At a glance. The regime of Article 36.º-A of the Estatuto dos Benefícios Fiscais (EBF – the Tax Benefits Statute) is the main fiscal pillar of the Madeira International Business Centre (MIBC). In short, it taxes qualifying income at 5% in corporate income tax (IRC) until 2033, for entities licensed between 2015 and 2026. But the real red line is not the licence. It is Madeira economic substance: real jobs in the region, activity genuinely carried out from Madeira, and a benefit that matches the insularity costs it is meant to offset. This guide takes a deliberately conservative view, anchored in national and European case law.
Quick read: The 5% rate under Article 36.º-A EBF is regional operating aid, authorised because Madeira is an EU outermost region under Article 349 TFEU. National courts (the Supreme Administrative Court and the CAAD) and the European institutions (the Commission, the General Court and the Court of Justice) read these regimes the same way: the benefit follows genuine local activity and employment, not a tax number. Structures that rely on outsourcing to independent workers outside Madeira are particularly exposed.
What Article 36.º-A requires: far more than a Madeira NIF
Article 36.º-A sets out the current MIBC regime. In outline, it requires the following:
A reduced 5% IRC rate. It applies to income of entities licensed between 1 January 2015 and 31 December 2026, through to 31 December 2033, depending on the type of activity (industrial, maritime or international services).
Eligibility: employment and investment. Within six months (one year for industry and transport), the entity must meet one of two conditions. It either creates one to five jobs and invests at least €75,000 in fixed assets, or it creates six or more jobs in the same period.
Annual ceilings linked to the regional economy. The benefit is capped each year, at the taxpayer’s choice, at one of three measures tied to the Autonomous Region of Madeira: 20.1% of gross value added (GVA) generated in the Autonomous Region of Madeira, or 30.1% of annual labour costs borne in the Autonomous Region of Madeira, or 15.1% of turnover realised in the Autonomous Region of Madeira.
Plafonds set by the number of jobs. The taxable income that enjoys the 5% rate is also capped in bands tied to the number of jobs created and maintained in each year, from €2.73 million for one or two jobs, up to €205.5 million for more than one hundred.
Who counts as a job. Paragraph 5 of Article 36.º-A is precise. It counts employees on a contract of employment, paid by the licensed entity, who are tax resident in the Autonomous Region of Madeira or, if not resident, perform their activity there, or who crew vessels on the MAR register. Part-time and intermittent work counts only in proportion, on a full-time-equivalent basis. It does not count temporary-agency workers (for the user entity), occasional secondments, or plurality-of-employer arrangements where the representative employer is not MIBC-licensed.
An adequate business structure in the Autonomous Region of Madeira. Paragraph 17 tightens the territorial link. Income and costs are treated as “generated, borne or realised in the Autonomous Region of Madeira” only where they are attributable to activity carried out through an adequate business structure located in the Autonomous Region of Madeira.
From the outset, then, the legislator rules out the empty-shell model. Without a real local structure and relevant local employment, the base for the 5% rate shrinks, or disappears.
Economic substance in the national case law
The Madeira economic substance logic is not new. It was built around the earlier MIBC regimes (Article 33.º EBF), and it transfers directly to Article 36.º-A.
Virtual installation versus real presence
In its judgment of 10 April 2013, the Supremo Tribunal Administrativo (STA – the Supreme Administrative Court) examined the Article 33.º EBF exemption for credit institutions in the MIBC. It expressly refused the idea of a “virtual installation”. The exemption depended on activity effectively carried out in Madeira, through a material and human structure based there, not a legal branch running its operations from outside Madeira.
In the Court’s words: installation presupposes a physical place of operation, staff, and so on; a “virtual” installation cannot be accepted. The MIBC was created to develop the regional economy, which is only compatible with a material and human structure based locally. Activity carried out from outside Madeira could not produce effects on the regional economy, and the mere payment of the licence could not meet that objective.
This is a teleological reading. The benefit is the counterpart of a real contribution to the Madeiran economy. It is plainly relevant to Article 36.º-A.
