Madeira’s Non-Habitual Residency Scheme. What is it and can it benefit you?
If you’re exploring the idea of moving to Madeira and buying your dream home, then you need to consider your tax obligations in your new country of residency. Whether you are retired, working remotely, Self Employed, or planning to incorporate a branch or company in Madeira, then you need to explore the relevant visa and tax regimes in place.
In this article, we’ll be discussing the NHR Scheme, its benefits and who is eligible to apply and what you need. If you are looking for professional assistance, then our partner company, Madeira Company – MC Contabilidade can work on your behalf to get the required documentation in order and manage your application.
NHR – What is it?
Non-Habitual Residency is a special taxation regime, available under certain eligibility criteria, to ex-pats and remote workers who have recently moved to Portugal and Madeira. NHR Status grants certain tax privileges and exemptions for a period of ten years.
Madeira’s stunning landscapes, temperate climate, varied gastronomy, and low crime rate make the Island an attractive destination for those looking to work remotely, live, and invest in Portugal.
Created in 2009, the Non-Habitual Residency Scheme was designed to promote foreign investment by offering special tax conditions for ex-pats who want to live in Portugal either full or part-time. Tax residents in Portugal can access the NHR scheme, provided they have not been a personal income (IRS) taxpayer in Portugal in any of the five years before moving to the country.
Whilst some people make the mistake that NHR is a form of visa, like the D7 or Golden Visa, it is important to note that NHR is a tax regime and not a residency permit. Applicants must first obtain residency separately, before submitting an NHR application.
- Be over 18 years of age
- Acquire Tax residency in Portugal
- Not held tax residency in Portugal in any of the previous 5 years.
What do I need to apply for NHR?
- EU Passport or Residency in Portugal
- Proof of Fiscal Address in Portugal
- NIF – Portuguese Tax Identification Number
- Bank Statements, with a substance minimum of EUR 9500 over 12 months.
When can I register for NHR?
If you arrive in Madeira between the 1st of April and the 31st of December, you have until March 31st the following year to apply for NHR. If you arrive between 1st January and 31st of March, you have until 31st March the following year to register.
Taxation of Non-Habitual Residents in Madeira
All non-habitual residents are subject to personal income taxation in Madeira and Portugal. Any income generated in Madeira is subject to a rate of 20% income tax, provided you fall into a list of High Value-Added Activities with ‘Technical, Scientific or Artistic Character’.
This list, whilst not exhaustive includes:
- Managing Directors and Executive Managers of companies
- Directors of Hotels, Restaurants, and commerce
- Administrative Service Directors
- Physicians, Dentists and Stomatologists
- ICT Specialists
- Authors and Journalists
- University Professors
- Creative and Performing Artists
Like employees, freelancers and self-employed individuals are required to fall into the high-value category to benefit from NHR. Typically, you would be subject to 20% income tax plus social security contributions if no tax is paid on the income where it was earned.
Benefits of remote work in Portugal and Madeira’s Non-Habitual Residency Scheme
Since 2020, the creation of the Digital Nomads Village in Ponta do Sol, Machico and the island of Porto Santo has made Madeira a highly desirable destination for remote workers, displaced by the pandemic, or those taking advantage of more relaxed workplace requirements allowing them to work from home. Many digital nomads/remote workers choose to make Madeira their home after discovering the improved quality of life available. A thriving community of young professionals with weekly hangouts, co-working spaces and inclusive lunches make Madeira a popular destination for those looking for alternatives to busy city environments.
The benefits of living in Portugal and working remotely are great and widely accessible. Below are some of the advantages that remote workers can enjoy for 10 years under Portugal’s Non-habitual residency scheme:
- 0% Tax on Cryptocurrency – Cryptocurrency gains are considered as any other currency, and therefore not subject to tax.
- 0% Tax on Dividends – Foreign Sourced Dividends are taxed at 0%
- 0% Tax on Wealth – Unlike other European countries, Portugal has a 0% Wealth Tax
- 0% Tax on foreign income – As determined by the OEDC (applicable Tax Treaty) if no Tax Treaty is in force between Portugal and the country of source.
- 20% Tax on self-employment – Freelance and valued self-employed professionals are taxed at 20%
- No requirement for minimum stay – If an EU Citizen owns or rents a place to live in Portugal, there are no minimum stay requirements.
- Fast Track access to a European Passport – After 5 years of living in Portugal, you can apply for Portuguese Citizenship
Capital Gains, Dividends and Passive Income
Capital Gains, interest, dividends, income from intellectual property and other forms of passive income are exempt from taxation in Madeira and Portugal, provided they are taxed in the country they are obtained in, and Portugal has a double taxation treaty in place. If the income has been obtained in a country considered by Portuguese law to be a ‘tax haven’, then an aggravated tax rate of 35% is applied.
Pensions and retirement for Non-Habitual Residents
Net Pension Income earned by NHR citizens is taxed at a flat rate of 10% for ten years. Portugal has treaties in place with EU member countries and Social-Security agreements with some non-EU member countries. Through the UK/Portugal Tax Agreement, most UK Pensions are taxable only in Portugal at 10% for the first 10 years through the Non-Habitual Residence Scheme. Always consult with a financial advisor to ensure your pension is managed in the most efficient way possible.
MIBC – Madeira International Business Centre
The Portuguese Autonomous Region of Madeira benefits from one of the most favourable tax regimes in Europe. The Madeira International Business Centre (MIBC) or Madeira Free Trade Zone (Zona Franca da Madeira) as it is commonly known, offer businesses and corporations a range of tax benefits, designed to attract foreign investment to the region.
- Reduced 5% corporate tax rate for income obtained outside Portugal.
- Reduced flat rate of 20% for salaries of workers with activities considered of high added value (see above)
- Exemption from withholding tax on the payment of services, royalties, and interest to non-resident shareholders and on other forms of remuneration such as shareholder loans, capital advances, or allowances
- Reduced rates of stamp duty, property taxes (IMI and IMT), local authority taxes, autonomous taxation, and other fees and costs
See MC Contabilidade’s article on the Madeira Free Trade Zone here.
Get in touch with a member of the Madeira Estate team today for all of the advice and assistance when searching for your new home or investment property in Madeira. Our team of expert Real Estate Agents are on hand to help you make your dreams come true.
Madeira Company is a specialist Tax Advisory company that can guide you through your Non-Habitual Residency application. Our team of competent professionals will help you with your individual case and ensure your application is handled in a timely manner. We can also assist with your annual tax return filing, property management and pension funds. Talk to us today and discover how we can help you make the most of your time living in Portugal.