If you live on Madeira either all of the time or most of the time, you automatically become resident for tax purposes for your Portuguese and worldwide income, regardless of whether you have a permit to work or reside on the island. Tax status is not a matter of choice, its a matter of fact, and if you fail in your obligations you will be fined as a minimum.
You may be deemed to be ‘tax resident’ if you have been present on Madeira for more than 183 days in a tax (calendar) year, or have a permanent place of residence on Madeira at any time during the year. This status will normally absorb the immediate family of the taxpayer, regardless of where they live. The tax system for Madeira is governed from Portugal.
If you already pay tax on your income in another country, then that does not affect your tax status in Portugal. Although Portugal has Double Taxation Treaties with most countries to avoid that situation in future years, where the two tax authorities agree between each other how taxes already paid and due should be allocated.
Even if you do not meet the criteria for tax residency stated above, you may still be liable for payment of taxes where income has been earned for you within Madeira, for example where you let out a holiday home in exchange for rental payments.
Annual Tax Submissions
Madeirans are subject to a tax year equivalent to a calendar year, and with the exception of pensioners receiving only very low pension incomes and those who pay a final and accepted withholding tax, everyone else who meets the criteria of financial residency is legally obliged to submit an annual tax return, or face a penalty for late or non return.
With possible annual variations, those on only salary or pension incomes are expected to file their tax return by the middle of March, and those with other incomes have until the end of April. To do this, you go to your local Finanças and ask for the form Modelo 3. That form will act as your tax return, and will also tell you which other forms (appendices) you will need to complete, depending on the different types of income and allowances you are declaring.
However, it is possible to extend those dates by several weeks if filing by internet, but you will need to check the exact deadline dates on the website FINANÇAS to make sure you are not late. Unfortunately the site is only in Portuguese, and although you can email them for help, experience shows that there is no guarantee of getting a reply.
If you wish to use the internet, then as long as you have your ‘numero de contribuinte’ issued by your local finance office and your address is correctly registered, you can apply for a password, which may take several weeks to arrive. To apply, you should click on the link ‘Pedir Senha’ on the dark bar near the top of the page.
If you proceed to file your tax return by internet, then clearly you should keep supporting documentation that is permitted by the Portuguese IRS, in case you are asked to produce it.
If you are filing a return on behalf of a company, then you will need to follow different procedures from those stated above.
Important Tax dates For Madeira (these are approximate dates, and may vary a little year to year).
February 1st to March 15th
Delivery of IRS Modelo 3 Tax Return in paper format for income solely from salaries or pensions.
March 10th to April 15th
Delivery of IRS Modelo 3 Tax Return by internet submission for income solely from salaries or pensions.
March 16th to April 30th
Delivery of IRS Modelo 3 Tax Return in paper format for income that includes sources other than salaries or pensions.
April 16th to May 25th
Delivery of IRS Modelo 3 Tax Return by internet submission for income that includes sources other than salaries or pensions
April (and September, if 2nd payment due)
Property Tax Payment(s) due – ‘Imposto Municipal Sobre Imóveis’
For a late tax submission you can be fined between €50 & €5000
1. In Portugal a system of tax credits exist (rather than tax allowances), but they apply for residents only. For a couple paying tax in 2007, that would amount to over €4,600, or over €2,700 for a single person, with a 50% uplift if disabled. Subject to confirmation by the IRS, dependent children and relatives may also add to the tax credits of an individual or couple.
2. Tax credits (that offset taxation payable) are also allowed in part or full to cover certain expenses meeting the IRS criteria. For example: medical expenses, health & life insurance, nursing costs, pension contributions, housing costs, certain educational expenses, and charitable donations.
3. Pensioners and disabled taxpayers in some cases have different taxation rules than those mentioned above.
4. In 2008, starting at €0, the lowest rate of taxation payable was 8%. This rose across 7 bands to 41%. Tax credits would be offset after the calculation of gross tax.
