This article lays out the personal requirements and residential obligations for living in Portugal and Madeira. The article will also point out a surprising stumbling block that can catch out some who are interested in retaining property in their home countries or last place of tax residence.
The NHR (Non Habitual Resident) tax regime is granted to individuals that wish to become Portuguese residents and taxpayers. Interested individuals may apply to become NHR applicants provided they have not been tax resident in Portugal or Madeira in the previous five years
183 days per Annum
Being resident for tax purposes in Portugal is a requirement to hold NHR status. A person is considered to be a tax resident if they are living for 183 days or more in Portugal during a 12 month period from January 1st until December 31st. The only exception to this rule is somebody who has real estate property, spending less than 183 days in Portugal, traveling to several countries but not spending an equal or longer time in any one country other than Portugal.
Individuals that meets the residence and five-year requirements will need to apply for the NHR registration before the 31st March of the following year of residence. The NHR tax regime is granted for a 10 year period, as long as the individual remains a tax resident in Portugal or Madeira.
Personal Tax Reduction
For potential NHR applicants that wish to work and obtain employment income, there is a special flat rate tax advantage for certain individuals. The flat tax rate for NHR residents in Portugal and Madeira is reduced from a potential top rate of 48% personal tax to just a 20% flat tax rate, for those whose job is of high value technical, scientific or artistic nature with a degree qualification.
Other types of income such as dividends, interests and real estate income are exempt of taxation, in Portugal or Madeira in the NHR scheme.
Portugal does not allow capital income from blacklisted jurisdictions including; The Channel Islands and the Isle of Mann in the UK, or for instance, Andorra and Hong Kong. These sources of capital income will be subject to a 35% rate of taxation.
Property Back Home
There are some other complications that can and do hinder NHR effectiveness, most of note is a second property in a foreign jurisdiction, notably if for instance you are French and become tax residence in Madeira while keeping a vacant property back in France, then the French tax authorities may consider that you have a permanent available empty residence and therefore still tax your pension at source. In this case the remedy is to either rent, sell or possibly legally transfer the property to family, this removes the potential habitation issue some governments consider.
We advise an early investigation into your tax affairs, well before making a move to Madeira. For more information and to speak to our experts, please contact us or request the NHR PDF fact sheet. With such a big potential saving in your tax and lifestyle changes we suggest downloading the Bespoke Villas Brochure from our website, it is just full of everything you need to know about life in Madeira.