Tag Archives: portugal

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 implies the other.

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

in fact EU/EEA/Swiss citizens living in Madeira (or in any Portuguese territory) for longer than 3 months are required by law to formalize their right of residence. After 3 months this class of citizens has 30 days to register themselves with the municipality.

On the other had, third-country nationals (non-EU/EEA/Swiss citizens) can only formalize their right of residency, provided that they have applied for the necessary visa with the Portuguese diplomatic mission in their country of residency or do an investment that might qualify them for residency. Once the visa is 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 he/she remains 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 resident, for tax purposes, 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.

Taking into consideration the above, its theoretically possible for the Portuguese Tax and Customs Authority to consider an expat as resident, and therefore liable to worldwide income taxation, even-though he/she might not be duly registered for immigration purposes.

Alternatively, should an expat have the need to update his tax residency status, from non-resident to resident, he/she 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 and applying for residency with the Immigration and Border Services, under the visa on your passport,
  3. Receiving residency card with from the Immigration and Border Services;
  4. Updating tax residency status with the tax authorities, based on the residency card received;
  5. Applying for tax benefits.

Steps 1-3 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 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.

Continue reading
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 is positioned to provide digital nomads with a unique package of benefits, offering a wide range of solutions to their specific needs.

Being speedy a internet 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 kind of contention and using diversity in the access to international backbones.

Last, but certainly, not least he 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 above infrastructures combined with an easy going island life, makes 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 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.

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.

Non-EU Citizens

If you are third-country national, kindly note that you are not entitled to perform any job to a Portuguese entity without visa. Furthermore, prior to your relocation be sure to have 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 should you be planning to stay for an extended period of 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 staying requirements.

Prior to 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, and therefore not subject to personal income tax on their worldwide income.

Notwithstanding the above, should you have a real estate property (either rented or purchases) that you can occupy in 183 days in a given year or should you engage Portuguese entities as a free-lancer during that time period then personal income tax implications could arise. Under theses circumstances be sure to engage a tax consultant in order to avoid any unpleasant surprises.

If you are considering a longer stay, either as a free-lancer or an employee, there are tax benefits for expats wishing to effectively relocate to Madeira, namely those foreseen under the Non-Habitual Tax Resident scheme.

Free-lancers 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 from intellectual rights (when earned by the original owner) may be taxed either in accordance with a simplified regime or based on the taxpayer’s organized accounts.

The simplified regime will apply only to taxpayers who, not having opted for 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, the above income is taxed on 75% of income arising from business and professional services listed in the table referred to in Article 151 of the PIT Code. As an incentive for taxpayers joining the simplified regime, the coefficient of 75% is reduced by 50% and 25%, in the tax period of the beginning of activity and in the following one.

The income ‘deduction’ arising from the application of 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 the 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 hotel 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 expenses 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 amount of 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 to 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 in the following two months. For the determination of the relevant remuneration of the self-employee, it is considered the income received in the three months previously to the reporting month. The relevant remuneration 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 important 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 must be paid between the 10th and the 20th of the month following the month to which they refer.

VAT in Portugal is payable by all businesses with a turnover in excess of €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 essential 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, invoices to clients must be issued through a Portuguese Ministry of Finance dully approved software.

Personal Income Tax on Residents

Digital nomads wishing to relocate for an extensive period, more than 183 days, may be liable to Portuguese personal income tax on their worldwide income. Having that said exploring take 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 some requirements are met under the scheme’s rules. In addition, Portuguese sourced income may be subject to a flat tax of 20% if the activity carried our by the digital nomad is deemed as a high-added value activity.

Cryptocurrencies

Income derived from buying and selling crypto is not taxable in Portugal, as of this date. Nevertheless the Portuguese Central Bank is set to regulate crypto-trading platforms and given how old (2015) and somewhat ambiguous the tax ruling on crypto income tax exemption is, an application for a new tax ruling is something that you should give a thought before relocating to Portugal.

