What is the 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 entitled to benefit from all Double Taxation Treaties (“DTT”) signed by Portugal, as well as from the EU Directives applicable to tax matters.
Incorporation of new companies, or re-domiciliation of existing ones, is subject to license availability under the MIBC applicable rules.
Madeira International Business Center
Learn more about all the benefits of the Madeira International Business Center (MIBC).
MIBC Tax Benefits for Companies
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.
MIBC Tax Benefits for Trusts
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.
MIBC Tax Benefits for Shipping Companies, Vessels and Yachts
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.
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.
Economic Substance 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|
The entire economic activity of the MIBC licensed company must be carried out solely by the above required emlpoyees who qualfiify from an immigration and taxation standpoint as residents on the Autonomous Region.
As for the investment on fixed assets, tangible or intangible: said investment shall be realised in assets located or received within the scope of the MIBC, used within said MIBC and which are necessary to the carrying out of the business activities cundected within the scope of the MIBC. Furthermore the assets acquired must remain within the MIBC during the entire period in which it enjoys this status, or during its useful lifetime, whichever period may be shorter, without being transferred. Nor may such assets be leased or ceded to third parties for their use, unless the corporate purpose or business activity of the MIBC is such lease or cession, and provided always that there is no direct or indirect link with the lessee or transferee of the said property. It shall be understood that this requirement is not infringed when the goods are transferred and the sum of money realized is reinvested in new fixed assets under the same conditions within the space of one year. In the case of used assets, these may not have been previously applied for the purpose of an MIBC investment of another company.
The above requirements are based in the current MIBC’s regulations, advice from the Portuguese Tax and Customs Authority and best practices. Different interpretation by the European Commission, in case of audit, may apply given the state aid nature of the regime.
Limits to the Tax Benefits
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.
Need More Information?
Learn more about Madeira International Business Center (MIBC) in this Brochure.