By Miguel Silva Reichinger Pinto Correia No Comments
Do I need to file taxes in Madeira? This is the main question that expats relocating to Madeira ask to us as tax consultants. This is the most simple answer we can give: if you are resident, for tax purposes, yes (this includes non-habitual tax residents status holders).
Tax residency, in the case of expats, is obtained either by having lived for more than 183 days (consecutive or not) in Madeira/Portugal 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.
Taking into consideration the above, residents, for tax purposes, are obliged to file personal income tax in Madeira/Portugal reporting their worldwide income earned, IBAN (or equivalent) number of foreign bank accounts held and corresponding taxes paid (in Portugal and/or abroad).
According to Article 116 of the General Taxation Infringements System, failure to file a tax return within the legal deadline is punishable by a fine of 150 to 3,750 euros.
If one decides to hand over the tax return on your own initiative, within 30 days of the end of the reporting obligation, one may be left with the minimum fine, which is 25 euros (12.5% of the minimum legal amount). This only applies if the Portuguese Government has not been penalized in its initial declaration (i.e. if it has not received amounts to which it was not entitled).
But if one hands in tax return more than 30 days after the deadline one will have to pay a minimum fine of 37.50 euros (25% of the legal minimum), which can go up to 112.50 euros if, by the time you regularise the situation, the Tax Authority has already initiated an audit.
This reduced fine must be paid within 15 days of notification. If this payment is not made within the time limit, administrative offence proceedings will be initiated and the minimum fine applicable will be EUR 150 to which the costs of the proceedings will be added.
If the failure to make a declaration is delayed, the fine may be as high as EUR 3 750. Also in this context of delay, if the tax authority finds inaccuracies or omissions in its tax return, the fine ranges from EUR 375 to EUR 22 500.
Exchange of Information
Tax authorities in the EU have therefore agreed to cooperate more closely so as to be able to apply their taxes correctly to their taxpayers and combat tax fraud and tax evasion.
Administrative cooperation in direct taxation between the Competent Authorities of the EU Member States helps to ensure that all taxpayers pay their fair share of the tax burden, irrespective of where they work, retire, hold a bank account and invest or do business. This is based upon Council Directive 2011/16/EU which establishes all the necessary procedures, and provides the structure for a secure platform for the cooperation.
Scope: the scope of the Directive encompasses all taxes of any kind with the exception of VAT, customs duties, excise duties and compulsory social contributions because these are already covered by other Union legislation on administrative cooperation. Also recovery of tax debts is regulated via its own legislation.
The scope of persons covered by particular exchanges of information depends on the subject matter. The Directive covers natural persons (i.e. individuals), legal persons (i.e. companies), and any other legal arrangements like trusts and foundations that are resident in one or more of the EU Member States.
Exchange of Information: the Directive provides for the exchange of specified information in three forms: spontaneous, automatic and on request.
- Spontaneous exchange of information takes place if a country discovers information on possible tax evasion relevant to another country, which is either the country of the income source or the country of residence.
- Exchange of information on request is used when additional information for tax purposes is needed from another country.
- Automatic exchange of information is activated in a cross-border situation, where a taxpayer is active in another country than the country of residence. In such cases tax administrations provide automatically tax information to the residence country of the taxpayer, in electronic form on a periodic basis. The Directive provides for mandatory exchange of five categories of income and assets: employment income, pension income, directors fees, income and ownership of immovable property and life insurance products. The scope has later been extended to financial account information, cross-border tax rulings and advance pricing arrangements, country by country reporting and tax planning schemes. These amendments which extend the application of the original Directive are loosely based on the common global standards agreed by tax administrations at international level, notably at the OECD. However, they sometimes go further and importantly they are legislative rather than being based on political agreement without legislative force. The Directive provides for a practical framework to exchange information – i.e. standard forms for exchanging information on request and spontaneously, as well as computerised formats for the automatic exchange of information – secured electronic channels for the exchange of information and a central directory for storing and sharing information on cross-border tax rulings, advance pricing arrangements and reportable cross-border arrangements (“- tax planning schemes”). Member States are also required to provide a feedback to each other on the use of information received, and to examine together with the Commission how well the Directive supports the administrative cooperation.
- Other Forms of Administrative Cooperation: The Directive provides for other means of administrative cooperation such as the presence of officials of a Member State in the offices of the tax authorities of another Member State or during administrative enquiries carried out therein. It also covers simultaneous controls allowing two or more Member States to conduct simultaneous controls of person(s) of common or complementary interest, requests for notifying tax instruments and decisions issued by the authority of another Member State.