Alternatively, your income structures should be in line the current rules of the NHR scheme for said crypto income to be exempt from personal income taxation. Tax advice on this matter should be sought after prior to any conversion to crypto to fiat currency as Portuguese tax resident.

Furthermore, as of this date, banks in Portugal are not crypto-friendly and 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, the 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 a 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 is only applicable on taxable profit deriving from non-resident entities (otherwise the normal 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.

Continue reading

UK Expats in Portugal beware

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

The above-mentioned warnings 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, specially given the launch of the European Tax Observatory, a new research laboratory funded by the European Commission with the aim of assisting the EU’s fight against tax abuse. Further to this the The Organisation for Economic Co-operation and Development (OECD) is currently undertaking work to reach a deal on overhauling the international tax system – with the objective of reaching a deal by mid-2021, which may jeopardize the treatment of these territories.

Taking into account the above situation, British expats moving to Madeira Island are advised to seek specialized international tax advisory concerning their personal income structure, its compliance with the existing taxation rules and benefits and conduct re-structuring of their income sources, prior to relocation. This will deter 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.

 

Continue reading
Bitcoin

Is Portugal a Crypto Tax Haven?

First and foremost it is important to understand that Portugal has no tax legislation, nor provisions on cryptocurrencies and crypto-assets. Given this current absence of tax legislation on crypto assets, the Portuguese Tax and Customs Authority has issued a tax ruling on the taxation of cryptocurrencies at the request of a taxpayer.

Based on the above mentioned tax ruling, the current understanding of the Portuguese Tax and Customs Authority is that, “cryptocurrencies are not technically considered “currency” because they do not have a legal tender or liberating power in Portugal, however, (…) they can be exchanged, with profit, for real currency (…), with specialized companies for the effect, with its value, compared to the real currency, being determined by the online demand for cryptocurrencies”. The position of the Portuguese Tax and Customs Authority is, therefore, in line with that of the Portuguese Central Bank, the later being recently tasked with licensing crypto-trading platforms in Portugal under EU-Law.

Given the above, income resulting from the sale of cryptocurrencies will not be taxable under the Portuguese Personal Income Tax Code, neither within the scope of category E (capital-gains income), nor subject to being taxed under category G (equity increases).

Furthermore, it is also the understanding of the Portuguese Tax and Customs Authority that the profits obtained from the sale of cryptocurrencies are not taxable under the Portuguese tax system, unless by their regularity ends up constituting a professional or entrepreneurial activity of the taxpayer, in which case it will be taxed (at the progressive tax rates that can go up to 48%) as a qualifying income under the category B (professional and business income from free-lancing) of the Personal Income Tax Code.

However the Portuguese Tax Authority does not define in its ruling:

  • The concept of what it deems as the sale of a cryptocurrency or asset. Is it the sale of cryptocurrencies and crypto-assets for other cryptocurrencies and crypto-assets? The sale of cryptocurrencies and crypto-assets for fiat currency? Or both?
  • What it deems as regular activity. How often trading must occur in order for it to be deemed a regular activity and therefore taxable under the category B type of income?
  • If activities such as staking or mining are taxed.

Given the above, high-risk takers, based on their own notions of what they wish to understand from the loose tax ruling consider Portugal to a crypto tax haven, where their income will not be taxed for the time being.

One can argue that the Portuguese Tax and Customs Authority would have a difficult time proving regularity and income flow derived from trading, but under the current rules those you are resident, for tax purposes, in Portugal could have their income audited under “wealth manifestation” rules (i.e. should the taxpayer conduct high-profile/luxury purchased of property and transportation, the Portuguese Tax and Customs Authority could request justification of how the income is generated and how often).

On the other side, low-risk takers, opt to strictly follow the ruling and register themselves as free-lancers and subject their income to personal income tax and social security contributions based how much they earn.

Having the above into consideration, low-risk takers wishing to relocate to Portugal and legally benefit from low taxation on their crypto income, under the non-habitual resident (NHR) scheme, should, prior to effective relocation to the country, restructure their crypto-income generating activities. This restructuring must occur in way that the income generated fully abides to the NHR tax exemption rules. This means that crypto income, ought to be received, in Portugal either as dividends or salaries paid by a foreign entity.

