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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With the prospective opening of borders and travel one destination remains eternal, the “Pearl of the Atlantic”, Madeira. This Portuguese autonomous region is not only a beautiful place to live, but also an even more beautiful place to live, find out why:
- Efficient healthcare system – during the COVID-19 pandemic the Regional Government of Madeira and the Regional Health Authority took quick and decisive actions to contain and curb down the pandemic. Thanks to these herculean efforts, the number of COVID-19 cases on the Autonomous Region of among the lowest in the country. Free healthcare is available to all legal residents on the island.
- Always been open for business and investors – after Covid-19, a “new era” with some economic uncertainty, requires a wise decision to invest in certain frameworks that could alleviate the tax burden, and therefore your personal and/or corporate operational costs. Madeira offers all investors a 5% corporate tax rate for those incorporating international services/consultancy companies in the Madeira International Business Center.
- We welcome expats – Madeira has been receiving international attention since European royalty discovered the wonders of its year-round, spring like climate and the associated health benefits. Empress Sisi of Austria, Emperor Maximilian of Mexico, and, later, Sir Winston Churchill stayed for extended periods, bringing this Portuguese island international status and notoriety. Today expats are welcomed and greeted not only with the amazing climate but also with a 10-year tax holiday, thanks to the Non-Habitual Resident scheme.
- Easy residency for non-EU/EEA citizens – The Golden Visa, a residency (and citizenship) by investment scheme designed to attract high-net worth and ultra-high-net worth individuals and their families to live in Madeira can be linked to real estate investment or company incorporation. In Madeira applications are usually processed faster than in the Portuguese mainland.
- Stress free life – Day-to-day life in Madeira is stress-free for locals, expats, and tourists alike, and the cultural offerings are immensely diverse for an island. Museums with Flemish and religious art, churches hosting organ music festivals, monthly symphonic orchestra and chamber music concerts, gastronomical and traditional folk festivals throughout the year, and recurring art exhibitions are just some examples of Madeira’s active cultural scene.
- International connections – Unlike many island paradises, Madeira’s Cristiano Ronaldo Airport connects you directly not only to Lisbon, Portugal’s capital, but also to every other major European capital—including Paris, Brussels, London, Berlin, and Zürich… one reason Madeira is a favorite holiday destination among British, German, French, and Scandinavians.
- Solid real estate market – even with the COVID-19 pandemic, Madeira housing prices are on the rise in the first quarter of 2020, confirming the Island’s position as an investment destination. Funchal’s civil parishes of Sé and São Martinho apartment rents can yield, accordingly to the latest statistics available, a monthly rental income (long-term rental) between EUR 1,800 to EUR 2,000 for a EUR 270,000 investment in 196 m2 apartment. Should you opt for short-term rentals, in the likeness of AirBnB, the same well-located apartment can yield between EUR 500 and EUR 1,000 per week.
- Pristine nature – Despite its proximity to Morocco, the island’s nearest continental neighbor, Madeira’s climate is humid (around 75% humidity year-round), thanks to its UNESCO World Heritage-protected, prehistoric Laurissilva Forest, which covers 20% of the island’s 741 square kms. This forest has more than 1,600 kms of irrigation channels accompanied by footpaths that once connected the entire island’s countryside.
- Easy communication – Thanks to the strong British presence on the island, most Madeirans speak English, and Madeira was the first territory in Portugal to implement compulsory English education starting with primary school. English, alongside French and German to a lesser extent, is the main second language spoken by locals.
- Low cost – Madeira is one of the most affordable places to spend time in this part of the world. Utility costs are lower here, too—electricity is as much as 21.8% lower than in the Algarve, internet 11.2% less costly. And VAT is one percentage point lower than on the Portuguese mainland.
- Existing expat community – There are many expats in Madeira and most of them are from the UK, Germany, Austria, France and to a smaller extent Scandinavia, Canada and the US. Moreover, there are a lot of people who are interested in moving to the island, especially from these mentioned countries.
- Laws and Rights – According to the Cato Institute’s Human Freedom Index, Portugal ranked among the Top 20 Countries, surpassing France, Spain and Greece pertaining economic and personal freedoms. As for religious, bioethical, family and gender freedoms, Portugal ranks in the world Top 3 in the World Index of Moral Freedom, surpassing all the G20 countries in these fields.
