Taxation: Income Tax and Property Tax in Madeira for Expats

Published on April 26, 2026 and written by Cyril Jarnias

Moving to Madeira is attracting more and more French and European nationals: mild climate, reasonable cost of living, spectacular natural setting. But behind the postcards, a question quickly arises: how are income and real estate taxed on the archipelago for an expat?

This article provides a comprehensive overview, in plain language, of taxation in Madeira for expats, based exclusively on data from research reports.

Madeira: An Autonomous Region and Portugal’s Tax Laboratory

Madeira is a Portuguese archipelago classified as an Outermost Region of the European Union. This status allows the island to benefit from a specific legal framework to compensate for the extra costs of insularity and stimulate investment, especially foreign investment.

In practice, this translates into two important fiscal realities for expats and investors:

Madeira still remains subject to basic Portuguese tax law, double taxation treaties—particularly with France—and EU directives. The treaties, built on the OECD model, govern tax residence, taxation of pensions, real estate income, dividends, and capital gains to avoid double taxation.

Tax Residence in Madeira: When Are You Taxable on Worldwide Income?

For an expat, the first line to clarify is Portuguese tax resident status. The rule is national: it applies to Madeira as well as to mainland Portugal.

Two main criteria trigger tax residence:

– Physical presence for more than 183 days (consecutive or not) over a 12-month period beginning or ending in the relevant tax year.

– Or owning a home in Portugal that is used or intended to be used as a habitual residence within 12 months, indicating an intention to settle there.

Once considered a Portuguese tax resident, you become liable to IRS on all your worldwide income (salaries, pensions, investment income, rents, capital gains, etc.). Non-residents, on the other hand, are only taxed on Portuguese-source income.

In case of a residence conflict (e.g., both France and Portugal claiming residence), the France-Portugal tax treaty acts as an arbitrator, examining successively the permanent home, center of vital interests, habitual abode, and then nationality.

Income Tax in Madeira: Same Rules, Gentler Rates

Portuguese personal income tax (IRS) is a progressive tax with nine brackets. Madeira uses the same brackets and calculation mechanism as the mainland but applies lower rates.

Two elements are crucial for an expat:

– The top marginal rate in Madeira is 33.6%, and only applies above €86,634 of taxable income.

– On the mainland, the top bracket reaches 48% and kicks in at a lower income level.

In other words, for an equivalent income structure, a tax resident in Madeira will pay lower IRS than if they lived in Lisbon or Porto, with all brackets benefiting from lower marginal and average rates.

Madeira also stands out for taxation of certain capital income—a crucial point if you mainly live off investments.

Dividends, Interest, and Other Capital Income

In mainland Portugal, dividends and interest received by a resident are, by default, subject to a flat tax of 28% (with the option to aggregate into the progressive bracket in some cases).

– Dividends and interest are taxed at a specific rate of 19.6%.

– If opting for aggregation into the progressive bracket, an effective rate of about 16.8% may be achieved depending on overall income level.

For an expat living off financial investments (dividends, coupons), the difference between 28% and 19.6%—or even 16.8%—is far from marginal. It adds to the reduced tax burden on earned income or pensions thanks to the 33.6% cap.

Rental Income and Capital Gains

Rental income received by an individual is, in principle, subject to a flat rate of 28%. A resident may, however, opt for aggregation into the progressive bracket, which can be relevant if their overall income is moderate or benefits from deductions.

– For a resident, only half of the net capital gain is included in the tax base and taxed at the progressive IRS rate.

– For a non-resident, the gain is subject to a flat rate of 28%.

Certain expenses reduce the taxable gain: IMT and stamp duty paid at purchase, notary and registration fees, agency commissions, improvement work carried out in the last 12 years (with supporting invoices), energy certificate, etc.

A reinvestment exemption mechanism exists for a resident who sells their main residence and reinvests the proceeds in another main residence within the EU or EEA, within 36 months. If the new property is cheaper, only the difference will, in practice, be taxed.