The mere holding of crypto does not generate, for the time being, a taxable event.

In short, Portugal is a crypto tax have if one is willing to take fully take the risk of non-reporting based on a 2016 loose tax ruling. If you do not wish to restructure your income flow prior to relocation to Portugal, then you will not find a low risk solutions in this jurisdiction and you should be considering other jurisdictions…

auctor Miguel Pinto-Correia

All mentions above are merely academic and opinionated, so the considerations in this article, as well as the examples given, should not be seen as something absolutely certain in legal terms.

Continue reading
Funchal

Buying Real Estate with Crypto in Portugal

Is it possible to buy property with cryptocurrencies in Portugal?

Although there are already some websites where you can “buy and sell” real estate using cryptocurrencies, including some options located in Portugal, and although this type of business has already been carried out in the United Kingdom, in my opinion this type of operation will always be controversial.

Whether it is due to the “speculative aura” brand given by public authorities to cryptocurrencies or the difficulty in complying with certain parameters and assumptions of the European laws to combat money laundering and financing of terrorism, there is no open offer in the current market to negotiate and carry out a property purchase and sale transaction under these circumstances, at least that would comply with all the demands made by law.

It should also be said, and except in the best of cases, that because cryptocurrencies are not considered to have legal course in Portugal as a legally established form of currency, according to the Bank of Portugal, being simply considered to be a virtual coin/asset, there will always be a legal obstacle to entering into any purchase and sale transaction under the terms of the assumptions and requirements set out in Article 47 of the Notarial Code.

Taking into account that Portuguese law limits the means of payment for the purchase of a property, those mentioned in the Notary Code, this hinders and creates the first obstacle to the purchase and sale of real estate being able to be made using payment in cryptocurrencies.

However, since the dawn of trade between human beings, goods were not acquired through purchase with currency as consideration and payment of a price.

Since the dawn of trade, and up to the present day, many businesses have been conducted through the exchange of goods.

It may not be possible to buy property with cryptocurrencies, however, the law does not stipulate any express prohibition on exchanging property for any other good or service.

These atypical contracts based on the autonomy, availability and will of the parties are called swaps or exchange contracts.

The exchange contract, in general terms, is a contract not autonomously typified by law and to which the rules of freedom of agreement apply and subsidiarily the rules relating to purchase and sale. It is, in short, a contract whereby the ownership of an asset or other right is exchanged for the ownership or right to another asset.

Eventually, it will be as legitimate to exchange a real estate property for a car, a boat, a jewel, for gold or other precious metals, for the provision of a service, or any other good or service, as it would be, for example, to exchange a property for cryptocurrencies, or any other thing, provided that the property/good is not physically or legally impossible, contrary to law or indeterminable.

Bearing in mind that cryptocurrencies are not considered to have a legal course in Portugal, they will eventually have to be considered a “thing”, a good, such as a bar of gold, and that the concept of a thing within the scope of an exchange contract is quite extensive, it will always be said that within the contractual freedom and autonomy of the parties, two persons or entities may enter into an exchange contract whereby one of them transfers a property and the other, in exchange, transfers a certain number of cryptocurrencies.

Regarding the registration of the property right over the real estate by the buyer, and in accordance with the notarial legislation in Portugal, even if the acquisition has been made through an exchange contract in which one of the goods is not subject to registration, as is the case of cryptocurrencies, it will be possible for the buyer of the property to register the property using the exchange contract as sufficient title.

The exchange of immovable property for movable property or any other good or service which is not immovable property does not integrate the concept of exchange for Property Transfer Tax (IMT) purposes, as provided for in article 4 c) of the CIMT.

As such, the calculation of the IMT will be made under the general terms.

In this case, the acquirer of the property will be required to pay IMT, which will be calculated on the value that the parties have attributed to the property or on the taxable patrimonial value, whichever is greater, applying the same rule as to stamp duty.

