration Insider, “Portugal’s golden visa performed admirably; though program investment recorded a 13% reduction, the number of applications approved during the year (1,182) was only 5% lower than that of 2019. Total investment in the program for 2020 amounted to EUR 647 million, a slight reduction from the EUR 742 million raised last year.”

But unlike previous years, 2020 was marked by an “astonishingly sharp rise in interest among Americans”, which according to industry insiders reflects:

  • Dissatisfaction with Trump;
  • Apprehensions about Biden;
  • Poor handling of the pandemic;
  • Political instability and unrest; and last, but certainly note least
  • Concerns about taxation.

In addition to the above, high mobility individuals were also frustrated by not being able to travel to Europe, therefore obtaining a residency permit became priority.

Taking into account the above and the investment flexibility provided by the Golden Visa, Portugal become the option for many Americans. However, changes to the Golden Visa law are coming very soon, by June 2021, investments made in Lisbon, Porto and coastal mainland municipalities will no longer be available.

This is why considering a Golden Visa in Madeira may be an option. According the legislative authorization issued by the Assembly of the Republic to the Government, the latter will allow Golden Visa related investment in Madeira to be carried out.

Offering sophisticated and affordable island living, the Pearl of the Atlantic proves to be a sucessfull Golden Visa destination given it’s lower corporate tax rates, its International Business Center and the availability of the non-habitual resident tax regime.

Continue reading

Invest in Madeira

Madeira is a Portuguese archipelago in the Atlantic Ocean, situated 625 miles (1 000 km) from Mainland Portugal and 545 miles (900 km) from North Africa. It consists of four islands: Madeira, Porto Santo, Desertas and Selvagens. Madeira and Porto Santo are the only inhabited islands, while the Desertas and Selvagens islands are uninhabited natural. Madeira’s unique forest has been declared a World Heritage Sites by UNESCO.

Madeira Island is the biggest and most important island of the archipelago with an area of 741 km2. Due to its subtropical climate and landscapes, it is known worldwide as an all year round tourist destination, thanks not only to its culture, but also spring-like climate.

Although it is an integral part of Portugal and subsequently of the European Union, where all laws applicable on the mainland also apply, Madeira is an Autonomous Region with its own government and parliament.

The population numbers approximately 267 785 inhabitants and its capital is the city of Funchal. Madeira’s Cristiano Ronaldo International Airport serves several daily flights to Lisbon and other major European cities. The official currency is the Euro and it is a civil law jurisdiction. A considerable part of the younger population is fluent in English.

Madeira’s economy is based on tourism, wine production and the International Business Centre of Madeira (MIBC). Created at the beginning of the eighties, the MIBC has proved to be a success and currently represents around 21% of the Regional Gross Domestic Product. This highly advantageous tax regime, for corporations and individuals, in addition to competitive operating costs, makes Madeira an attractive centre for international investment.

Under the MIBC scheme international services activities benefit from a reduced corporate rate (5%) applicable to profits derived from operations exclusively carried out with non-resident entities or with other companies operating within the ambit of the MIBC. There are no restrictions, nevertheless, on the development of business activities with Portuguese companies which will be taxed at the general corporate tax rate in Madeira, currently 20%.

Further to the above, Madeira offers incredible internet speeds, when compared to mainland Europe. This is because 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.

Madeira also offers low operational costs when in comparison with other European countries. In fact, the cost of human resources and the price of several goods and services are very competitive when directly compared with other European locations, allowing companies to face considerably lower costs when establishing operations in Madeira.

In addition to the above, a superb work-life balance is available to those wishing to make Madeira their home. This unique European island life-style sought by many is the reason for Madeira’s success.

If you are considering investing in Madeira, our team has more than 20 years of experience in assisting international investors and expats to make the right move. For more information please visit our website or contact us.

Source: SDM – Sociedade de Desenvolvimento da Madeira

Continue reading

Brexit and Residency in Madeira

Residency

Those who are resident in Madeira before the end of the transition period on 31 December 2020, are able to stay.