A benefit with a “markedly territorial” character
Several arbitral rulings of the CAAD, on the MIBC and the Madeira International Shipping Register, stress the territorial nature of these benefits. They cite the preamble to Decree-Law 165/86, which created the regime, and its aim of regional development for undertakings that establish themselves in the zone.
In those cases, the CAAD emphasises three points. The incentives are designed for undertakings that carry out economic activity in the Autonomous Region of Madeira. Permanent representation in the region is required, with full powers. And mere registration, without business activity, does not unlock the exemptions.
In short, Madeira economic substance does not follow the tax number. It follows activity and structure.
The European angle: State aid and outermost regions
At the European level, the same principle governs Madeira economic substance. The MIBC is, in essence, a State aid scheme approved by the European Commission under Article 107(3)(a) TFEU, as a measure for an outermost region.
Only what offsets the additional costs of insularity is justified
In Decision 2003/442/EC, on the Azores regional tax regime, the Commission accepted that outermost regions may receive operating aid, such as reduced tax rates, that is not necessarily degressive or time-limited. But only on conditions. The aid must contribute to offsetting the additional costs of economic activity that flow from the factors in Article 349 TFEU (remoteness, insularity, small size, and so on). And its level must be proportionate to those additional costs and justified by its contribution to regional development.
This builds in a requirement of economic coherence from the start. The benefit must be linked to activity that genuinely bears the costs of insularity.
The Court of Justice: special attention to mobile sectors
In Case C-88/03, Portugal v Commission (the Azores case), the Court of Justice upheld the Commission’s approach. Tax reductions are State aid. To be compatible, they must be justified by the compensation of additional costs, and the burden of proof lies with the Member State.
The Court also recognised an important nuance. Outermost regions suffer permanent structural disadvantages, but not every sector suffers them in the same way. A highly mobile sector, the Court pointed to finance, may not face the same additional costs as a local industry.
This matters for the MIBC. The more mobile the activity, the more “remote” the service, the heavier the burden of showing that the additional costs of insularity are actually borne in Madeira.
The most recent confirmation: the Regime III recovery
The point is no longer abstract. The Commission examined how Portugal had applied an earlier version of the scheme (Regime III). In Commission Decision (EU) 2022/1414 (case SA.21259), it found two defects. Benefits had reached income that did not derive from activity carried out in Madeira, and they had gone to entities that did not create or maintain jobs in the region. The Commission ordered recovery.
The EU courts then confirmed that reading. The General Court upheld the decision on 18 December 2024, and the Court of Justice dismissed the appeal in December 2025. So the settled position, at the highest level, is exactly the one the national courts reach: the benefit cannot reach activity or jobs outside Madeira.
What this means for internationally tradeable services
This is where Madeira economic substance meets its hardest test. Many MIBC companies provide internationally tradeable services, consulting, IT, BPO, digital marketing, licensing. Technically, such a service can be delivered from anywhere. So the central question becomes blunt. Where is the activity actually carried out, and who performs it?
What an “adequate business structure” really means
Paragraph 17 requires the benefiting income to be attributable to activity carried out through an adequate business structure in the Autonomous Region of Madeira. A conservative reading, aligned with the STA and with the logic of regional aid, implies at least the following.
It implies physical premises suited to the activity. It implies staff based in the Autonomous Region of Madeira, in numbers and profile consistent with turnover, the nature of the services, and the markets served. It implies management and decision-making genuinely located in the Autonomous Region of Madeira, including BEPS-style substance functions (risk, intangibles) where relevant. And it implies technical means sufficient to deliver the services from Madeira.
For consulting, IT, BPO or digital marketing, the consequence is clear. One or two local administrative staff plus a network of outsourced freelancers is not enough. Someone must actually deliver the service from Madeira.
Who counts as a job, and who does not
For Article 36.º-A, only certain people count as a “job”. They are employees on a contract of employment, paid by the licensed entity, who are tax resident in the Autonomous Region of Madeira or non-residents performing their activity there.
That excludes several common arrangements. It excludes independent contractors (service providers), even if resident in the Autonomous Region of Madeira. It excludes temporary-agency workers, in relation to the user entity. And it excludes occasional secondments and plurality-of-employer arrangements where the representative employer is not MIIBC-licensed.
