Madeira Onshore Tax System
Madeira, being a political autonomous territory of Portugal, has been granted, since the 80s, a low tax system (Madeira’s International Business Center, or MIBC) in order to promote its island economy. And, contrary to popular belief not all low tax systems are synonymous of offshore or tax havens.
In fact, since Portugal’s accession to the EU, the MIBC system has been subject to several revisions and approvals from the European Commission, as such regime is considered State Aid in accordance to EU Law and jurisprudence and is thus subject to the Regional Aid Guidelines issued by the European Commission itself.
As such ,the MIBC fiscal regime is fully integrated and regulated under EU and Portuguese law, and such regulation means that:
- There is full implementation of EU law regarding business activities admitted to the MIBC;
- Full application of norms arising from the Treaties signed by Portugal or by international organizations to which Portugal is member, especially OECD, FATF7, ILO and IMO apply to the regime;
- All business activities within MIBC are subject to the same rules and proceedings regarding customs, tax and financial activities in terms of control, inspection and supervision. Consequently the regime has “onshore” characteristics, since terms and conditions are identical to those of Madeira and the Portuguese mainland;
- Additional measures exist regarding the improvement of the rules applied to the MIBC;
- Complete access to double taxation agreements signed by Portugal; and
- Relationship with resident entities without fiscal benefits is allowed.
In fact Portuguese investors can take full advantage of MIBC if they aim to internationalize their activities or develop activities. Investor activities’ income, whether the investor is foreign or national, will be taxed at normal rate if income derives from activities with residents in Portuguese territory and reduced tax rate (5%) will be applied if income derives from activities with non-residents.
Because of the reasons mentioned above, the MIBC fiscal regime cannot be considered, legally, technically and conceptually, an offshore tax system, but rather an onshore tax system.