One must register as a resident in Madeira if one wants to stay for more than 3 months. To get a Registration Certificate (Certificado de Registo), go to your local City/Town Hall (Câmara Municipal). The documents needed for such Registration Certificate are:

  • proof of address
  • a valid passport
  • proof of earnings or evidence of sufficient means to support yourself and your family
  • proof of enrolment in a Portuguese school or university, if you are a student

Notwithstanding the above, some City or Town Halls are overzealous of their duties to register EU Citizens and may request additional documentation to be provided by the applicants. It is therefore of the utmost importance that you contact a local expert to guide you through the application process.

The certificate costs €15 for an adult and €7.50 for a child. This certificate is normally valid for 5 years.

After 5 years’ residency in Portugal, one can apply for a Permanent Residency Certificate (Autorização de Residência Permanente) also known as a residency card. Application must be submitted before one’s Registration Certificate expires at the Immigration and Borders Service (SEF).

For the purpose of applying for a Permanent Residency Certificate you will need:

  • registration certificate (Certificado de Registo)
  • a valid passport
  • two passport photographs
  • if you have changed your address, proof of your new address

The Permanent Residency Certificate can be used as proof of ID in Madeira/Portugal but not as a travel document. The Permanent Residency Certificate is valid for 10 years and renewal must be applied for at a SEF office.

Healthcare

In order to ensure one is properly registered for healthcare as a resident in Madeira registration at the local health centre (Centro de Saúde) is required. This registration will get one a user health number (Número de Utente de Saúde), provided a residence certificate and a passport are shown. Pensioners may be requested to present the European S1 Form to be issued by the UK’s health/social security authorities.

In addition to the above, we always recommend our clients to hire a private health insurance, in order to complement the public healthcare system and to avoid delays or waiting lists when dealing with urgent appointments/interventions.

The founding of Madeira Corporate Services (MCS) dates back to 1995. MCS started as a private and corporate service provider in the Madeira International Business Center and rapidly became one of the leading management firms. As a result of its position in the market, the quality of the services it has been providing for over a decade and full compliance with business ethics, MCS was awarded the Merit Certificate by SDM – Sociedade de Desenvolvimento da Madeira.

Taxes

Under the Portuguese Personal Income Tax Code an individual is considered to be resident for tax purposes in Madeira if:

  • Living more than 183 (consecutive or not) days in Portugal in any period of 12 months starting or ending in the relevant year;
  • When herein living for an inferior period, having, in any day of the 12 months threshold, a house in such conditions that allow to presume the intention to hold and occupy it as his habitual place of residence;

Given the above British citizens, as any expats, may be deemed tax residents in Madeira and therefore subject to personal income tax on their worldwide income at the progressive tax rates, that can go up to 48%. Nevertheless one can be entitled to the personal income tax benefits, generally speaking a 10-year tax holiday on their foreign income, available under the Non-Habitual Resident scheme.

It is therefore important to contact a local experienced tax advisor who can guide you through the taxation implications arising from residency.

sources: Embassy of the United Kingdom of Great Britain and Norther Island in Lisbon & SEF

 

Continue reading

Americans Moving to Portugal

In recent months we have seen a trend of Americans moving to Portugal or inquiring about the advantages available to them in this European Union Member-State.

Portugal itself is a unique budget destination, having a surprisingly affordable cost of living, and an ideal place to either retire and invest in the sun, by providing unique tax benefits for those effectively relocating to the country. But what many Americans do not know is that Portugal’s Pearl of the Atlantic, Madeira Island, offers all the perks available in the mainland and sophisticated and affordable Island living.

Just under a two-hour flight from Lisbon, Madeira Island combines European flare, tropical vibes and unique tax perks for expats wishing to retire or find peace of mind to conduct their business from the comfort of a peaceful island connected directly to other major European capitals—including Paris, Brussels, London, Berlin, and Zürich.

Getting Residency in Madeira

Unless you also hold a European Union passport or your spouse is an European Union citizen, you will have to, generally speaking, apply for a residency visa at the Portuguese Embassy with jurisdiction over of the country where you currently live.

There are different types of visa that you can choose from including passive income visa (also known as a D7), visa to conduct business (either as a free-lancer or as a business owner), among others. Alternatively once can also apply for a Residency Permit for Investment Purposes, also known as the Golden Visa, therefore skipping application for a visa with the Portuguese Embassy prior to travelling to Madeira.