The End of the Old NHR Regime and the Arrival of IFICI

The archipelago has widely benefited from the former Non-Habitual Resident (NHR) regime, introduced in 2009 and now closed to new applicants. This scheme offered for 10 years:

– Broad exemptions on foreign-source income (pensions, dividends, interest, rents, etc.);

– A flat rate of 20% on certain professional income from so-called “high value-added” activities;

– A very favorable rate of 10% on foreign pensions since the 2020 reform.

The NHR has been officially closed to new registrations, but:

For new expats, the landscape has changed. Portugal has replaced the NHR with a more targeted scheme: the IFICI (Fiscal Incentive for Scientific Research and Innovation), which some call “NHR 2.0“. This regime:

IFICI also requires proof of substance: existence of an employer or a real business structure in Portugal, enhanced oversight by agencies such as FCT, AICEP, or IAPMEI, and annual justification of eligibility. The regime can only be used once per taxpayer and remains accessible only to those who have never benefited from the NHR or other return programs.

For expats settling in Madeira, IFICI can combine with the island’s structural advantages (lower IRS rates, lighter local property taxes for certain projects, etc.), but it is based on a logic of real activity rather than mere choice of residence.

IRS Comparison: Madeira vs. Mainland – Why the Archipelago Remains Competitive

Beyond special regimes, Madeira has consolidated a structurally more attractive personal tax system than the rest of the country.

Key points:

– Top bracket: 33.6% in Madeira (above €86,634) vs. 48% on the mainland, with a solidarity surcharge between 2.5% and 5% on high incomes.

– Capital income rate: 19.6% on dividends and interest in Madeira (16.8% possible if aggregated), vs. 28% on the mainland.

– Full bracket: all IRS brackets on the archipelago benefit from lower marginal and average rates than on the mainland.

This difference is particularly notable for:

– High-income professionals (employees or self-employed);

– Investors with significant dividend and investment income;

– Entrepreneurs who pay themselves both salaries and dividends, especially through companies integrated into the MIBC.

Madeira does not replace the old NHR, but offers a sustainable platform where income tax, corporate taxation, and local taxes converge toward a lower level of burden than the Portuguese average, in compliance with EU law.

Real Estate Taxation in Madeira: IMI, AIMI, IMT, and Stamp Duty

For an expat, the “property tax” in Madeira is not a single tax. The system comprises several layers:

– IMI: Annual Municipal Property Tax, equivalent to a property tax.

– AIMI: Annual surtax on high-value real estate assets.

– IMT: Transfer tax paid when purchasing a property.

– Stamp Duty (Imposto do Selo): a fixed levy of 0.8% on acquisition, and 1% on very high-value properties.

IMI: The Annual “Property Tax” on Taxable Asset Value (VPT)

IMI (Imposto Municipal sobre Imóveis) is an annual tax due by any property owner in Portugal, therefore in Madeira. It applies to:

– Buildings (houses, apartments, shops, offices);

– Land, including agricultural land.

The tax base is the Taxable Asset Value (VPT), an equivalent of the cadastral value, determined by the tax administration using a formula that takes into account several parameters:

– Average construction cost per square meter (currently €665);

– Gross construction area;

– Usage coefficient (residential, commercial, industrial, parking, storage, services, etc.);

– Location coefficient (services, accessibility, neighborhood attractiveness);

– Quality and comfort coefficient (presence of a pool, elevator, garage, air conditioning, etc.);

– Age coefficient (depreciation based on age).

In practice, the VPT is often 3 to 4 times lower than the market value. It can be viewed for free on the Caderneta Predial via the Portal das Finanças.

IMI rates are set annually by municipalities, within a national framework:

In Funchal, a rate of 0.8% is cited for some urban buildings, illustrating the local variation.

Payment of IMI is staggered based on the annual amount:

The taxpayer may however choose to pay everything in May.

IMI Exemptions and Reductions: Main Residence, Low Income, Children

Several mechanisms reduce the bill:

– Newly acquired main residence: Temporary IMI exemption for up to 3 years, sometimes extendable to 5 years depending on the case.

