Expats in Madeira face several relocation matters that need to be addressed by local experts; most of the time, taxation in Madeira is one of them. After all, relocation as an ex-pat will involve some level of bureaucracy to a degree.
In this short blog post, we will summarize the key aspects concerning taxation in Madeira from a personal and corporate perspective.
Taxation in Madeira: from a personal standpoint
Taxation on residents
Generally, a taxpayer is considered a tax resident in Portugal if he remains for more than 183 days. This counting refers to any period of 12 months beginning or ending in the year in question.
One is also a resident if they own housing that intends to maintain and occupy it like a habitual residence within 183 days of 12 months.
In addition to the general rules abovementioned, which coincide with the tax treaties signed by Portugal, if one has a residence permit in Portugal, one shows an intention of becoming a tax resident. Furthermore, specific residence permits (such as those based on the D7 Visa) imply minimum staying requirements in Portuguese territory that will trigger tax residency and registration with the AT.
On the other hand, should one have been granted residency in Portugal under the temporary protection status, that person becomes resident, for immigration and tax purposes, on the date of the grant of said status.
Generally speaking, immigration to Portuguese territory implies registration as a tax resident in the country. This will trigger personal income tax liability in Portugal and tax reporting obligations.
In the event of a conflict in the definition of the tax residence, the taxpayer must take into account the criteria for its purpose in the Double Taxation Agreement signed between Portugal and the country of residence and Portuguese tax law on the matter, namely partial residency. When in doubt about your tax residency status, ask a tax advisor.
Your legal obligations as a resident
Qualified tax advisors will immediately inform you that your legal obligations will be as follows, should you qualify as a resident for tax purposes in Portuguese territory:
- For a taxpayer who is a tax resident in Portugal, the Personal Income Tax, IRS, will be levied on their worldwide income. The IRS tax rate can go up to 48% unless said taxpayer fulfils the requirements to benefit from the exemptions or flat tax rates foreseen under the NHR status they have applied for.
- Further to the above, a resident taxpayer (including one benefiting from the NHR scheme) is required to annually file their Portuguese personal income tax returns, disclosing their worldwide income earned, corresponding taxes paid, social security contributions made and IBANs of all non-Portuguese bank accounts held at December 31st of the FY being reported.
Failure to comply with the annual tax reporting obligations may incur criminal liability.
Taxation in Madeira: a corporate perspective
Companies incorporated and domiciled in different regions of Portugal are subject to different corporation tax rates. When a company is established in mainland Portugal, its taxable profits are hit with a corporate income tax rate of 21%. But the regular corporate tax rate for a Portuguese company based in the Autonomous Region of Madeira is only 14.7%! The Autonomous Region of Madeira is the most tax-friendly region in Portugal for business and investment.
In addition to the benefits mentioned above of establishing a company in Madeira, the first EUR 25.000 of taxable profit earned by a Portuguese company registered in Madeira and qualifying as a small and medium enterprise is 11.7%.
Starting a business in Portugal in 2022, specifically on Madeira Island, can entitle the said company to a corporate income tax rate of 5%! Companies that provide international tradable services duly registered within the Madeira International Business Centre (MIBC) are entitled to the lowest corporate tax rate in the European Union.
Companies operating from within the MIBC and that have their labour force working from the island benefit from the abovementioned corporate tax rate but also the following tax benefits:
Non-resident single and corporate shareholders of Madeira’s IBC companies will benefit from a total exemption from withholding tax on dividend remittances from the Madeira companies, provided that they are not residents in jurisdictions included in Portugal’s “black list”. Moreover, Portuguese corporate shareholders will also be exempt if holding a participation of at least 10% for 12 consecutive months.
In addition, the following benefits will be applicable:
- Exemption on capital gains payments to shareholders not resident in blocklisted jurisdictions;
- No withholding tax on the worldwide income of interest, royalties and services.
Our team of professionals is ready to assist you with your tax affairs should you reside in Madeira or on the Portuguese mainland.
This article is provided for general information purposes only and is not intended to be, nor should it be construed as legal or professional advice.