Digital Nomads and Pensioners

Digital nomads and pensioners wishing to relocate to Madeira Island, Portugal, may be eligible to the very sought after Non-Habitual Resident scheme, a set of tax benefits available to those effectively taking up tax residency on the island. Under the NHR scheme foreign sourced income is exempt from personal income taxation in Portugal (Madeira island included), while some types of Portuguese sourced income may be subject to special flat rates.

To digital nomads and internet entrepreneurs, who usually need a good internet connection to generate their income, Madeira offers incredible internet speeds, when compared to mainland Europe. This is because 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.

On the other hand, pensioners (and digital nomads) moving to the island will be surprised with the stress-free day-to-day life 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.

Launching your business

Unlike the Portuguese mainland, Madeira Island offers unique tax perks to those wishing to open a company in Portugal. Benefiting from a unique tax regime, known as the Madeira International Business Center (MIBC), Madeira is the only region in Portugal offering a 5% corporate income tax rate to companies whose profits are derived from non-resident entities.

English is the way

The strong bond with the British community is also seen in Madeira’s medical and law sectors. You’ll have no trouble finding English-speaking doctors or lawyers catering to the expat community.

If you are looking into relocating with your kids you will be pleased to know that Madeira has international kindergartens and schools offering the International Baccalaureate (IB) program.

With rents and restaurant prices an average 10.5% lower than those in the Algarve, and up to 80,5% lower than in Lisbon, Madeira is one of the most affordable places to spend live 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.

The founding of Madeira Corporate Services (MCS) dates back to 1995. MCS started as a private and corporate service provider in the Madeira International Business Center and rapidly became one of the leading management firms. As a result of its position in the market, the quality of the services it has been providing for over a decade and full compliance with business ethics, MCS was awarded the Merit Certificate by SDM – Sociedade de Desenvolvimento da Madeira.

auctor Miguel Pinto-Correia

Continue reading

NHR and Cryptocurrencies

The evolution of the currency has been raised to a completely digital level, and it may currently have no physical representation, being only in a bank account in the form of a computer record, consisting of a monetary value registered, for example on your smartphone.

Crypto-currency is nothing more than digital codes which are assigned certain values controlled by a data system, where records of transactions are kept permanently, protecting crypto-currency from being falsified or stolen.

In general terms, and according to the European Central Bank’s definition, crypto-currency is a type of digital money, not yet regulated, nor linked to any central bank.

Bitcoin is the crypto-currency that has been most valued in recent years, currently it is worth more than gold. In fact, crypto-currencies like Bitcoin have been gaining importance in the international financial sector, both as an investment and for the protection of financial assets. Where some may see uncertainty, the risk-takers see it as an opportunity.

Although the Portuguese Tax and Customs Authority (AT) has already pronounced itself on the matter, through binding information, it does not materialize that crypto-currencies should be taxed as financial assets.

However, the AT considers that taxpayers who have registered as free-lancers to transact crypto-currencies should be subject to taxation on business or professional income (category B type of income). The AT also opens the hypothesis that the income obtained through the crypto-currencies can be considered an asset increase, and be considered a capital gain.

Regardless of whether or not any of the options are considered, for taxpayers carrying out any activity related to crypto-currencies, in another country, such income, provided it is generated outside Portugal, is exempt from taxation under the non-habitual resident regime for a period of ten years after the status is granted.

In another, more recent, binding information issued by the tax authorities on the issue of crypto-currencies, dealing not with personal income tax but with VAT, following the European Union Court of Justice’s jurisprudence which consideres “bitcoin, like traditional currencies which have a discharging value, has no other purpose than to serve as a means of payment”. This means that “since they are means of payment whose function is in itself exhausted, their mere transfer does not constitute a chargeable event for VAT”.

Although the issue of taxation of crypto-currencies continues to be a controversial one, and the lack of regulation in Portugal regarding operations and transactions of crypto-currencies has both sides of the advantage and of the uncertainty, the truth is that Portugal ends up becoming attractive for people who want to invest in crypto-currencies, if one considers the possibility of relocating to Portugal and taking advantage of the regime of the Non-habitual Resident.