Although there is nothing in the law that prevents the contract of exchange of real estate property for cryptocurrencies, it is important to note that since there is no doctrine, jurisprudence or specific legislation on the subject, all mentions above are merely academic and opinionated, so the considerations in this article, as well as the examples given, should not be seen as something absolutely certain in legal terms.

auctor Pedro Marrana

 

Continue reading

Golden Visa and Tax Benefits

Golden Visa – Can it be a profitable investment? Tax Benefits related to the rehabilitation of real estate.

In the last few articles I have been mentioning and outlining several reasons why the purchase of a property worth 350 thousand Euros with rehabilitation works will be a good and profitable investment to obtain the Golden Visa.

Associated to a lower investment value, which will be a minimum of 350 thousand Euros for the purchase of a property and rehabilitation works, in comparison to the investment of 500 thousand Euros for any property or group of properties, the option for rehabilitation of urban real estate, especially in the perspective of its profitability through rental housing, there are also other advantages for the investor.

In addition to some support programs and funds available to owners who proceed with the rehabilitation of buildings in areas of urban rehabilitation, in this article we will specifically focus on the aspect of tax benefits associated with urban rehabilitation, which adds even more advantages to the Golden Visa regime through real estate investment.

The Golden Visa regime in the form of investment in a minimum global (acquisition of property and rehabilitation) value of 350 thousand Euros foresees that the same can be made in real estate located in an area of urban rehabilitation, or in real estate whose construction has been concluded at least 30 years ago.  This is also the premise in the case of the tax benefits stipulated in article 45 of the Statute of Tax Benefits (EBF), as the benefits will be attributed when the rehabilitation works are carried out in real estate that is in either of the two aforementioned situations.

However, there are two other conditions, in this case cumulative, which need to be observed:

  1. a) the property rehabilitation interventions must be promoted under the terms of the Urban Rehabilitation Legal Regime;
  2. b) As a result of the intervention referred to in the previous sub-paragraph, the maintenance status of the property needs to be two levels higher than that previously attributed, and must have at least a Good level, comprehending that the energy efficiency and thermal quality requirements applicable to the buildings are fulfilled.

In order to comply with that mentioned in paragraph b), it will be necessary to request a technical evaluation from the Municipality and the fee for such evaluation of the state of conservation will be reduced by 50% in these cases.

If the requirements are fulfilled, in accordance with the EBF, the tax benefits to be granted are as follows:

Exemption from municipal property tax (IMI) for a period of three years from the year, of the conclusion of the rehabilitation works, with the possibility of this exemption to be renewed and extended, at the request of the owner, for a further five years in the case of properties assigned to rental for permanent dwelling purposes or to own as permanent dwelling;

Exemption from municipal tax on onerous transfers of real estate (IMT) in the acquisition of real estate for rehabilitation, provided that the purchaser begins the respective works within a maximum period of three years from the date of acquisition;

Exemption from municipal property transfer tax (IMT) on the first transmission of property, following the rehabilitation intervention, in the case that the property will be used as rental for permanent dwelling purposes or, when located in an area of urban rehabilitation, also for own and permanent dwelling purposes;

In my opinion, these exemptions allied with the Golden Visa regime, in which the investor is obliged to maintain the investment property for a period of five years, may bring enormous advantages by mitigating the most onerous taxes and costs related with the acquisition and holding of a property.

The first advantage will be the IMI exemption that may last for eight years after the acquisition and rehabilitation of the property, if it is used to rent for habitational purposes, or even if it’s used as the permanent habitation of the investor.

The second advantage will be not having to pay IMT if the rehabilitation works are started within the first three years after the acquisition of the property. That is, there is a suspension in the payment of IMT during the first three years, and a total exemption of its payment if it is proven that the owner started the rehabilitation within the maximum period established.

If we take as an example a property acquisition to rehabilitate in the amount of 350 thousand Euros, the investor can be exempted from paying the 8% tax on that amount, corresponding to a value of 16,964.75 Euros.

