Madeira News Blog

(15th September). Today’s main news headline : ‘Câmara Loses Revenue – Funchal council charged tax to the Pestana Hotel Group at the start of an unconstitutional regulation. As a result, 15 years after, it is forced to return 255 thousand Euros’. It’s an old case, dating back to December 1994, when the boss of the Pestana Group was told that the câmara had determined the payment for council tax had been established at over €255,000 for the division of lots at the site of Quinta Leacock. The local authority considered that such a fee was payable under the Regulations of Fees and Licenses, passed by the council on 9th May 1994. The Pestana Group argued that the site, intended for the construction of the ‘Pestana Village’, was exempt from the regulations, and first appealed to the courts in 1996. From there it gets complicated and detailed, but in a nutshell, 13 years after the initial court case, the Pestana Group has now won its battle, and is now free to recover the payment which should never have been made.

Today’s main front page photo shows a concerned lady pointing up at the scenic rock face in front of her : ‘Houses And Road At Risk In Madalena – The report of LREC confirmed the evident signs of ‘instability’ in the rock face’. A cliff face with obvious signs of instability is causing concern in Madalena do Mar. It’s the part between sítios da Palmeira (above) and Banda d`Além (below) in the general area of the bathing complex to the west. It is causing particular concern, as in the event of a collapse, the buildings above could also be sent plummeting. The findings are revealed in a report by the Regional Laboratory of Civil Engineering (LREC), who were on site to assess the conditions of the problem area located slightly ahead of the mouth of the tunnel that leads to Calheta, almost opposite the access ramp to the local beach. A spokesman from Ponta do Sol council tries to reduce the fears saying that "the opinion is just a warning. There is nothing [danger] imminent". However, the council is working with a housing organisation "trying to find alternative space" for residents in the danger zone, because says the council president, "perhaps not to do ‘the devil contrives’ and we have there another problem in our hands" (as a rule, I try and avoid translating such sayings or expressions). The assessment by LREC was triggered by an application for a building permit for a block of 12 apartments, an application that was understandably refused in the circumstances. Amongst the recommendations of the LREC to stabilise the rock face are dynamic barriers, high strength mesh, and where possible steel and concrete reinforcement, as well as the building of a wall lower down to retain falling rocks. The report also warns of the danger of carrying out the costly work, which in itself might trigger some problems, and the dangers of continuing erosion through atmospheric conditions. Rui Marques, council president, who is a qualified engineer, believes that the LREC report is "just a warning of the possibility and not an imminent situation. The opinion is more about prevention, with care needed not to scare people", he said.

’87% Of Candidates Get Placements In The First Phase Of Higher Education – Just 187 Madeiran students didn’t get through’. It is the lowest number in recent years, with only 187 students not placed in the first stage of the competition for access to Higher Education. 87% of the candidates who competed on Madeira for a place in the Portuguese universities were selected. Until this Friday, the 187 students who were not placed in the first round of applications, can still compete for vacancies that remained unfilled.

Today’s sport headline : ‘Award For Dinis – The awards ‘Diário / Powerade’ will be delivered today, distinguishing also the dedication of Dinis Aveiro to regional sport’. A posthumous ‘career award’ is to be made to Dinis, for his contribution to sport on Madeira, and in particular his club ‘CF Andorinha’. Always the last to leave after training, putting away the equipment, always with a smile, and an urge to monkey around, he was a true example of dedication and love for his football club. Then at the weekend, he was always off to watch his football team Marítimo. Not a name many readers will recognise for sure, but you might of heard of his son, Cristiano Ronaldo.

A group of mothers from Câmara de Lobos are threatening to stop their kids going to school, because despite living some way away from the school their children attend, they are not able to receive subsidised but passes. Yesterday morning, the group tried to get a reaction from the school and the Department for Education and Culture, but without success, and now they threaten that their children, aged between 10 and 15, will not go to school unless there is a solution to the problem. The golden rule seems to be ‘one kilometre’ away to qualify for a subsidised bus pass (normally costing €43 a month in this case), but it seems that schools have some say in the matter, taking into account distance, roads [existence?], and even steep slopes. With ‘back to school’ next week, and elections that following Sunday, probably something will be done very quickly to pacify matters and keep the voters happy.

‘Serra d’ Água Will Be A Mini European City’. President Jardim highlighted the "notable unban regeneration" in Serra d’ Água in recent years, during the inauguration of the new plaza (pictured) and public park of the parish. Alberto João Jardim went as far as to compare the location within the region of Ribeira Brava to "any well developed small town in Europe". The parish is now equipped with a multifunctional space especially designed for leisure and entertainment, with an amphitheatre, a playground, a bar with a terrace, and an underground car park of two floors with the capacity for 59 cars. €1.7 million has been spent, and further investment is promised.

‘The number of cancer patients has increased’. Following yesterday’s headline in the Diário about the lack of resources and conditions for cancer patients attending hospital in Funchal, with some having to go private for scans, the Regional Secretary for Social Affairs assures that the prevention of cancer, early diagnosis, and treatment of cancer patients, are priorities of the Madeira Government. However, it is also true that "the number of patients with cancer has been increasing alarmingly". He assures that works are planned to expand, and points out the recently opened Radiation Therapy Centre, and also the new centre for the Volunteers of the Portuguese League Against Cancer. The Secretary states that the situation will change substantially after the expansion work in the Department of Hemato-Oncology. At that time, there will be a ‘Unit for Pain’, as well as better equipment to make diagnostic tests.

Tax Liability

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

Taxation Highlights

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.

Taxation Fact

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.

DISCLAIMER – THE INFORMATION PROVIDED HERE DOES NOT CONSTITUTE PROFESSIONAL ADVICE, AND IS PROVIDED FOR BRIEF GUIDANCE ONLY, ON A BEST ENDEAVORS BASIS.

NO RESPONSIBILITY CAN BE ACCEPTED FOR THE ACCURACY OF INFORMATION SHOWN HERE, AND YOU SHOULD SEEK INDEPENDENT VERIFICATION OR PROFESSIONAL GUIDANCE. THIS PAGE WAS LAST UPDATED IN 2008.

This information sheet is copyright material – do not reproduce in part or full without written consent    

taxinfo taxationinfo irsinfo financesinfo taxliabilityinfo