Being a completely remote activity, it makes more and more sense to look at this type of investment and to congregate it to the regime of the Non-habitual Resident, where the eventual gains with the crypto-currencies, whether they are dividends, income from a professional activity, or capital gains from an asset increase, would be exempt from taxation for ten years under that regime.

Besides the benefit of living in one of the most beautiful and safe countries in the world, with a fantastic climate, and with excellent living conditions, many of those who created their structures abroad to invest in crypto-currencies, could ensure the non-taxation of their earnings for a period of ten years.

auctores Pedro Marrana & Vitor Abreu

Continue reading
European Union flag

Tax Avoidance Directive

Portugal has effectively transposed the European Corporate Tax Avoidance Directive which introduces rules to prevent tax avoidance by companies and thus to address the issue of aggressive tax planning in the EU’s single market. Madeira, being an outermost region of the EU is subject said directive.

The directive applies to all taxpayers that are subject to company tax in one or more EU country, including permanent establishments in one or more EU countries of entities resident for tax purposes in a non-EU country.

The directive lays down anti-tax-avoidance rules in 4 specific fields to combat BEPS, while amending Directive (EU) 2017/952 (which only covered hybrid mismatches within the EU):

  • Interest limitation rules: where multinational companies artificially erode their tax base by paying inflated interest payments to affiliated companies in low-tax jurisdictions. The directive aims to dissuade companies from this practice by limiting the amount of interest that a taxpayer has the right to deduct in a tax period. The maximum amount of deductible interest is set at a maximum of 30% of the taxpayer’s earnings before interest, tax, depreciation (a measure of how much of an asset’s value has been used up at a given point in time) and amortisation (spreading payments over multiple periods).
  • Exit taxation rules: where taxpayers try to reduce their tax liability by transferring its tax residence and/or its assets to a low-tax jurisdiction, solely for the purposes for aggressive tax planning. Exit taxation rules aims to prevent the erosion of the tax base in the EU country of origin when high-value assets are transferred with ownership unchanged, outside the tax jurisdiction of that country. The directive gives taxpayers the option of deferring the payment of the amount of tax over 5 years and settling through staggered payments, but only if the transfer takes place within the EU.
  • General anti-abuse rule: this rule aims to cover gaps that may exist in a country’s specific anti-abuse rules against tax avoidance, and allows tax authorities the power to deny taxpayers the benefit of abusive tax arrangements. The general anti-abuse clause of the directive applies to arrangements that are not genuine to the extent that they are not put into place for valid commercial reasons that reflect economic reality.
  • Controlled foreign company (CFC) rules: in order to reduce their overall tax liability, corporate groups are able to shift profits to controlled subsidiaries in low-tax jurisdictions. CFC rules re-attribute the income of a low-taxed controlled foreign subsidiary to its more highly taxed parent company. As a result of this, the parent company is charged to tax on this income in its country of residence.

Rules on hybrid mismatches: where corporate taxpayers take advantage of disparities between national tax systems in order to reduce their overall tax liability, for instance through double deduction (i.e. deduction on both sides of the border) or a deduction of the income on one side of the border without its inclusion on the other side. To neutralise the effects of hybrid mismatch arrangements, the directive lays down rules whereby 1 of the 2 jurisdictions in a mismatch should deny the deduction of a payment leading to such an outcome.

For more information on how the Directive might affect your MIBC company or investments in Portugal, or fore detailed information on the transposition mechanism, please do not hesitate to contact us.

Continue reading
COVID_19

Getting to Madeira amidst COVID-19

The Government of the Autonomous Region of Madeira (RAM) has defined, in relation to the Standardization Plan for Air Accessibility, to be in force as of July 1, with regard to travelers to the airports of Madeira and Porto Santo:

  1. Filling out and submitting the epidemiological survey
    Survey in portuguese: http://apps.iasaude.pt/s-alerta/questionarios/viagem/questionario.cfm?l=PT
    Survey in other foreign languages: http://apps.iasaude.pt/s-alerta/questionarios/viagem/

All passengers must complete the Regional Health Authority’s (IASAÚDE) form.

The form should be filled in previously to the trip, between 48 and 12 hours before departure.

