For those wanting to move to Portugal rather than just have the option to do so, Portugal continues to offer the most accessible VISAs in Europe, with VISAs normally obtained within 60-90 days and a residence permit normally within 6-7 months.
Notably, for those with passive income (such as dividends, interest or pension) equivalent to the Portuguese minimum wage (under 1,000 Euro a month), the D7 Visa continues to be an easy path.
Other VISAs includes, amongst others, the so-called digital nomad VISA (D8) for those working remotely and earning 4 times the minimum wage (a little under 4,000 Euros a month), the highly qualified professional VISA (D3) for those with a job offer in Portugal or the entrepreneur VISA for those setting up a business in Portugal.
In other words, most people who work or have savings, in Portugal or out of Portugal, can move to Portugal relatively at ease. Portugal has an open doors policy and welcomes people who can contribute to its economy.
Unlike other countries, once the residence permit is granted, limitations are minimal. For example, those who arrive in Portugal with a D7 (passive income), are allowed to work once the VISA is granted, contrary to Spain’s NLV where people may not work.
This is perhaps the most important unknown benefit of Portugal over other countries in southern Europe such as Spain or Italy. Portugal is truly “easy going”. Spain and Italy have wonderful cultures, but their immigration authorities and tax authorities are brutal. They have many rules that are enforced harshly. Portugal is much more relaxed. Portugal can be slow and inefficient, but it is not punitive and people can often expect kindness and understanding (though experiences do vary!).
Setting up a subsidiary in Madeira: immediate relief in corporate tax pain, potential transition at a later stage
We strongly urge successful business owners with solid cashflow to consider setting a subsidiary in Portugal and specifically, do so with headquarters on the island of Madeira.
1) Corporation tax reduction
A powerful reason to set up a subsidiary is an immediate relief in corporation tax. The UK’s corporation tax skyrocketed to 25% (beyond the first £50,000). The corporation tax rate in mainland Portugal is now dropping to 20% in 2025 with the government committed to continue to reduce it. However, the corporation tax rate for companies having their HQ in Madeira is 14% and will likely drop to 13%, with the first 50,000 Euro taxed at only 11.7% (also likely to be reduced). Whilst this is still a higher rate than Cyprus (12.5%) or Malta (5%), those jurisdictions is likely to attract HMRC’s attention, whilst Portugal is very unlikely to do so.
Dividends paid from a Portuguese company to a UK company are not subject to withholding tax under Portuguese law after a year of holding the subsidiary and are also not considered income in the UK for small companies (up to £10M turnover). In addition, the budget has not changed the exemption that small companies in the UK benefit from a transfer pricing study, so the administrative costs are minimal.
In other words, by setting up a subsidiary in Madeira and transferring some of the activity to Portugal, there is an immediate tax relief of at least 11% in the form of a lower corporate tax bill.
It’s important to remember that incorporating a company in Madeira is insufficient. The company needs to have some substance and commercial rationale in order to not be considered profit shifting. At FRESH, we offer solutions to support the Madeira subsidiary with substance to remain compliant.
2) An office in paradise with Fiber internet
Madeira is a paradise. It has sub-tropical climate, normally with 20 degrees Celsius during the winter, it is one of the best hiking destinations a short flight away and has been dubbed the “Hawaii of Europe”. It has great food, amazing landscapes and friendly and welcoming locals that speak excellent English. It also has fast and reliable and Fiber internet, normally faster than the internet in the UK. Office space costs are incredibly low. Madeira is connected to most of the UK by daily flights offered by all the main carriers.
An office in Madeira and the opportunity to change scenery and work from a place that has an endless summer could prove to be a highly compelling and an unusual benefit for your UK-based employees, particularly during the winter.
3) Access to talent at a low cost
Madeira offers two different types of unique talent.
The local population speaks fluent English. The local minimum wage in Madeira is under 1,000 Euros a month and it is also the typical wage. Many of the young people on the island have been educated in the UK, but they do not have many opportunities and the chance to work for a foreign company is compelling for them. They are loyal and tend to stay with the same employer for a long time.
You will therefore be able to recruit local talent and will have great support to do so.
The second is the digital nomad community on the island. Madeira is home to one of the largest digital nomad communities in Europe, notably the location of the “first digital nomad village” in Europe and those digital nomads, whilst they would not work for a minimum wage, offer a highly diverse skill set.
Both groups value stability and are not targeted by recruiters on a regular basis.
With the costs of employing in the UK now much higher than before and the productivity at historical lows, Madeira offers a new pool of talent that you can tap into.
4) Holiday homes
Madeira is the perfect destination for buying a holiday home. In terms of using the home for yourself, it is consistently winning the title of the best island destination in the world (now 9thyear in a row). It also has the friendliest regulatory environment in Europe with a registration regime of short-term rental that continues to work smoothly and be encouraged by the local government, a year-round tourism and incredible returns and a low tax rate on income from short term rentals (only 35% of the income achieved is taxed). A holiday home in Madeira offers the perfect combination of leisure and healthy returns.
Portugal’s incoming tax regime of 2025: NHR 2.0 / TISRI + Pension considerations
Portugal created one of the most famous tax regimes in the world, the NHR, and that regime will no longer be available in 2025.
However, facing strong pressure from industry and business, the previous government introduced a new regime, the Tax Incentive for Science, Research and Innovation (which we call TISRI and is also dubbed NHR 2.0). The new regime replicates most of the benefits of the NHR system and also adds another one – an exemption on capital gains from a foreign source.
Conversely, the regime no longer includes pension income which is now set to be taxed at progressive rates.
The new regime is harder to access. The NHR was available to everybody but the new regime requires one of a few connections to Portugal. To be able to offer as many people as possible access to the new regime, we developed at FRESH the criteria of “being a member of the board of a certified startup company”. Over the last few months, we developed relationships with certified start-ups, as well as joined the bodies advising the government regarding certification. We are happy to say that we can now support people with some relevant experience in the tech industry who are happy to make a positive contribution to a local startup by joining its board of directors, in finding such startup that they can join. It is likely that an investment would be expected in the startup, creating some barrier to the entry into this program. We believe that although the eligibility for tax benefits is no longer automatic, in the long run, integrating into the local ecosystem and supporting a local company would be a satisfying experience.
As for retirement income, normally a quarter of the UK pension can be liquidated at retirement age and we are happy to support those considering moving in investing such liquidated amounts into tax-efficient products in Portugal (normally 11.2% tax after 8 years of holding).
Pitfalls – return to the UK within 5 years and split year treatment
People should be aware of UK departure rules. People leaving the UK and receiving certain types of income (such as dividends) in the same year, cannot exclude said income in the UK. People leaving the UK and coming back within 5 years may be taxed retroactively.
Advising UK expats and non-Doms relocating to Portugal
At FRESH we have the largest and best tax team advising expats who are moving to Portugal. Particularly, we are the ONLY firm with tax lawyers who are qualified in both the UK and Portugal. We believe that Portugal continues to offer both the best package to people who wish to leave the UK now, and the best options to people who want a Plan B, with a potential move in the future. We are looking forward to helping you make your move a success!