Finally, the advantage of exempting the future purchaser of the rehabilitated property from the IMT tax, if he uses the property for rental as a permanent residence, or even as his own permanent residence.

This advantage of exempting the future buyer of the payment of IMT is a great advantage at the level of marketing of the property in the future, when the investor under the Golden Visa, has already exceeded the five years in which it is required to maintain ownership of the property, and now decides to capitalize the investment through the sale of the same.

Another interesting tax benefit is the fact that the cost of the contract for the rehabilitation of the property can be taxed in terms of VAT at 6% instead of the usual 22% applicable to construction contracts. With a rehabilitation contract, it will be possible to apply the lower rate of VAT.

Also at the Personal Income Tax (IRS) level there are some interesting benefits when opting for the investment in real estate for rehabilitation, through the Golden Visa, and its profitability through renting.

And although it is not contradictory to the Golden Visa regime, the truth is that in order to benefit from these incentives in terms of IRS, the investor must become a tax resident in Portugal, something that every so often it’s not a common aspiration from the investors.

As we know, many of the investors who opt for the Golden Visa, do not intend to become tax resident in Portugal, however for other investors who effectively choose to move to Portugal cutting ties with their country of origin, the change of tax residence to Portugal is not an impediment at all.

For those investors who choose to become tax resident in Portugal, Article 71 of the EBF, grants two tax benefits in terms of IRS:

  1. a) Capital gains earned by IRS taxpayer’s resident in Portuguese territory arising from the first disposal, subsequent to the intervention, of property located in an urban rehabilitation area, are taxed at an autonomous rate of 5%, without prejudice to the option for aggregation;
  2. b) Rental income earned by IRS taxpayer’s resident in Portugal is taxed at 5%, without prejudice to the option for aggregation, when it derives entirely from the rental of real estate located in an ‘urban recovery area’, recovered under the terms of the respective recovery strategies;

Finally, and perhaps of less relevance for those who make an investment under the Golden Visa, also in terms of IRS, if the investor becomes tax resident in Portugal, he will be entitled to deduct 30% of the costs incurred by the owner/investor related to the rehabilitation of the property, up to a limit of 500 euros.

As mentioned above, there are other tax benefits associated with rehabilitation if the investment is made through other vehicles holding the property, and there are also other incentives and support in the form of funds and support for rehabilitation.

Nevertheless, as it was possible to demonstrate, the tax incentives themselves, allow, in the case of investment through rehabilitated real estate, to mitigate one of the disadvantages most often mentioned in real estate investment under the Golden Visa regime, which is related to the tax costs, some fixed as the IMI, throughout the five years in which the investor is obliged to keep the property in his ownership.

Therefore, using the example I have been giving, the profitability of the investment through the rental housing, it is possible to avoid most of the tax costs in the procedure of purchase and maintenance of the property.

auctor Pedro Marrana

Continue reading

Relocating to Madeira? What not to do!

If you are considering relocation to Madeira Island (Portugal) there are a few simple steps that you ought to follow in order to avoid tax and immigration complications in regards to 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, such as British, ought to have the appropriate residency visa in 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 declaration in the case of obtaining rental income 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

Continue reading

Golden Visa – Affordable housing and legal requirements

What are the Golden Visa’s legal requirements for the investment through real estate rehabilitation?

As mentioned in my last article, in this fourth article I will analyze the requirements for the acquisition and execution of rehabilitation works on real estate, in the global amount equal or superior to 350 thousand Euros to be eligible, under the Golden Visa program.

Firstly, it will be necessary to define what types of property will be eligible.

Any property regardless of its purpose, whether for housing, commerce or services, whose construction has been completed at least 30 years ago, or that the property is located in an area of urban rehabilitation (even if its construction has been completed less than 30 years ago).

Regulatory Decree no. 9/2018 of 11 September has changed the way the means of proof of compliance with the above-mentioned requirements for the investment to be eligible under the Golden Visa, were drafted.

However, there are some details that sometimes escape investors, and which it is important to point out.