– Modest-value permanent home: if the property is used as a main residence, its value does not exceed €125,000, and the household’s reference taxable income is below €153,300, a 3-year exemption is possible.

– Lifetime exemption for very low-income households: when the household’s annual income does not exceed about €15,469.85, a permanent exemption may apply, subject to conditions.

– Aid for low-income households: if income is below €15,295 and the property value is below €66,500, an IMI reduction is available, provided the tax address matches that of the property.

– IMI Familiar: municipalities may grant reductions based on the number of dependent children. In Madeira, the following amounts are cited:

To benefit, expats must ensure that their tax residence and household composition are correctly registered.

– Urban rehabilitation, renovation, or rental: exemptions of 3 to 5 years may be granted for properties undergoing rehabilitation in designated areas, or intended for long-term rental after renovation.

– Listed buildings and owner-occupied properties may also qualify for reduced rates.

Conversely, properties vacant for more than one year in areas of high housing pressure can incur a surcharge of 3 to 12 times the normal IMI rate, as a measure against vacancy.

AIMI: The Surtax on High-Value Real Estate Assets

AIMI (Adicional ao IMI) is an annual surtax added to IMI for holders of significant residential real estate assets (urban dwellings and building land). It is calculated on the sum of VPTs of all relevant properties nationwide.

For individuals:

– An allowance of €600,000 applies per taxpayer.

– Married couples or de facto partners opting for joint filing can double the allowance to €1,200,000.

The rates per bracket for an individual are as follows:

For a couple filing jointly:

For legal entities (companies), the rate is a flat 0.4%, with no allowance, applied from the first euro of VPT, unless the properties are used for the private benefit of directors or shareholders, in which case the individual rates apply.

Entities located in jurisdictions considered “tax havens” face a punitive rate of 7.5%.

AIMI is calculated in June, based on the situation as of January 1, and is paid in a single installment in September.

IMT: The Real Estate Transfer Tax on Purchase

IMT (Imposto Municipal sobre as Transmissões Onerosas) is the tax due when acquiring a property. It is often the heaviest tax cost at the time of purchase.

It is calculated on the higher of:

– the price stated in the deed of sale,

– and the cadastral VPT.

IMT must be paid before the notarial deed is signed, via the Portal das Finanças, at certain notaries, or by electronic payment.

The rates differ depending on whether the property is:

– a main residence (own and permanent home),

– a secondary residence or investment,

– land, commercial premises, warehouse, etc.

For residential properties in Madeira, a 2012 table, still used as a structural reference, gives an idea of the rates:

Special regimes exist:

IMT Jovem: Exemption for Young Buyers

A recent measure strengthens the attractiveness of homeownership for under-35s: the IMT Jovem regime, valid from 2024 to 2026.

For a first-time buyer under 35 purchasing their first main residence:

– Full exemption from IMT and the 0.8% stamp duty on the portion of the price up to €413,174 in Madeira (and the Azores).

– On the price range between that threshold and an upper limit (e.g., around €660,982), a reduced rate with an enhanced deduction applies.

– Obligation to occupy the property as a main residence for at least 6 years (unless exceptions: professional relocation more than 100 km away, change in household composition, etc.).

– If purchased by two people, only one of whom meets the age criteria, the exemption applies proportionally to the eligible buyer’s share.

For young active expats or mixed couples (one Portuguese, one foreigner), this scheme can drastically reduce the tax cost of homeownership.

Stamp Duty: 0.8% on Purchase, 1% on Luxury Real Estate

Imposto do Selo mainly applies at two levels:

– On the purchase of a residential property, a duty of 0.8% is due on the purchase price or VPT, whichever is higher.

– For properties with a VPT equal to or exceeding €1 million, a 1% stamp duty applies on the value, akin to a form of luxury real estate taxation.

Additionally, real estate loans are subject to specific stamp duty rates:

– 0.5% if the repayment term is less than 5 years;

– 0.6% if it is more than 5 years.