- LGBTQ+ safe – Portugal is among ILGA-Europe’s Rainbow Index Top 10 European countries in respect to LGBTQI equality, surpassing countries like, The Netherlands, Denmark, Sweden and Germany.
- Quality of Life – Madeira’s capital, Funchal, is the city with the best quality of life, and where you can enjoy a cosmopolitan and yet calm island life. The Portuguese consumer association has ranked Funchal as the second-best city to live in Portugal.
- The ever spring climate – Madeira is characterized by an all year-round spring-like weather which make it so famous among its residents and visitors. During Summer, Spring and Fall, temperatures vary between 17ºC (62.6ºF) and 24.ºC (75.2ºF). As for the Winter months temperatures will vary between 14.ºC (57.2ºF) and 20.ºC (68ºF). It is easy to understand why Madeira is famously known as the “Pearl of the Atlantic”. Also note that the number of hours of sunshine per year reaches values as high as 3300, a 70% larger value than the ones found in northern Europe.
MCS and its team have more than 20 years of experience in assisting those wishing to relocate or incorporate in Madeira island. Do not hesitate to contact us should you have any questions!
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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.
They must apply at the local city/town hall (Câmara Municipal) with jurisdiction over their residential address and provide the following documents:
- Workers
- a valid identity document
- a declaration on oath that they are employed or self-employed in Madeira (or in any Portuguese territory); or
- a declaration on oath that they have sufficient financial resources for themselves and their family members, and a health insurance policy, if the country of which they are citizens has the same requirement for Portuguese citizens.
- Pensioners
- a valid identity document
- a declaration on oath that they have sufficient financial resources for themselves and their family members, and a health insurance policy, if the country of which they are citizens has the same requirement for Portuguese citizens.
- Students
- a valid identity document
- a declaration on oath that they are registered with an officially accredited public or private educational establishment
- a declaration or other means of proof that they have sufficient financial resources and a health insurance policy, if the country of which they are citizens has the same requirement for Portuguese citizens.
Notwithstanding the above documentation legally required by city/town halls, additional documentation might be requested by the municipal governments, usually differing from municipal government to municipal government and even from administration from administration. This is where we can help not only navigate the bureaucracy but also the compliance of the documents to be provided.
Failure to register is an offense punishable by a fine of between EUR 400 and 1500.
Registering or remaining registered without meeting the necessary conditions is an offense punishable by a fine of between EUR 500 and 2500.
In the event of an abuse of the law, fraud, or false marriage or partnership of convenience, residence rights will be refused and withdrawn.
For further information please and assistance in complying with immigration requirements in Madeira, please do not hesitate to contact us. Our team has more than 20 years of experience in assisting expats relocating to Madeira.
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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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It is no secret that Portugal offers, right now, the best program of residency by investment in Europe. Nevertheless, what might surprise some is that Madeira, a Portuguese Autonomous Region, just 900 km of the coast of Portugal (just one and half hour away by plane form Lisbon), might be one of the best places in Portugal for its Golden Visa.
Due to being an all year round tourist destination, due to its unique history, culture and mild climate, Madeira Island has a vibrant real estate market (where prices are more contained than in the Portuguese mainland) and a unique system of corporate tax benefits duly approved by the European Union.
The above means that one can access the Portuguese Golden Visa either by investing in the Madeiran real estate market where demand from locals tourists (mainly from Western, Central and Northern Europe) and expats can provide an interesting return on investment through rental income or opt to incorporate a company to conduct their international business through Madeira. Under the later a Golden Visa will be granted if the company is incorporated with a share capital of 1 million euro or if one employs at least 10 people.
Should one opt to go down the route to incorporate a company, then applying for a license to operate within the Madeira International Business Centre (MIBC) is the smartest thing to do. An MIBC license will grant the company the following tax benefits (among others): a reduced corporate tax rate of 5%, applicable on the taxable income derived from operations exclusively carried out with non-resident entities or with other companies operating within the framework of the MIBC; full exemption from withholding tax on dividend remittances from the Madeira companies to non-resident single and corporate shareholders; and no withholding tax on the worldwide payment of interest, royalties and services.
It is important to mention that the abovementioned tax benefits will only be granted if the company creates at least 1 full-time local job (the visa applicant can qualify if he/she opts to live permanently in Madeira) in the first 6 months of operation and undertake a minimum investment of €75.000 in the acquisition of fixed assets, tangible or intangible, in the first two years of operation; or create 6 or more full-time local jobs in the first 6 months of operation.