I would say that the two most important details are:

  • whether the property is in a rehabilitation area, or its construction was completed at least 30 years ago, in order for it to be eligible the applicant will always have to carry out works on the property;
  • for the purposes of the regulatory decree mentioned above, what matters is the date on which the construction of the property were concluded, and not the date on which it was registered in the land register, or that it was registered in terms of tax registry or even when it was acquired for the first time;

There should be no confusion between the requirement and how to prove the requirement. Article 65-D, number 4, paragraph h) of Regulatory Decree 9/2018 of September 11, is quite clear when mentioning that it is necessary to prove the conclusion of the construction of the real estate property or properties at least 30 years ago, regardless of whether or not that situation/fact results from the land registry certificate.

We should not confuse the date of inscription of the property in the tax registry or the date of its registration in the land registry office, the normative clearly and specifically requires proof of the date of conclusion of the construction.

The way to prove the date of the definitive conclusion of the construction will be, in principle, through the property’s use permit, which should clearly and unequivocally mention the date on which the construction work is considered to have been concluded and that the property can be used for the purpose for which it was intended.

In principle, it should be the property’s use permit that will dictate and serve as proof if the construction of the property was completed or not at least 30 years ago, but sometimes that can be mentioned in the land registry certificate.

Concerning the obligation to carry out construction works and rehabilitation of the property, the Regulatory Decree no. 9/2018 of 11 September, amended article 65-D of Regulatory Decree nr. 84/2007, of November 5th, and established that in order to prove that the required rehabilitation works have been carried out, it will be necessary to present:

  1. Prior communication or ii) licensing request to carry out the urban rehabilitation operation or iii) a construction work contract to carry out rehabilitation works in the properties subject to acquisition, signed with a legal entity that is duly authorized by the Institute of Public Markets, Real Estate and Construction, I. P.

If we make a brief analysis of the legal regime of urban rehabilitation, established by Decree-Law No. 307/2009, of 23 October, both to the definitions of building rehabilitation, as well as to the definition of urban rehabilitation, contained in article 2 of the referred rule, and an analysis of articles 4, 6 and 6-A of the Legal Regime of Urbanization and Building (Decree-Law No. 555/99 of 16 December), we can reach the following conclusions:

  • Rehabilitation of buildings – the form of intervention intended to confer adequate performance characteristics and functional, structural and constructive safety to one or more buildings, to the functionally adjacent constructions incorporated in its patio, as well as to the fractions eventually integrated in that building, or to grant them new functional aptitudes, determined according to the options of urban rehabilitation pursued, in order to allow new uses or the same use with higher performance standards, and may comprise one or more urbanistic operations;
  • Urban regeneration – is the form of integrated intervention on the existing urban fabric, in which the urban and real estate heritage is maintained, in whole or in substantial part, and modernised through the carrying out of works of remodelling or improvement of urban infrastructure systems, of equipment and of urban or green spaces for collective use, and of works of construction, reconstruction, extension, alteration, conservation or demolition of buildings;

Therefore, the Legal Regime of Urbanization and Building (Decree-Law No. 555/99 of 16 December) will define what type of works will demand a ii) license to carry out works of rehabilitation, the type of works that will only demand a i) prior communication, or the iii) works that will demand no type of previous control, namely the works of little urban relevance.

Taking into account that any of the types of works mentioned in articles 4 to 6-A of Decree-Law No. 555/99 of 16 December correspond to works that can be framed as building rehabilitation works, the type of document proving the execution of the works that is required under Regulatory Decree 9/2018 of 11 September will depend on the degree of intervention in the property that is made.

Therefore, I believe it is more than defensible that, for the purposes of eligibility under the provisions of article 65 D, number 4, paragraph e) of Regulatory Decree 9/2018 of 11 September, it will be sufficient that the investor carries out works that effectively improve the quality of the property, that improve its energy certification, or that benefit its conservation, safety, in relation to its previous state, even if it has already benefited from rehabilitation works.

