Guide · 10 min read
Madeira sits in a sweet spot: strong rental demand from 1.5M annual tourists, rents growing faster than anywhere in Portugal, prices still well below Lisbon, and no AL licence moratorium.
Key Takeaways
Madeira's investment fundamentals are built on four pillars that are difficult to replicate elsewhere in the Iberian Atlantic:
| Area | Avg Price/m² | Short-Term Yield | Long-Term Yield | Demand Profile |
|---|---|---|---|---|
| Funchal | €3,230–€3,574 | 6–8% | 3.5–5% | Year-round |
| Calheta | €2,200–€3,000 | 5–7% | 3–4.5% | Year-round (most sun) |
| Ponta do Sol | €1,800–€2,500 | 5–6% | 3–4% | Year-round (nomads) |
| Câmara de Lobos | €2,000–€2,800 | 4–6% | 3–4% | Year-round |
| Santa Cruz | €1,800–€2,400 | 4–5.5% | 3–4% | Moderate |
| Porto Santo | €2,000–€2,800 | 7–9% | 2–3% | Seasonal (summer peak) |
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Short-term rental in Portugal requires an Alojamento Local (AL) licence from the local Câmara Municipal. This is the legal basis for Airbnb and Booking.com operations.
Good news for Madeira specifically: The mainland Portugal SARA legislation (which imposed a moratorium on new AL licences in many areas) does not apply to Madeira. The autonomous region has its own legislation and new licences can still be obtained without restriction.
AL requirements in Madeira:
Non-residents pay a flat 25% withholding tax on gross rental income from Portuguese sources. This is deducted at source by the rental platform or tenant.
Residents have two options: include rental income in general IRS (progressive rates) or apply the flat 28% category F rate. For most investors, the flat rate is more favourable.
Under NHR 2.0 (Non-Habitual Resident, introduced 2024), new tax residents get a 10% flat rate on most income for 10 years — including foreign-source income. Rental income from Portuguese property is still taxed at 28% under NHR, but other income streams benefit significantly.
For non-residents: flat 28% on the net gain (sale price minus purchase price, transaction costs, and improvement costs).
For residents: 50% of the gain is added to total income and taxed at marginal IRS rates — or the flat 28% if more favourable (whichever is lower).
Primary residence exemption: Gains from selling your primary residence are exempt from CGT if reinvested in another primary residence within the EU/EEA within 36 months.
IMI is charged at 0.3–0.45% of the fiscal value (Valor Patrimonial Tributário), which is typically 50–70% of market value. On a €400,000 market-value property with a €250,000 fiscal value, annual IMI is €750–€1,125.
Strong fundamentals: 4.9% average yield, rents growing 7.4% YoY, constrained supply, prices below Lisbon/Algarve, no AL licence moratorium. Main risk is illiquidity in non-Funchal areas.
Yes — with an Alojamento Local licence, which is still obtainable without restriction in Madeira (unlike mainland Portugal).
4.9% average gross; 6–8% achievable in Funchal short-term. Net after costs typically 3–5%.
Non-residents: 25% flat. Residents: 28% flat (category F) or general IRS rates.
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