Madeira International Business Center
The Madeira International Business Center (MIBC) is Portugal’s answer to attracting foreign direct investment in the services sector.
Under the MIBC, the Autonomous Region of Madeira, and Portugal, grant the lowest corporate tax rate of the European Union and one of the lowest corporate tax rates worldwide.
With the advantage of operating within the European Union, MIBC dully licensed companies are not characterized as “offshore” and are totally entitled to benefit from all Double Taxation Treaties (“DTT”) signed by Portugal, as well as from the EU Directives applicable to tax matters.
All companies duly licensed to operate within the MIBC are entitled to benefit from the following tax benefits, provided that the conditions for admission to the mentioned Madeira IBC regime are complied with (Substance Requirements):
- A reduced corporate income tax rate of 5% applicable to profits derived from operations exclusively carried out with non-resident entities or with other companies operating within the ambit of the MIBC;
- Non-resident single and corporate shareholders of MIBC companies will benefit from a total exemption from withholding tax on dividend remittances from the Madeira companies, provided that they are not resident in jurisdictions included in Portugal’s “black list”.
- Portuguese corporate shareholders will also be exempt if holding a participation of at least 10% for 12 consecutive months;
- Full access to the participation exemption regime;
- Exemption on capital gains payments to shareholders not resident in black listed jurisdictions;
- No withholding tax on the worldwide payment of interest, royalties and services;
- Documents, contracts and other operations requiring public registration carried out by MIBC companies will benefit from an 80% exemption on the stamp (capital) duty, provided that other parties involved are not resident in Portuguese territory or are also companies operating within the legal framework of the MIBC;
- Companies licensed in the MIBC will also benefit from an exemption of 80% applicable to municipal property tax and property transfer tax, regional and municipal surtax, and any other local taxes.
The following tax benefits apply for a trust incorporate within the MIBC:
- Trusts are fully exempt from taxation on dividends received from shares, royalties or interest received on the deposits.
- All (non-financial) income distributed from the Trustee to the Trust’s Beneficiaries is fully exempt from taxation provided these Beneficiaries are corporate entities licensed to operate within the MIBC or non-Portuguese resident entities/individuals.
Shipping and chartering companies have full access to the tax benefits mentioned above.
In addition, non-Portuguese crew members aboard commercial vessels and yachts registered in the Madeira International Shipping Registry are not obliged to contribute to the Portuguese social security regime provided some form of insurance is guaranteed, public or private.
The general Portuguese social security regime shall mandatorily cover Portuguese nationals or residents in Portuguese territory. In this case, a total contribution rate of 2,7% will be applicable, of which 2,0% shall be borne by the employing entity and 0,7% by the employee.
All crew members will be exempt from personal income tax in Portugal.
Most types of international service activities will be allowed, such as international trading, e-business and telecommunications, management services, consulting services, as well as the ownership of intellectual property, the development of real estate investments or the holding of participations through the incorporation of an SGPS – the Portuguese pure holding company.
SGPS companies may have the legal form of an S.A. or a Lda. company and must have as its single object the management of shares held in other companies.
It should be noted that general services companies, nevertheless, may also hold participation in addition to the undertaking of their commercial activity.
The Portuguese law foresees the following types of companies that can be incorporated within the MIBC:
- Private Limited Company (Lda.);
- Single Partner Limited Company (Unipessoal Lda.);
- Private Limited Company (S.A.);
- Holding Company (SGPS);
- Limited Partnership Company;
- General Partnership Company.
Nevertheless, the most common types of companies incorporated in Portugal are either a (Single Partner) Private Limited Company or a Private Limited Company; no minimum share capital is required for these types of companies.
Apart from the above, the MIBC is the only jurisdiction in Portugal allowing trusts to incorporate.
Under the law, in a Madeiran Trust, the Settlor shall expressly designate the law that will regulate the trust. Furthermore, and if desired, it is possible to substitute the chosen law at any time during the trust’s existence.
The above means that any material change in the elected law of the trust will allow that the Trust Deed is amended and another Law preferred to regulate the same. If, on the other hand, the trust would be located in said (initial) jurisdiction, this would mean that the trust would have to be re-domiciled (if permitted) or extinguished.
Nevertheless, trusts are not allowed to have directly, pure financial activity.
To qualify for the tax reductions, companies incorporated in Madeira’s IBC have to comply with one of the following pre-established requirements:
- Creation of one to five full-time job post(s) (the job posts must be filled in by residents, for tax purposes, in Madeira, regardless of their nationality) in the first six months of operation and undertake a minimum investment of €75.000 in the acquisition of fixed assets, tangible or intangible, in the first two years of operation; or
- Creation of six or more full-time job posts (the job posts must be filled in by residents, for tax purposes, in Madeira Island, regardless of their nationality) in the first six months of operation.
On the other hand, the reduced corporate tax rates are applicable up to a ceiling placed upon the annual taxable income, which varies according to the number of employees, as follows:
|Number of Full-Time Job Posts||Minimum Investment||Ceiling|
|1 – 2||€75,000||€2,730,000|
|3 to 5||€75,000||€3,550,000|
|6 to 30||–||€21,870,000|
|31 to 50||–||€35,540,000|
|51 to 100||–||€54,680,000|
|More than 100||–||€205,500,000|
Further to the above, under MIBC rules, companies are also required to have an appropriate economic structure. However, it must be noted that MIBC rules do not provide any definition of this concept. It is understood that the company must be endowed with adequate substance for the development of its economic activity, namely in terms of risks, assets and functions appropriate to the activity to be developed by the company itself.
In an international context, the appropriate economic structure is continuously assessed on a case-by-case basis. To do so, several factors must be taken into account, such as the history of the business itself, the type of entity created, whether the business partners are related parties or not, the materiality of the business, the access or eligibility criteria to the tax regime and the control mechanisms adopted by the investor’s home country, etc…
Notwithstanding the above, the following must always be considered when assessing appropriate economic structure: the reason for the economic operation, the company’s management and an effective seat, and the types of beneficial owners.
MCS is available to provide further advice on the above so that your business has the appropriate economic structure.
In order to prevent abuse of the existing tax benefits within the MIBC, all dully licensed companies will be subject to one of the following maximum annual limits applicable to the tax benefits of the present regime:
- 20,1% of the annual Gross Value Added, or
- 30,1% of the annual incurred labour costs, or
- 15,1% of the annual turnover.