As an example, the replacement of windows and doors, for options that improve the energy certification of the property, or even the installation of solar panels, replacement of flooring or interior lining, for one that improves the quality of the property, are eligible works, and suffer no more than the addition of the contract to carry out rehabilitation works, provided that, concluded with a legal person that is duly authorized by the Institute of Public Markets, Construction and Real Estate, I.P.

Having said this, and in summary, there is a good investment opportunity in the Golden Visa regime, in the possibility of combining the acquisition of property with remodeling or rehabilitation works, for a total amount equal to or greater than 350 thousand Euros, if simple directives are followed in order to make the investment eligible.

This type of investment may effectively modernize the urban fabric in Portugal, help in the recovery of many aged areas of cities, which have an enormous potential for a more sustainable housing pole in terms of cost, and in turn more profitable.

auctor Pedro Marrana

Continue reading

Golden Visa – Rehabilitation for affordable housing

In the last article I have mention that in 2021, it will be possible to observe an increasing trend in the betting on construction and rehabilitation of urban real estate, in order to accommodate the growing demand in the market for more affordable housing, specially pursued by young couples, who end up leaving their parents’ house at later stages than 40 or 50 years ago, and look for a new home closer to the best infrastructures, the jobs, the best socio-cultural activities and the best services, specifically health services and care.

Even with the news that BCE will maintain a monetary policy that will ease the resource to credit for habitation, keeping the interest rates stuck near at 0%, the fact is, we currently face the cold truth of one of the biggest economic crises in history, which impact, and duration will depend on the global measures taken by the several governments, in terms of supporting the sustainability of several economic sector, companies and specially jobs. This means, that even with low interest rates, the habitation on the bigger urban areas needs to make a change in order to be more affordable, more effective in terms of the usage of construction materials, and more sustainable.

This leads me to consider, in the scope of the Golden Visa procedure, that the bet on the investment in the value of 350.000 Euros, in real estate, whose construction has been concluded at least 30 years ago or located in an area of urban rehabilitation and execution of rehabilitation works of the acquired real estate, may be a good solution to advance towards the transformation of the housing market in urban centers, keeping a solid bet on the profitability of the investment.

In Portugal, whether in Lisbon, Porto or even Funchal, there are good opportunities for properties with the characteristics and requirements mentioned in the previous paragraph.

The fact that there are a good number of properties that can fulfil the above requirement, together with the fact that over the last 10 years we have seen the exponential growth of the area of urban rehabilitation of cities, as well as the intervention of new techniques of reconstruction, reconditioning, use of new and better materials and architectural solutions, create the perfect symbiosis for the bet in this market segment.

It is also important to mention that in Portugal there are tax benefits for the rehabilitation of real estate for residential purposes, and in addition to the tax benefits granted, which range from municipal tax exemptions, to reduced VAT rates for construction services, there are also, depending on each municipality, support and financing programs for the rehabilitation works on the acquired real estate.

These tax and non-tax benefits will be addressed in articles that I will publish in the future.

The Golden Visa program obliges the applicant to keep the real estate investment for a period of five years in its ownership, going through the two renewals of the temporary residency permit, until the applicant reaches the possibility of requesting for the permanent residency permit, but that does not prevent the applicant  from using the investment in a profitable way, for example through renting.

Another form that is not ruled out, is the lease for a period of five or six years, with purchase option at the end of that period for a value determined from the beginning, ensuring that price for the future, or even leaving that value open to a possible market valorization of the property.

This way I believe it is possible to give the fullest mark of the term investment, to the Golden Visa, keeping the fulfillment of the obligation to retain ownership of the property during the period of five years.

The next step should be getting to know what material requirements are needed regarding the investment beside the minimum amount of the global investment.

Within the application procedure for obtaining a Golden Visa, the requirements that are necessary, regarding the real estate investment, beside that the global value needs to be equal or higher than 350.000 Euros, are:

  1. the construction of the acquired property must have been concluded at least 30 years ago or be located in an area of urban rehabilitation;
  2. rehabilitation works will have to be carried out on the real estate acquired;

The requirements mentioned above need to be proven at the time of the application for obtaining the Golden Visa by this investment route.

