Madeira Slashes Income Tax to Attract Expats and Retain Talent

Remote workers sipping coffee on Rua de Santa Maria and pensioners scouting for winter sunshine woke up to welcome news this week: Madeira’s government has approved a fresh round of income-tax cuts that promises to leave a little more cash in local pockets while sharpening the island’s allure for newcomers from abroad. If lawmakers rubber-stamp the plan—as they are widely expected to do—every resident, from minimum-wage baristas to high-earning executives, will see lighter deductions dating back to January.

Why Madeira is turning the tax dial again

Miguel Albuquerque’s centre-right coalition is betting that bolder fiscal incentives can both counter the archipelago’s insularity premium and keep talent from fleeing to Lisbon or abroad. Under Portugal’s Regional Finance Law the island may undercut mainland tax rates by as much as 30 %. That margin has existed for years, but until now only lower and middle income groups enjoyed the full discount. With tourism roaring back and a record 14 % of property deals already involving foreign buyers, officials argue that a deeper differential will reinforce Madeira’s reputation as a cost-efficient base for digital nomads, retirees and start-ups.

Breaking down the new IRS relief

The decree extends the maximum 30 % reduction to the 6th bracket, adds a 15 % haircut in the 7th, trims the 8th by 9 % and shaves 3 % off the 9th. In plain Portuguese: a consultant invoicing €42 000 will now keep roughly the same share of income as a peer on the mainland who earns closer to €35 000. Finance secretary Rogério Gouveia pegs the immediate benefit at €7 M for 2025, part of a wider €157.4 M package that also freezes corporate tax at a 30 % discount and nudges the reduced VAT band from 5 % to 4 %. Crucially, the relief applies retroactively, so pay-slip adjustments and reimbursements should arrive later this year.

How does the region plug the revenue gap?

Officials insist Madeira can forgo the lost receipts thanks to a cocktail of strong job growth, rising tourist inflows and EU-funded infrastructure projects. The €2.533 B draft budget ring-fences cash for housing and youth employment, banking on the idea that higher disposable income will stimulate consumption, widen the tax base and ultimately offset the €7 M hit. Past experience offers some comfort: unemployment is at a two-decade low, and an expanding pool of taxpayers has already helped balance earlier rounds of cuts.

Political storm clouds and public reactions

The ruling PSD/CDS alliance commands an absolute majority yet faces a combative opposition that doubts the arithmetic. Left-leaning parties warn that giveaways could jeopardise healthcare funding, while the populist Chega accuses Albuquerque of courting foreign capital at the expense of locals battling high rents. Public-sector unions say any surplus should first restore frozen career progressions. On the other hand, chambers of commerce and property agents are applauding, calling the move a signal that Madeira is "open for business" after last year’s bruising budget crisis.

Island economies in comparison

Across the Atlantic, the Azores already apply a flat 30 % IRS discount yet still wrestle with public-finance pressure. The Spanish Canaries rely on a 7 % IGIC instead of VAT and offer hefty reinvestment allowances, while the Balearics are experimenting with IRPF rebates and scrapping inheritance tax. Economists note that Madeira’s stepwise approach may be more sustainable than blanket reductions, though all three archipelagos share the same strategic aim: offsetting higher transport and import costs by letting residents keep more of what they earn.

What expats should watch over the next six months

Assuming the Legislative Assembly signs off, employers will switch to the new withholding tables by autumn and the tax office will issue retroactive refunds shortly afterward. New arrivals qualifying for Portugal’s Non-Habitual Resident regime will stack these local perks on top of national exemptions, potentially trimming effective rates below 10 % for certain foreign-source pensions or freelance income. Accountants advise keeping residency paperwork airtight—utility bills, rental contracts, health-centre registration—because the finance department is tightening checks on genuine domicile. Finally, investors eyeing the Golden Visa should remember that while property routes have narrowed on the mainland, Madeira’s urban-rehab projects remain eligible, and a sweeter IRS schedule only bolsters the island’s pitch.