Income Tax Rate Bands For 2008 (IRS)
Band 1 – 8% Earnings €1+ (down from 8.5% in 2007)
Band 2 – 10.5% Earnings €4639 – €7017 (11% 2007)
Band 3 – 22% Earnings €7017 – €17401
Band 4 – 32.5% Earnings €17401 – €40020
Band 5 – 36% Earnings €40020 – €58000
Band 6 – 39% Earnings €58000 – €62546
Band 7 – 41% Earnings €62546+
Tax is payable across all the bands above covered by an individuals earnings, at the rate shown for each band. So example, if you earned €15,000, part of your income would attract 8%, part 10.5%, the rest 22%. The rate shown are for Madeira, but are set by and are different to those in Portugal.
All income of any type is taxable, and once tax liability has been calculated, personal allowances and other allowable expenditures are then deducted from that liability through a system of tax credits.
Taxation … Further Essentials
All of your income to be declared will need to be converted into Euros, based on the exact exchange rate at the time of the transaction, or using an official supplied rate applicable at the end of the tax (calendar) year.
Couples may file a joint declaration, whether married or not.
Benefits in kind, tips, and any other form of reward benefit outside of normal earnings, should be declared for IRS purposes. There may be allowances to offset against some of these liabilities.
Interest and payments from savings and investments worldwide need to be declared. That includes interest, share dividends, and capital gains from any source.
Any profit from the sale of a property on Madeira will be assessed for capital gains tax, although it may be possible to offset or defer some or all of this.
Tax assessments and demands for outstanding demands are normally issued in July and August. You have 30 days to pay from the date of issue of an assessment.
The Portuguese way of recognising mistakes, lateness, non-compliance or anything that renders a tax return less than acceptable, is normally through a system of fines and interest charges.
There are accounting companies that specialise in assisting foreigners with their tax affairs, as there would be for local people. Although it is an unwelcome expense, they can in fact end up saving you money as well as keeping you within the law. Until you understand what your obligations are and know the correct procedures to make an accurate tax declaration, it is strongly recommended that you seek such financial advice.
VAT (IVA) – Taxation on Purchases & Expenditure
Madeira enjoys the lowest rates of VAT / IVA in Europe, attracting much international business to the island, even if only for tax and administrative purposes. The top rate is 14%, with the lowest rate (apart from zero rated goods) at just 4% for life’s essentials.
Council Tax (Imposto Municipal Sobre Imóveis)
Although outside the scope of fiscal taxation, Portugal has some strange but beneficial rules about home ownership.
Whilst only each council can tell you how much you will need to pay each year in rates, to cover the running costs of your town or area, the odd quirk is the exemption scheme.
A very few people are exempt from council tax because they have insufficient income, but there are many with exemption periods stretching for up to 10 years, for people who don’t have pressing financial problems. New rules were introduced after 2003 to restrict the exemption to 6 years.
When you buy a property, the council assesses its value for rateable purposes. and if your property is assessed at below €225,000 then you are entitled to 3 years exemption, and below €150,000, 6 years. This benefit is not available for holiday homes.
Madeira is a cash society, other forms of payment are the exception rather than the rule between individuals, and small businesses, and although both are legally accountable for their earnings and turnover, if the opportunity presents itself to some people, many transactions go unrecorded. That is the way of life, and the taxman seemingly turns a blind eye … until he catches you of course.
In a Madeiran newspaper in September 2007, it was reported that only 1 in 2 two people paid any tax. What wasn’t clear, was whether the 50% who didn’t pay didn’t have sufficient earnings, or didn’t declare sufficient earnings in order not to attract a tax liability.
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MOVED PERMANENTLY TO MADEIRA ON THE 13TH JUNE 2019
Where do I go to fill out the income tax return forms Madeira? We arrived here on the 13th of June 2019. We have our tax numbers.
In which tax period do we fall into to start paying taxes? From 30th June 2020?
Can we pay our taxes on a monthly basis and if so how do we do this?