Portugal offers a robust and transparent framework for corporate tax optimisation, attracting companies from start-ups to global multinationals. The country combines a competitive tax regime with access to the European Union’s internal market, making it a strategic hub for international expansion.
A Favourable Environment for Global Business
Portugal’s corporate income tax system rewards investment, innovation, and internationalisation. The standard corporate income tax (CIT) rate is 20% on the mainland and 14.7% in Madeira. Companies licensed under the International Business Centre of Madeira (IBC or MIBC) enjoy a reduced 5% rate on qualifying income until 2028 (extension expected), subject to EU-approved substance requirements.
Foreign investors benefit from full access to Portugal’s extensive network of more than 80 double taxation treaties. This ensures profits are not taxed twice and facilitates tax-efficient repatriation of income across borders.
Leveraging the Participation Exemption Regime
A cornerstone of corporate tax optimisation in Portugal is the participation exemption regime. Dividends and capital gains from qualifying shareholdings—held for at least 12 months and representing 10% or more of the subsidiary’s capital gains are exempt from tax.
This regime enables multinational groups to centralise European or global holdings in Portugal, achieving near-zero effective taxation on intra-group profit distributions. When combined with the IBC framework, holding structures can operate at an effective tax rate of 5% while remaining fully compliant with EU law.
International Business Centre of Madeira (IBC): 5% Corporate Rate
The Madeira IBC offers one of Europe’s most advantageous corporate environments. Companies engaged in international services, trading, or holding activities can benefit from:
- 5% corporate income tax on qualifying profits;
- Exemption from withholding tax on dividends, interest, and royalties paid to non-residents;
- Participation exemption for global dividends and capital gains;80% reductions in municipal and stamp taxes;
- Eligibility for Portugal’s treaty network and EU directives.
These advantages apply only to entities with genuine economic substance in the Madeira Islands. Companies must either create local employment or invest a minimum of €75,000 in tangible or intangible assets, ensuring their structure complies with EU State-aid compliance standards.
Double Taxation Relief and Transfer Pricing Compliance
Portugal applies the OECD Model Convention and provides both unilateral and treaty-based relief from international double taxation. This allows foreign tax paid on income to be credited against Portuguese CIT, within certain limits.
At the same time, the Portuguese transfer pricing regime, fully aligned with OECD guidelines, requires related-party transactions to follow the arm’s-length principle. Proper documentation is essential for defending intercompany pricing and securing predictable tax outcomes.
Intellectual Property and Innovation Incentives
Companies engaged in innovation can benefit from Portugal’s Patent Box regime, which exempts 50% of income derived from patents, software, and industrial designs. Combined with R&D incentives and the Tax Incentive for Scientific Research and Innovation (IFICI), this framework rewards knowledge-based investment and strengthens long-term corporate competitiveness.
Holding Structures and Repatriation Efficiency
Madeira-based holding companies (SGPS) are widely used for structuring international investments. They combine EU participation exemptions with treaty benefits and access to the EU Parent-Subsidiary Directive and the Interest-Royalties Directive. Properly managed, these structures enable tax-efficient repatriation of profits, dividends, and capital gains without the risks associated with non-compliant jurisdictions.
Building a Sustainable and Compliant Tax Strategy
Effective corporate tax optimisation in Portugal relies on strategic planning, substance, and continuous compliance. Structures must reflect genuine business activities, economic reality, and alignment with EU transparency standards.
Engaging professional advisors ensures that every step, from incorporation and accounting to substance management and cross-border planning, complies with both Portuguese and international tax laws.
About MCS
With over 25 years of experience, MCS assists international companies in establishing and managing their operations in Portugal and the Madeira Islands. Our multidisciplinary team supports clients through corporate restructuring, accounting, and compliance services, ensuring secure and sustainable growth within the European framework.
This article is for informational purposes only and does not constitute legal or tax advice on Corporate Tax Optimisation. Readers should seek professional counsel before acting on the information provided.
The founding of Madeira Corporate Services dates back to 1996. MCS started as a corporate service provider in the Madeira International Business Center and rapidly became a leading management company… Read more