The way to prove the requirements in a) should be done either through documentation of the property’s land registry for the first part of that paragraph, or through a declaration of the Municipality attesting the location of the property in an urban rehabilitation area, concerning the second part of that paragraph.

A more complex issue will be the meaning and scope to be given to what is intended by the rehabilitation works that must be carried out.

Undoubtfully, some sort of rehabilitation work needs to be done in either case, but I don’t believe that the legislator had the intention to force a full rehabilitation of the property, but rather gave great latitude in the volume of works to be performed in order to be considered that the rehabilitation of the property has been carried out.

In the next article I shall provide a deeper analysis of what I deem to be considered rehabilitation work for the purposes of complying with the requirement mentioned in the point b) above.

Having said this, in the next article I will again address in general terms the requirements for the investment of 350 thousand Euros in real estate built more than 30 years ago, or in an area of urban rehabilitation, and focus more specifically on the interpretation that I believe to be more correct and balanced, regarding the interpretation of the obligation of rehabilitation works, and what will be the extension or volume of those works, which may vary according to the physical state of conservation in which the real estate is acquired.

auctor Pedro Marrana

Continue reading

Golden Visa – A profitable investment?

Although the advent of vaccines showed a light at the end of the tunnel to solve the pandemic crisis, we are still far from solving the serious economic crisis that will follow.

There are doubts as to whether the government measures in the various countries to stimulate and recover the economy will be taken in time, and if so, whether they will be sufficient to guarantee some immediate stability that will allow the gradual economic recovery.

While risk is always an inalienable part of investment, in times of greater uncertainty any investor appreciates the security of informed analysis, and that is our goal with the several articles I shall be doing twice a week concerning the Golden Visa and the different forms of investment.

In my first article, I shall initiate the analysis of the most common form of investment, real estate.

Although there are several forms of investment under the Golden Visa, real estate investment has remained the preferred form of investment since the beginning, corresponding to €4,908,676,856.49 of the total €5,431,263,516.27 invested since October 2012, under the Golden Visa program.

According to many international consultants, the Portuguese Golden Visa program is among the most sought after and successful global visa programs, specially by the means of real estate investment, along with other destinations such as Switzerland or Montenegro.

Real estate investment under the Golden Visa can be carried out in two ways:

(a) acquisition of real estate of a value of €500,000 or more;

  1. b) Acquisition of real estate, whose construction has been concluded at least 30 years ago or located in an area of urban rehabilitation and execution of rehabilitation works of the acquired real estate, in the total amount equal to or over €350,000 or more;

The value of any of the forms of investment may be reduced by 20% when it is carried out in low density territory (NUT III level with less than 100 inhabitants per km2 or per capita GDP below 75% of the national average)

The legal nomenclature of the Golden Visa program is Residence Permit for Investment, and as the name indicates, the investment can be capitalized, so the applicant can, besides using the acquired property as his/her own home, rent it or use it for commercial, industrial, agricultural or tourism purposes.

It is important to focus on this characteristic of the investment, on its ability to be capitalized, not just held, and how stable that form of investment will be in Portugal for the next years.

Given the high volatility of cryptocurrency investment, which requires a highly informed investor to be contemporary within the blockchain system, the fact that commodity markets are in an uncertain period of transition, and that the stock market leaves some apprehension as to future stability, real estate investment turns out to be a relatively safe investment given the indicators of the past year.

Also, there will be tax benefits associated with any of the forms of property investment, whether in the scope of rehabilitation, or for the purchase of a permanent dwelling, or even through the exploitation of the property for tourism or long-term rental purposes. These tax benefits will be analysed in future articles.

In the following articles I will make an analysis of the real estate market in Portugal, with a special emphasis in Madeira Island, either in the perspective of sale, renting or any other form of profitability, either in the housing, commercial or tourism market, always aggregated to an investment perspective within the Portuguese Golden Visa program.

auctor Pedro Marrana

Our multidisciplinary 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

Continue reading