Tag Archives: NHR

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of an abuse of the law, fraud, or false marriage or partnership of convenience, residence rights will be refused and withdrawn.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

More often than not, British expats in Portugal (Madeira Island included) face warnings from our tax advisors regarding the compliance of their income structure with the Portuguese Personal Income Tax Code in general and the Non-Habitual Resident scheme in particular.

The warnings mentioned above are related to the economic links that said expats maintain with the Crown Dependencies and British Overseas Territories (BOTs), from which they derive part of their income. Under Portuguese Personal Incomer Tax law, capital income (dividends, interests) and capital gains from real-estate derived from Crown Dependencies and BOTs, jurisdictions classified in Portugal as tax havens, are taxed at a flat tax rate of 35%.

The classification of Crown Dependencies and BOTs as blacklisted tax havens is unlikely to change, especially given the launch of the European Tax Observatory, a new research laboratory funded by the European Commission to assist the EU’s fight against tax abuse. Further to this, the Organisation for Economic Co-operation and Development (OECD) is currently undertaking work to reach a deal on overhauling the international tax system – to get an agreement by mid-2021, which may jeopardize the treatment of these territories.

British expats moving to Madeira Island must seek specialized international tax advisory concerning their personal income structure, compliance with the existing taxation rules and benefits, and re-structuring their income sources before relocation. Therefore, deterring unwanted and avoidable tax exposure.

auctor Miguel Pinto-Correia

Our team of lawyers and accountants is ready to assist you in assuring relocation to Madeira Island that meets your expectations. Feel free to contact us.

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Tax residency and its implications

Definition of Tax Residency

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.

Tax residency is important for the purposes of obtaining the Non-Habitual Status (NHR), as one must first be resident in order to apply for NHR status and one has until 31st March of the year following that of registration as resident to obtain said status.

Reporting Obligations

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.

A non-resident taxpayer will only have to file a declaration in the case of obtaining rental income Portuguese source.

Tax Residency and CRS

The Portuguese Tax Code requires all taxpayers who work and/or reside abroad to communicate the change of their tax address to the Tax and Customs Authority (“AT”) within 60 days.

However, a large part of expat communities abroad fail to do so. This leads them to incorrectly report their income earned in both countries.
 
This issue has become more “serious” if we take into account that banks now collect and report information on bank account balances held by non-resident (for tax purposes) clients to the tax authorities.

The opposite also happens: foreign banks will report the accounts held by taxpayers resident in their national territory to their respective tax authorities, who will then communicate this information to the tax authorities of the country of origin.
 
This exchange of information stems from the implementation of the Common Reporting Standards (“CRS”), created by the OECD and of which Portugal and 92 other countries are involved.

Among the 93 jurisdictions, offshores like the Cayman Islands, the British Virgin Islands, Channel Islands are also included.

These commons reporting standards aim to combat tax evasion and money laundering and can have an impact on the tax residency status of thousands of expats.

CRSs can then risk expats’ income to be taxed in their country of origin and in their country of residence, if tax residence status are not up to date in all jurisdictions.

It is therefore extremely important that expats update their tax residence status with the competent tax authorities.

Our team at MCS, with more than 20 years of experience in the sector, is able to assist you pertaining taxation matters in Madeira and in Portgual. For more information our services click here.

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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

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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.

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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.

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Non-Habitual Resident Due Diligence

The Non-Habitual Resident regime/scheme is the special Portuguese taxation regime applicable to the foreign income of natural persons. This program is specially designed for people wishing to transfer their residence to Portugal.

Those qualifying for the Non-Habitual Resident (NHR) regime qualify as residents, for tax purposes in Portugal, and are taxed at reduced or zero rates.

NHR status is valid for a period of 10 consecutive years, provided that the applicant was deemed non-resident in 5 previous years prior to taking up residency.

Having tax residency in Portugal is key to obtain the NHR. Therefore, prior to applying for NHR status, one must be deemed resident for tax purposes in Portugal. According to Portuguese tax law one is resident:

  • 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.

Usually proof of residency outside Portugal prior to becoming resident and applying for the NHR is not required, unless:

  • There is a random audit carried out to one’s application by the Portuguese Tax and Customs Authority; or
  • One is a Portuguese citizen who forgot to update their tax residency in their Portuguese ID card (Cartão de Cidadão) after relocating outside Portugal in the five previous years to application.
  • One has engaged in the previous five years with the Portuguese tax authority in any way that has enable the Portuguese Tax and Customs Authority to deem that person as resident for tax purposes.