The survey is available at the Regional Health Authority’s website and, will also be accessible through airlines’ websites that so consent.

Alternatively, the completion of the survey, on paper, may occur on arrival at airports in the Autonomous Region of Madeira.

  1. Thermal Screening

All passengers landed at airports in Autonomous Region of Madeira are subject to thermal screening, even if they carry a negative test for COVID-19 disease, carried out within 72 hours prior to landing, in laboratories certified by national or international authorities.

  1. COVID-19 disease test

Each traveller who disembarks at the airports of the Autonomous Region of Madeira is obliged to alternatively fulfill, and under the supervision and guidance of the competent health authorities, that which is established in one of the following paragraphs:

  1. a) Provide proof of having performed a PCR test to screen for SARS-CoV-2 with a negative result, provided that it is carried out within a maximum period of 72 hours prior to disembarkation;
  2. b) Conduct, through the collection of biological samples upon arrival, a PCR screening test for SARS-CoV-2, to be carried out by the health authority, and remain in isolation, in the respective home or in the intended accommodation establishment, until obtaining a negative result from the test.
  3. c) Carry out voluntary isolation, for a period of 14 days, at your home or at the accommodation establishment where accommodated, and if the accommodation period is less than 14 days, the confinement will have the duration of the accommodation period.
  4. d) Return to the destination of origin or any other destination outside the territory of the Autonomous Region of Madeira, fulfilling, until the time of the flight, isolation at home or in the accommodation establishment where accommodated.

3.1. The PCR screening tests for SARS-CoV-2 considered for the purposes of paragraphs a) and b) are those certified by national authorities and recommended by international health authorities, the European Centre for Disease Prevention and Control (ECDC) and the World Health Organization (WHO);

3.2. The financial costs incurred at the Hotel where the traveller is accommodated, in the cases referred to in paragraphs b) and c) of number 3 are the responsibility of the traveller alone.
Criteria for submission to the SARS CoV2 test in childhood and pre-adolescence:

  • Children from 12 years old, subject to prior decision by the Health Authorities;
  • Children with suspect criteria for COVID 19 disease;
  • Children whose family members or companions are suspected cases;
  • Other situations validated by the Health Authorities.
  1. Monitoring

All passengers will be monitored through an APP (mobile application) “Madeira Safe to Discover” of the Regional Health Authority, of voluntary, but recommended use, or by telephone contact.

  1. Positive test result for COVID-19 disease

Mandatory confinement, if necessary compulsively, for a period of 14 days, in a health establishment, in the respective home or in an accommodation establishment, by decision of the competent health authorities:

a) For patients with COVID-19 and those infected with SARS-CoV-2;

b) For citizens for whom the health authority or other health professionals have determined active surveillance.

  1. Repatriation

The Government of the Autonomous Region of Madeira collaborates with all Diplomatic Authorities and Operators involved.

All charges related to repatriation operations must be covered by passengers’ travel insurance.

Travellers between Madeira and Porto Santo are currently free from any control by Health authorities.

The Regional Government of Madeira, through the Regional Secretariat for Tourism and Culture, and Madeira Promotion Bureau are working side by side with all stakeholders to relaunch the Destination. Our teams are always available to share information.

​Therefore:

  • We advise that contacts be made with the respective airlines, tour operators, or travel agents to adjust returns.
  • The Archipelago ports’and marinas are closed.

Madeira was the first region in Portugal to implement a “Contingency Plan for Emerging Infections: Coronavirus”, presented on 03 February 2020, a document that is subject to continuous updates.

Link (download): Plano de Contingência para Infeções Emergentes: COVID-19 da RAM  (Contingency Plan for Emerging Infections: Coronavirus – COVID 19  in Madeira Islands) – portuguese version

Please consult the poster with health recommendations regarding Coronavirus – COVID 19: https://covidmadeira.pt/

For more information, browse the IASAÚDE microsite for regular updates at : https://covidmadeira.pt/

For more information on which countries have not been blocked from flying to Portugal, please consult the IATA’s website.

