Madeira Company Formation: A Guide

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Madeira Company Formation: A Guide

by | Friday, 26 May 2023 | Corporate Income Tax, Investment

madeira company formation

Madeira, an autonomous region of Portugal, offers a highly attractive environment for businesses and investors looking to incorporate a company. With favourable corporate tax rates, an easy incorporation process, and access to the European market, Madeira is becoming an increasingly popular choice for entrepreneurs. This comprehensive guide will walk you through the process of Madeira company formation, discussing the benefits, requirements, and steps involved in setting up a business in the region.

Introduction to Madeira

Madeira is an archipelago located in the Atlantic Ocean, southwest of Portugal. As an autonomous region of Portugal, Madeira has its own government and administrative structure, which allows for a degree of flexibility in terms of economic policies and regulations. Madeira is part of the European Union and the Eurozone, making it an attractive destination for businesses seeking access to European markets.

Benefits of Incorporating in Madeira

There are numerous advantages to incorporating a company in Madeira, including the following:

  • Favourable Corporate Tax Rates: Madeira offers competitive corporate tax rates, including a general corporate tax rate of 5% for companies operating within the Madeira International Business Centre (MIBC). Additionally, there are potential exemptions or reduced rates on withholding tax on dividends, depending on specific conditions.
  • Access to European Markets: As a part of Portugal and the European Union, Madeira provides businesses with access to the European market, including the free movement of goods, services, and capital within the EU.
  • Stable Regulatory Environment: Madeira operates under Portuguese law and European Union regulations, providing a stable and predictable regulatory environment for businesses.
  • Skilled Workforce: Madeira boasts a well-educated and skilled workforce with high proficiency in English and other European languages.
  • Attractive Lifestyle: Madeira offers a high quality of life with a mild climate, beautiful landscapes, and a safe environment.

Types of Companies in Madeira

Several types of companies can be incorporated in Madeira, including:

  • Limited Liability Company (Sociedade por Quotas): This is the most common type of company in Madeira and requires at least one shareholder. There is no minimum share capital requirement for this type of company.
  • Stock Company (Sociedade Anonima): This type of company requires a minimum share capital of €50,000 and can be incorporated with one shareholder. Stock companies are subject to additional regulatory requirements, such as the appointment of an Audit Committee.
  • Holding Company (SGPS): A holding company can be established to manage and control other companies and may benefit from tax exemptions on dividends received from subsidiary companies.

Madeira Tax Benefits

Madeira offers several tax benefits for companies operating within the region, including:

  • General Corporate Tax Rate: Companies operating within the MIBC benefit from a reduced corporate tax rate of 5%, applicable to profits derived from clients that do not qualify as residents for tax purposes in Portuguese territory and provided economic substance requirements are met. Otherwise, a general corporate tax rate of 14,7% applies (vs. the 21% in mainland Portugal).
  • Small-Medium Enterprises (SMEs) Tax Rate: SMEs may benefit from a reduced corporate tax rate on the first €25,000 of profit, with rates of 11.7% in Madeira compared to 19% in mainland Portugal.
  • Withholding Tax on Dividends: Depending on specific conditions, companies in Madeira may benefit from exemptions or reduced rates on withholding tax on dividends. This includes a 0% rate for qualifying shareholders and participation exemptions as outlined in Council Directive 2011/96/EU.
  • VAT Rates: Madeira offers lower VAT rates compared to mainland Portugal, with an average rate of 22%vss. 23% in mainland Portugal), an intermediate rate of 12% (vs. 13% in mainland Portugal), and a reduced rate of 5% (vs. 6% in mainland Portugal).

5. Madeira International Business Centre (MIBC)

The Madeira International Business Centre (MIBC) is a special economic zone established in Madeira, offering attractive tax benefits and a supportive business environment for companies operating within its jurisdiction. Companies incorporated within the MIBC are subject to specific requirements, including having a minimum investment in fixed tangible or intangible assets and employing a specified number of full-time local employees.

Madeira company formation process

The process of incorporating a company in Madeira is relatively straightforward and can be broken down into the following steps:

  1. Apply for the Certificate of Name Approval: This is completed online through the RNPC website and must be submitted by one of the company’s future shareholders or a designated representative. The application must include the proposed company name, social object, and business activities, along with the intended location of the registered office.
  2. Prepare and Formalize the Incorporation Act Document: This document outlines the company’s articles of association and must be signed by all shareholders or their designated representatives. The document must also include information on the company’s director(s) and remuneration and a statement regarding the company’s share capital.
  3. Register the Company: With the Certificate of Name Approval and the Incorporation Act Document in hand, the company can be registered with the Commercial Registry Office. Additional documents may be required, such as declarations of acceptance for the director(s) and a list of ultimate beneficial owners.

Required Documents for Madeira Company Formation

The following documents are typically required for Madeira’s company formation:

  • Certificate of Name Approval
  • Incorporation Act Document, signed by all shareholders or their representatives
  • Declarations of acceptance for the director(s)
  • List of ultimate beneficial owners
  • Proof of share capital subscription
  • Additional documents, as required by the Commercial Registry Office

Post-Incorporation Steps

Once the company has been incorporated, several additional steps must be completed:

  • Initiate Activity with Tax Services: The company must initiate its activity with the tax services within 15 days of incorporation.
  • Register with Social Security: The company and its director(s) must register with the Portuguese social security system.
  • Obtain Necessary Licenses and Permits: Depending on the nature of the company’s business activities, additional licenses and permits may be required.

Opening a Bank Account in Madeira

After incorporation, a company in Madeira must open a bank account to facilitate its financial transactions. This can be done with a local bank in Madeira or with a foreign EU bank. The bank account opening process typically requires the following documents:

  • Certificate of company registration
  • Company articles of association
  • Proof of tax identification number
  • Identification documents for the company’s director(s) and ultimate beneficial owner(s)

Ongoing Compliance and Reporting Requirements

Companies incorporated in Madeira must adhere to ongoing compliance and reporting requirements, which may include:

  • Annual financial statements and tax returns
  • Regular social security contributions
  • VAT reporting and payments, if applicable
  • Maintenance of accounting records and supporting documentation

In conclusion, Madeira’s company formation happens in a highly attractive environment, with favourable tax rates, a stable regulatory environment, and access to the European market. By following the steps outlined in this guide and ensuring compliance with ongoing requirements, businesses can successfully establish and operate within the Madeira International Business Centre.

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