Having the above in consideration one can see how the MIBC requirements match those of the Portuguese Golden Visa when it comes to company incorporation and employing local workers. One can also opt to invest in real estate through a company (as a sole shareholder of said company) and use that investment to fulfil the requirements of both the Portuguese Golden Visa and the MIBC, therefore getting “the best of both worlds” in terms of business and real estate investment.
Further to the above, Portuguese Golden Visa application in Madeira Island is the fastest in Portugal, especially when compared to the Portuguese mainland immigration offices. This is due to the current low level of applications, which in turn allow government officials not to be overworked and comply with deadlines foreseen in the law.
Last but not least, all be above programs can also be combined with the Non-Habitual Resident tax scheme which allows for a 10-year tax holiday, on foreign income, for those meeting the staying requirements in Portuguese territory and non-residency in the previous 5 years before arrival.
One can say, right now, that Madeira is Portugal’s little secret when it comes to residency by investment.
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Acquiring the right of permanent residence
As an EU national, you automatically acquire the right of permanent residence in another EU country if you have lived there legally for a continuous period of 5 years. If you fulfill this requirement, you can apply for a permanent residence document, which confirms your right to live in the country where you now live permanently, without any conditions.This is different from the registration certificate which is compulsory in many countries. The permanent residence document is not compulsory.But it can be useful when dealing with the authorities or for administrative formalities. The authorities may no longer require you to prove that you have a job, sufficient resources, health insurance, and so on.
Applying for a permanent residence document
To get a document certifying your right of permanent residence, you must submit proof that you have been living legally in the country for 5 years.You need to send different supporting documents with your application, depending on your situation (employed, self-employed, job-seeker, pensioner, student). This could include:
- a valid registration certificate issued when you arrived in the host country
- evidence that you’ve been living in the country, such as utility bills and rental contracts
- evidence such as payslips, bank statements, tax returns that you’ve been working, studying, self-employed, self-sufficient or looking for work
The authorities must issue the permanent residence document as soon as possible and cannot charge you more than nationals pay for their identity cards. If they do not, you can call on our assistance services.The document is automatically renewable without any condition or requirement. However, its validity may differ depending on the issuing country.
Losing the right of permanent residence
You can lose your right to permanent residence if you live outside the country for more than 2 consecutive years.
Permanent residence for your EU family members
The same rights apply to your EU family members. They are also entitled to a permanent residence document in the country where they have resided with you legally for a continuous period of 5 years. Should you request our assistance in applying for permanent residency in Portugal as an EU-Citizen please do not hesitate to contact us at management@mcs.pt requesting a fee quote.
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EU citizens who remain in Madeira (or in any Portuguese territory) for longer than 3 months have to formalize their right of residence by registering.After 3 months in Madeira (or in any Portuguese territory), EU citizens have 30 days to register, after which they receive a registration certificate.They must apply at their local town hall (Câmara Municipal) and provide the following documents:Workers
- a valid identity document
- a declaration on oath that they are employed or self-employed in Madeira (or in any Portuguese territory)
or
- a declaration on oath that they have sufficient financial resources for themselves and their family members, and a health insurance policy, if the country of which they are citizens has the same requirement for Portuguese citizens.
Pensioners
- a valid identity document
- a declaration on oath that they have sufficient financial resources for themselves and their family members, and a health insurance policy, if the country of which they are citizens has the same requirement for Portuguese citizens.
Students
- a valid identity document
- a declaration on oath that they are registered with an officially accredited public or private educational establishment
- a declaration or other means of proof that they have sufficient financial resources and a health insurance policy, if the country of which they are citizens has the same requirement for Portuguese citizens.
Failure to register is an offence punishable by a fine of between EUR 400 and 1500.Registering or remaining registered without meeting the necessary conditions is an offence punishable by a fine of between EUR 500 and 2500.In the event of an abuse of the law, fraud, or false marriage or partnership of convenience, residence rights will be refused and withdrawn.For further information please and assistance in complying with immigration requirements in Madeira, please do not hesitate to contact us management@mcs.pt and request a fee quote.
Our team at MCS, with more than 20 years of experience in the sector, is able to assist you with your relocation to Madeira. For more information click here, for information our services click here.
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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.
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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