Acquisition Costs and Recurring Taxation: What Does an Expat Actually Pay?

For an expat buying a property in Madeira, it is useful to aggregate the main tax and parafiscal charges, excluding the property price:

In practice, for a house priced under €1 million, total purchase fees and taxes (IMT, stamp duty, notary, lawyer) are estimated at around 6% to 8% of the price. Above €1 million, these costs can reach about 10%, notably due to the higher IMT bracket and stamp duty.

Business, MIBC, and Local Taxes: A Lever for Entrepreneur Expatriates

Even though this article focuses on income tax and property taxes, it is hard to ignore the role of the Madeira International Business Centre (MIBC/CINM/CIAM) in the overall optimization of an entrepreneur expat’s tax burden.

The MIBC is a free zone regime, fully integrated into EU law and validated as compatible state aid. It notably offers:

For an expat structuring their activities through a company within the MIBC, the tax impact is twofold:

This combination—corporate tax at 5% and a resident top rate of 33.6% with 19.6% on dividends—makes Madeira a particularly attractive platform for international entrepreneurs, provided they meet substance requirements (jobs, investments, real structure).

Double Taxation: How Do France and Madeira Interact?

For a French person moving to Madeira, the fear of being “taxed twice” is common. The France-Portugal double taxation treaty precisely addresses this issue.

The principle is as follows:

– Each category of income (salaries, private pensions, public pensions, dividends, interest, rents, capital gains, etc.) is primarily assigned to one of the two states or shared.

– When both states can tax the same income, one grants a tax credit corresponding to the tax paid in the other, up to the limit of what it would have levied itself.

Some typical cases:

Complying with these rules requires: understanding the issues and the willingness to apply them rigorously.

– Properly classifying income under Portuguese law (categories A, B, E, F, G, H);

– Keeping proof of taxes paid in France (tax assessments, withholding tax certificates) to obtain tax credits in Portugal;

– Correctly completing the annual Portuguese tax return (Model 3) and, if applicable, the French non-resident return.

For Which Profile Is Madeira Tax-Advantageous?

In 2026, with the gradual end of the old NHR and the rise of IFICI, Madeira clearly positions itself as a destination for:

– Qualified employees or self-employed individuals who can qualify for IFICI or a future regional regime;

– Entrepreneurs looking to leverage the MIBC and the combined corporate and personal taxation of the archipelago;

– Real estate investors seeking an attractive market where the VPT remains below market value and where IMI, though recurrent, can be moderate or temporarily exempted;

– High-income taxpayers naturally benefiting from the 33.6% top marginal rate and the reduced taxation on dividends and interest.

For profiles with substantial earned income, dividends, and capital gains, the equation can be radically different, especially if leveraging the tools offered by the MIBC and regional taxation.

Conclusion: Madeira, a Coherent but Demanding Tax Ecosystem

Madeira’s tax system is neither a tax haven nor a miraculous regime. It is a complete ecosystem where:

For an expat, success in a Madeira project requires carefully planning tax residence, anticipating the impact on French or worldwide income, and integrating real estate taxation from the property search stage.

The archipelago offers a solid compromise between quality of life and tax efficiency, but requires a fine balance between activities, asset locations, family status, and time horizon. In this balancing act, Madeira is today one of the most competitive territories in Portugal, provided that Portuguese, EU rules and applicable international treaties are strictly followed.

Cyril Jarnias

Cyril Jarnias is an independent expert in international wealth management with over 20 years of experience. As an expatriate himself, he is dedicated to helping individuals and business leaders build, protect, and pass on their wealth with complete peace of mind.

On his website, cyriljarnias.com, he shares his expertise on international real estate, offshore company formation, and expatriation.

Thanks to his expertise, he offers sound advice to optimize his clients' wealth management. Cyril Jarnias is also recognized for his appearances in many prestigious media outlets such as BFM Business, les Français de l’étranger, Le Figaro, Les Echos, and Mieux vivre votre argent, where he shares his knowledge and know-how in wealth management.

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