Given the above, we always advise prospective NHR status applicants to obtain, prior to the moment of their application, all relevant and legal documents that can be accepted by the Portuguese Tax and Customs Authority as proof of tax residency abroad in the 5 years previous to their application.

These abovementioned documents that should be gathered by any NHR applicant in the jurisdiction of previous tax residency are:

  1. Tax Residency Certificate.
  2. Proof of income earned, and corresponding tax paid abroad (i.e. tax return filed and corresponding tax settlement notice).
  3. Rental agreement or property purchase deed showing permanent residency intention.
  4. Work contract or pension pay slips.
  5. Utility bills.

Notwithstanding the above, the most relevant documents are the ones mentioned in 1 and 2.

If you are thinking of relocating and obtaining the NHR status and prevent it from being granted, due to the causes above, get your paper work in order.

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 and in dealing the Portuguese Tax and Customs Authority in their behalf.

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Changes to the Golden Visa and the NHR scheme

Following the approval of the Portuguese State Budget for the FY2020 the following changes have been introduced regarding the Golden Visa and the Non-Habitual Resident (NHR) scheme:

Golden Visa

Before the Approval of the State Budget: real estate investment, for the purposes of obtaining a residency permit, was allowed to be carried out in entire Portuguese territory.

After the Approval of the State Budget: the Portuguese Government has been authorized by the Assembly of the Republic, for a period of one year, to legislate on changes to the Golden Visa regime.

Under such authorization the Government is allowed to limit real estate investment, for the purposes of obtaining a residency permit, to the Portuguese mainland’s interior and the Autonomous Regions of Madeira and Azores.

Furthermore, under such legislative authorization, the Portuguese Government is expected to increase the minimum amount of the investment required to obtain the residency permit.

Last, but not least, these changes will not affect the Golden Visas already issued under the old rules.

NHR scheme

Before the Approval of the State Budget: those under the NHR scheme would have their:

  • Pensions exempted from personal income taxation in Portugal, provided that: pensions are taxed in the jurisdiction of origin according to the Double Tax Treaty entered into between Portugal and that jurisdiction; or provided the income cannot be considered as obtained in Portugal according to Portuguese domestic law.
  • Professional income (“free-lancer” income) derived from high added value activities in only be exempt in Portugal, provided that: the income may be taxed in the jurisdiction of origin according to the Double Tax Treaty entered into between Portugal and the jurisdiction concerned ; or in case Portugal has not entered into between a Double Tax Treaty with the jurisdiction of origin, the income may be taxed in conformity with the OECD Model Tax Convention (in this case, this exemption shall only apply if the jurisdiction of origin is not considered a black listed jurisdictions and as long as the income cannot be considered as obtained in Portugal according to domestic law).

After the Approval of the State Budget:

  • NHR status holders are taxed at the rate of 10% relative to net pension income. This measure can be offset through a tax credit in order to avoid any potential double taxation.
  • Professional income derived from high added value activities from foreign sources can only be exempt in Portugal, provided that effective withholding tax is applied by the source jurisdiction.

The above rules are in force since April 1, 2020.

For more information on these matters, please do not hesitate to contact us.

 

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Before relocating to Madeira

There might be a bucket full of reasons as to why you wish to relocate to Madeira, but all experts and consultants on the matter will tell two things: access/re-arrange your income before relocating and always engage Madeiran and your home jurisdiction’s tax experts when doing so before actually transferring residency, for migration and tax purposes.

Although the Non-Habitual Resident (NHR) status, which generally speaking grants you a 10-year tax holiday on your foreign sourced income, is fairly easy to obtain it is important to make sure that prior to your effective relocation our worldwide income structure does comply with Portuguese tax law. Failure to do so can certainly imply loss of said exemptions.

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?

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.

When thinking about relocating to Portugal, 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.

In a ideal world one who relocate to Madeira, then obtain a Portuguese Taxpayer Identification Number, apply for Residency as EU-Citizen (for migration purposes), file application for the NHR status and start enjoying a 10-year tax free life, but that cannot be further from the truth. The first step must always be engaging a Madeiran tax consultant in order to analyze one’s particular tax position prior to relocation.

Madeira Corporate Services has been advising private and corporate clients who wish to invest in Madeira for more than 20 years, operating as one-stop shop in terms of the services and expertise provided. Prior to your relocation do not hesitate to engage our assistance.

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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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