NHR in Portugal & Madeira
For anyone who is considering applying for NHR or Non-Habitual Residence tax status, there is some important reporting information we think you should know before you make a property purchase, investment or change of tax residence to Madeira.
Every potential applicant should be aware that their worldwide income and non-Portuguese bank account numbers are required to be reported on a yearly basis to the Portuguese tax authorities, this should be done using an experienced accountancy firm based in Portugal or Madeira. A Portuguese accountancy firm will ask you to provide all the corresponding tax information along with all the details of foreign bank accounts held, including dormant accounts.
All tax residents (holding NHR status or not) are required to report every year to the Portuguese tax authority the following details of financial income; salaries, business income, capital income, property income, capital gains income, royalties and pension income. You are also required to report any bank or savings accounts you have.
There is also a legal requirement for residents with NHR tax status to declare corresponding tax paid and social security contributions abroad. This allows the Portuguese tax authority to review and analyse the income and apply the correct exemptions.
Portugal has many double-taxation treaties in place. A double-taxation treaty allows the Portuguese tax authorities open access to your foreign financial information and allows an open sharing of information, allowing both countries to inform each other on the income and taxes paid in each jurisdiction. The reporting and declaring of your worldwide income will allow the Portuguese tax authority to cross-check and randomly audit taxes declared with the foreign information from its counterparts. Failure to report the correct information can have implications to an applicant’s NHR tax status.
If you are considering becoming a Portuguese tax resident in the attractive NHR tax regime, then you should have a complete audit of your financial assets and income structure using a registered Portuguese accountancy firm before speaking with a registered state accountant in your own country.
The main criteria for becoming a Portuguese tax resident is to spend a minimum of 183 days in a Portuguese tax year as a resident in Portugal. A tax year in Portugal is defined as January 1st to December 31st of any current year. Applying for the NHR tax status does not require just one visit of 183 days and can consist of many visits that total a minimum of 183 days in any single tax year, allowing applicants of the NHR regime complete flexibility. Applicants must be aware of potential conflicts of tax residency in other jurisdictions such as the UK where the tax year starts and ends every April.
There is also a second residential option where the NHR is attractive, if you are unable to spend 183 days per annum in Portugal but Portugal will be your main residential base, then the NHR tax regime will be applicable in the following example; "Mr and Mrs Smith spend 120 days in Madeira per annum, they also visited England for 80 days, they then spend another 165 days cruising or on foreign holidays". In this example, Portugal was there main residential base and the NHR tax status is maintained.
For more information on the NHR please contact us for a comprehensive PDF on how the NHR works in The Madeira Islands.