https://www.blevinsfranks.com/income-tax-return-portugal/
It’s time to submit your income tax return in Madeira.
By Stephen Rankine, Private Client Manager, Blevins Franks.
The deadline for submitting income tax returns in Madeira is approaching on 30 June. This marks the final date for declaring all income from the 2023 tax year, including pensions, capital gains and rental income.
Portuguese tax residents must include all worldwide income in their annual tax declarations. With today’s global tax scrutiny and enhanced transparency measures in Portuguese legislation regarding high-value accounts, ensure that you declare all your income correctly.
Madeira tax rates
The income tax rates in Madeira are lower than those applied on the mainland. For the 2023 tax year, Portugal has nine income tax brackets. In Madeira, the tax rates begin at 10.15% for annual income up to €7,479 and reaches up to 47.52% for income exceeding €78,834.
INCOME € TAX RATE
0 – 7,479 10.15%
7,479 – 11,284 14.7%
11,284 – 15,992 18.55%
15,992 – 20,700 19.95%
20,700 – 26,335 29.75%
26,335 – 38,632 33.67%
38,632 – 50,483 42.2%
50,483 – 78,834 43.65%
Over 78,834 47.52%
Investment income, including interest, shares, securities, and bonds, is taxed at a flat rate of 28%, though residents have the option to be taxed at the standard scale rates. Income derived from ‘tax havens’ such as Jersey, Gibraltar, and the Isle of Man, is taxed at a fixed rate of 35%.
Capital gains on property are taxed at the standard income tax rates. However, residents may qualify for exemptions and receive a 50% relief on capital gains after owning the property for two years.
UK and foreign-source income.
As a Portuguese tax resident, you are required to declare all UK and other foreign income in Portugal, regardless of whether tax is paid in the source country or no tax is due under the non-habitual residence (NHR) regime.
UK government service pensions do not attract Portuguese taxation, but still need to be declared on your tax return. Gains and rental income from UK real estate are liable to tax in both countries. The UK/Portugal tax treaty provides tax credits in this situation, though you pay whichever amount is higher.
UK pensions and investment income such as bank interest, dividends, ISAs, and Premium Bond winnings are taxable solely in Portugal for residents here.
All worldwide income is considered when calculating your total tax liability in Portugal, whether it is taxed in Portugal or not, which may place you in a higher income tax bracket.
Joint returns.
By default, taxpayers in Portugal are assessed individually. However, married couples or those who have been living together for at least two years and are both tax residents of Portugal can opt to file a joint tax return. In this case, the combined income is divided by two, and the relevant tax rate is applied to each half-share. The resulting tax liability is doubled to determine the total taxable income. This approach can be tax-efficient, particularly when one partner earns significantly more than the other.
NHR residents.
Individuals with non-habitual residence status are taxed at a flat rate of 20% on employment income. They also benefit from tax exemptions on most foreign-source income, including pensions, rental income, interest, dividends, and capital gains on real estate.
While this regime has now closed to new applicants on 31 December 2023, individuals already holding NHR status continue to benefit from the regime until their 10 years comes to an end.
Payment of tax owed.
The final payment of your Portuguese tax bill is due within 30 days of the assessment date issued by the tax office. However, if your income is taxable in both Portugal and another country, and qualifies for double taxation relief (such as gains on UK real estate), the deadline may be extended. If the other country has not yet assessed the final tax liability, payment can be delayed until 31 December.
Global tax scrutiny.
Under the Common Reporting Standard (CRS), numerous countries are sharing taxpayer information, allowing Portuguese tax authorities to automatically receive data on taxpayers’ overseas assets and income. Portugal has also enacted a tax avoidance bill requiring banks to inform the tax office of any accounts valued over €50,000, increasing transparency significantly. Failure to submit accurate and timely returns can result in severe penalties.
Cross-border taxation.
Cross-border taxation is highly complex. It is advisable to seek specialist advice to avoid errors or excessive tax payments. For assistance with completing your tax return, consult a local tax accountant. For guidance on effective tax planning in Portugal, consult a cross-border tax and wealth management specialist such as Blevins Franks. They can help you achieve favourable tax treatment while ensuring you meet your tax obligations both in Portugal and the UK.
Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.
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