Source: VisitMadeira

Continue reading
Switzerland

The best of both worlds

In international taxation one can seldomly have the best of both worlds. However, Portugal is proving otherwise, thanks not only to the Madeira International Business Centre, but also to the Non-Habitual Resident (NHR) tax regime.

Created in September 23rd, 2009, the NHR regime is a set of personal income tax exemptions and reduced rates aimed at people wishing to transfer their residence to Portugal. Those qualifying for the NHR regime are entitled to the above-mentioned reduced rates for a period of 10 consecutive years.

Among the several tax benefits deriving from the NHR regime, is the tax exemption on foreign sourced income (interests, dividends, capital gains, income from real estate property (rents), royalties, intellectual property income and business income) provided that: these latter types of income can be taxed in the country of origin under a Double Taxation Agreement signed with with Portugal.

Given the above, potential investors with structures in Malta or Switzerland can relocate to Portugal and have peace of mind with respect to dividends/profits distributed by Maltese and Swiss companies (such as a SICAV type company – investment company with variable capital) to their shareholders benefiting from the NHR scheme.

In fact, the Portuguese Tax and Customs Authority not only applies full tax exemption on income received from the above entities (as generally foreseen in the Portuguese Personal Income Tax Code), but has also established recently binding information to its taxpayers that dividends paid to NHR shareholders of Maltese companies and SICAVs are exempt from personal income tax in Portugal.

In the light of the Double Taxation Treaty concluded with Malta in Portugal, the tax credit provided to shareholders is assimilated to dividends, taking into account the specificity of the Maltese tax system of imputing income to shareholders.

On the other hand, and although the Portuguese Personal Income Tax Code considers the income paid by a collective investment organization, namely a SICAV, to its participants, is as capital income, in light of the Double Taxation Treaty between Switzerland and Portugal, the same income is considered as dividends.

Further to the above, the same treaty establishes a situation of cumulative tax jurisdiction for this income, with Portugal being able to exercise taxation as the State of residence of the beneficiaries, and Switzerland, as the State of the source. Therefore, under the NHR regime, income deriving from SICAVs will be exempt from taxation in Portugal.

The NHR as a stand-alone option, or together with the corporate tax incentives under the Madeira International Business Center, makes available to international investors. a higher degree of international mobility and liquidity, the latter through a low corporate tax rate of 5% applicable to international services companies.

These features of the Portuguese Tax System make it possible for one to benefit from the best of both worlds.

auctor Miguel Pinto-Correia

MCS and its team have more than 20 years of experience in assisting private clients who want to transfer residence or invest in the Autonomous Region of Madeira.

Obtaining RNH status requires a careful assessment of the income structure of the potential beneficiary.

Continue reading
vase with coins and a plant

Taxation of Foreign Pensions

It is increasingly common for expats to come and spend their retirement in Madeira Island, Portugal. They bring with them not only their savings of a lifetime of work, but also their foreign pensions.

Fulfilling the criteria of tax residence in Portugal (residing more than 183 days in Portuguese territory, or, when residing less time, having a house here that can be occupied at any time in the same period of time), those who reside, for tax purposes, in Portugal, are subject to the legal obligation to annually report their foreign bank accounts and their worldwide earnings to the Portuguese Tax and Customs Authority.

It is therefore important to understand the taxation framework of foreign pensions that tax residents in Portugal are subject to.

According to the OECD Model Convention, to which most countries and territories adhere, in order to avoid double taxation “pensions and similar remuneration paid to a resident of a contracting State [in this case Portugal] as a result of previous employment can only be taxed in that State [Portugal]”. In other words, foreign pensions earned by tax residents in Portugal can only be, in most cases, taxed in Portugal.

Notwithstanding the previous paragraph, “pensions and other similar remuneration paid by a contracting State or by its political subdivision or local authority, either directly or through funds, constituted by them, to a natural person, as a result of services rendered by that person to the State, or its subdivision or municipality, can only be taxed in that State.” That is to say, foreign pensions paid to former civil servants can only be taxed by the State where the former civil servant has performed his duties.

Note, however, that the overwhelming majority of expats who come to live to Portugal will be receiving pensions derived from previous commercial or industrial activities, this means that under the law, their pensions in Portugal will be subject to progressive rates of up to 48%.

