Picture this: You've spent years working hard, saving for retirement, and now you're ready to bask in year-round sunshine during your golden years. The allure of retiring abroad, with the promise of taking your well-earned savings with you and potentially shedding the tax burdens of your home country, has never been more attainable. And the perfect place to make this dream a reality? Madeira, Portugal.
Madeira offers a paradise for retirees seeking a low-tax haven, and it's all thanks to the Non-Habitual Residence Regime (NHR). Under this scheme, you can relish a tax-free pension, as well as income from dividends, royalties, and interest, both in Madeira and your country of income source. Imagine the financial freedom and tranquility that comes with this opportunity.
To qualify for NHR, you need to establish Portuguese tax residency without having been a tax resident in Portugal for the previous five years. The NHR status is a generous gift that keeps giving for ten years.
To become a Portuguese tax resident, you must spend over 183 days in Portugal during the tax year, which runs from January 1st to December 31st. Alternatively, you can demonstrate your intent to establish Portugal as your habitual residence by possessing a dwelling in the country by December 31st of that year.
And here's the cherry on top: successful NHR applicants enjoy all the benefits of regular Portuguese tax residents, including access to the country's healthcare system.
But what about your other foreign income? Under NHR, you can receive it tax-free for your first decade in Madeira. This is an exceptional opportunity for retirees looking to maximize their savings.
So, how does NHR work for foreign retirees? The magic word here is "Double Taxation Treaties" (DTTs). These treaties ensure that residents of countries with mutual DTT agreements are not subjected to taxation in both their home country and their country of residence. Portugal boasts an extensive network of such treaties, making it a top destination for expats.
Each DTT specifies which country gets to tax you, where you can apply for tax relief, and the extent of that relief. The result is that pensions and annuities are often only taxed in the country where you reside, with some exceptions.
For instance, the UK/Portugal Income Tax Convention states that any pensions and similar remunerations paid in consideration of past employment to a resident of either country shall be taxable only in that country. This means that if you're a tax resident in Portugal, your personal pension, including employer schemes and personal accounts, as well as your state pension, will only be taxed by Portugal and not by the UK.
Under NHR, your foreign-sourced pension will be taxed at a favorable flat rate of 10% for the next ten years. After this period, your pension income will be taxed according to the scale rates. However, be cautious if you decide to withdraw your entire pension fund as lump sums before your 10-year NHR status expires, as you may incur income tax. Seek professional financial advice to maximize your NHR benefits.
Now, how can you make this dream a reality and register as a tax resident in Madeira? To obtain NHR status, follow these steps:
Register as non-resident taxpayers.
Obtain residence cards (for EU nationals).
Register as tax residents.
Apply for the non-habitual resident status.
To apply for NHR status, the year after you've acquired Portuguese tax residency, submit an application before March 31st of the tax year. This application is directed to the Director of the Taxable Persons Registration Service, and keep in mind that all NHR applications must now be submitted through the tax authorities' website.
Individuals are required to declare solemnly that they haven't met the criteria for Portuguese tax residency during the previous five years.
The Non-Habitual Residence Regime in Madeira offers retirees a unique opportunity to enjoy a low-tax, high-quality lifestyle in a beautiful and vibrant country. So, if your dream is to retire under the sun, make sure to explore this incredible opportunity before the end of 2023. Madeira is calling, and the tax benefits are waiting for you.