The only way to avoid such high taxation on pensions by obtaining the status of Non-Habitual Resident (NHR), which must be requested by the taxpayer on arrival in Portugal (provided that the conditions are met). Beneficiaries of the NHR regime thus have their foreign pensions subject to a fixed rate of 10% on earned pensions from foreign sources.

In addition to the benefits described above, beneficiaries of the NHR scheme may also benefit from exemptions and reduced personal income tax rates on other types of income for a period of 10 consecutive years.

auctor Miguel Pinto-Correia

MCS and its team have more than 20 years of experience in assisting private clients who want to transfer residence or invest in the Autonomous Region of Madeira.

Obtaining RNH status requires a careful assessment of the income structure of the potential beneficiary.

Continue reading

Reconversion of Local Accommodation

In recent years Portugal has been considered a safe haven for several expats and foreign investors, who in turn have contributed on a large scale to the improvement of the Portuguese economy, by investing in the real estate sector, sometimes simultaneously associated with the tourism sector, namely in local accommodation (short terms tourist rentals, known in Portugal as alojamento local), or because many wish to relocate  their life and busines activity, permanently, to the country.

Several programs were launched to attract these investors and expats, including programs with attractive tax benefits such as the Non-Habitual Resident (NHR) regime, or the   “Golden Visa“, a residence by investment program of which most of the investments were  made  through the acquisition of real estate property.

In recent years, these programs have led to an exponential increase of real estate acquisition, especially in large urban and tourist areas, which has also contributed emphatically to the growth of the tourism sector, since a  large percentage of real estate acquisition has been  allocated to local accommodation.

Despite the crisis arising from the pandemic outbreak of Covid-19, the “Golden Visa” maintains a good level of adherence and demand by investors. In May of this year, there was a new increase in the value of real estate investment, a total of 137 million euros, the highest monthly investment value since March 2017.

Despite the message of confidence passed on by investors during the crisis, the global pandemic has exacerbated some socio-economic effects that were already worrying the Portuguese government, especially housing in large urban areas.

The strong demand for profitable properties, under the “Golden Visa” program, coupled with the growth of tourism activity in Portugal, and consequently the growing investment in local accommodation, has aggravated the price of housing rentals, especially in the large urban centers where the majority of real estate investment is made, and where the highest percentages of local accommodation.

On June 6, 2020, Resolution of the Council of Ministers No 41/2020 was published, approving the Economic and Social Stabilization Program, which contains measures for the conversion of local accommodation.

There is great uncertainty as to the direction of the tourism sector, how and when it will rise and how the sustainability of housing prices and rentals will be in these times of pandemic. Tourism has held back its breath, and those who have invested in local accommodation may need an oxygen balloon in the short-term.

In view of the urgency of responding to the middle-income population in obtaining affordable housing leases and the fact that the tourism sector, in particular local accommodation, is experiencing major difficulties due to restrictions on international travel, the measure of reconversion of local accommodation could be a response in order to combat both problems.

The measure itself is implemented through the Portuguese government’s support to municipal rental and sub-rental programs for more affordable rents. In these programs public entities pay 50% of the difference between the rental income paid and the rental income received, which will certainly give increased security to the landlord, because 50% of the income is guaranteed by public entities.

To the above benefit there is also an important advantage concerning personal income tax and corporate income tax exemption, on rental income resulting from the lease or sub-lease, as stipulated by Article 20 of Decree-Law No. 68/2019.

This option concerning the conversion of local accommodation into long term rentals may be even more appealing, considering the amendment to Article 3(9) of the Personal Income Tax Code, carried out by the 2020 State Budget. Such change foresees that the local accommodation does not generate a capital gain when the property is transferred back to the owner’s estate, if said property is immediately assigned to generated long term rental income.

With this measure, a potential solution remains open for investors who have earmarked their real estate investments for local accommodation, and who now want to secure a source of income,  which although not as attractive as that obtained in many cases through local accommodation, is in the current scenario of economic crisis, a more sustainable and stable source of income.

auctor Pedro Marrana

MCS and its team has more than 20 years of experience in assisting corporate and private clients wishing to relocate to Madeira. For more information on our services please do no not hesitate to contact us.

Continue reading