The consequences are direct. Using freelancers instead of employees does nothing for the minimum job requirement. Outsourcing through temporary-work agencies does not “fill” the job count for Article 36.º-A either.
The outsourcing trap: independent workers outside the region
Now to the specific risk, and the clearest threat to Madeira economic substance. Contracting independent workers, or service companies, outside the Autonomous Region of Madeirar raises three orders of risk at once.
First, insufficient local employment. If the MIBC company delivers its services almost entirely through freelancers on the mainland or abroad, its Madeira payroll is thin. That affects both the initial and ongoing job minimums, and the labour-cost ceiling that caps the benefit.
Second, a weakened link between income and the Autonomous Region of Madeira. If the substance of the work is performed outside Madeira, it is hard to argue that the related income is “generated in the Autonomous Region of Madeira” through an adequate local structure, as paragraph 17 requires. On an inspection, the Portuguese Tax and Customs Authority may re-attribute a significant part of the taxable base to the territory where the activity is really carried out, losing the 5% rate on that portion. In more extreme cases, it may question the application of the regime itself.
Third, incompatibility with the regional-aid rationale. For the Commission and the Court of Justice, these regimes exist to offset additional costs borne in the region. When the workers are outside the Autonomous Region of Madeira, the main suppliers are outside the Autonomous Region of Madeira, and the local structure is residual, it becomes difficult to argue that the reduced rate is offsetting insularity costs at all. That weakens Portugal’s position under any European scrutiny, much as the sectoral assessment did in the Azores case.
In other words, the very logic that justifies the benefit also withdraws it. Move the work off the island, and you remove the handicap the aid is there to address.
A conservative compliance posture
Given the legal framework and the case law, a prudent approach to Madeira economic substance should observe at least the following lines.
Significant, qualified local employment. Go beyond, where economically reasonable, the bare legal minimum of one to five jobs. Make sure the core functions, service delivery, project coordination, client management, are performed by employees in the Autonomous Region of Madeira.
Effective direction in the Autonomous Region of Madeira. Hold management meetings in Madeira. Vest executive decision-making in directors present in the region. Keep the documentation, minutes, organisation charts, delegations of power, consistent with that reality.
Outsourcing outside the Autonomous Region of Madeira kept circumscribed and accessory. Subcontract outwards only for ancillary, specialised or occasional tasks. Avoid models where all software development sits with a non-resident team, or all consulting is produced by a network of freelancers across several countries, while the Madeira entity merely invoices.
A preference for local contracting, even of independents. Where you must use independent providers, favour professionals based in the Autonomous Region of Madeira. They reinforce local GVA and economic density. Even though they do not count as “jobs”, they support the narrative of genuine local activity.
Robust documentation of substance. Keep employment and service contracts that state the place of performance. Keep attendance records, timesheets and access logs where relevant. Keep proof that Madeira’s infrastructure (offices, data centres) is actually used.
Continuous monitoring of the “in-Madeira” indicators. Track, year by year, the number of eligible jobs, the GVA generated in the Autonomous Region of Madeira, the labour costs borne in the Autonomous Region of Madeira, and the turnover realised from the Autonomous Region of Madeira. Adjust the structure, hiring, internalising functions, whenever the ratios drift toward a risk zone.
Conclusion
Article 36.º-A EBF is not an invitation to run a “services offshore” with a Madeira label. It is a regional-aid regime, designed to strengthen the Madeiran economy by offsetting insularity costs, through a reduced corporate income tax rate on income genuinely generated in the region, on the basis of local employment and a local business structure.
The case law of the Supreme Administrative Court and the CAAD reinforces this reading. It rejects purely formal installations and requires a material and human structure in the Autonomous Region of Madeira as a condition of the benefit. On the European side, the Commission and the Court of Justice have been consistent: regional tax regimes are State aid, justified only when proportionate to the additional costs actually borne in the outermost regions. Structures built on outsourcing to independent workers outside the Autonomous Region of Madeira are, for that reason, particularly vulnerable.
The message for operators and advisers is clear. Anyone who wants to benefit from the Madeira regime in internationally tradable services must take seriously into account Madeira economic substance. It is that substance, not merely the licence, that protects the benefit before the tax authority and, above all, under European scrutiny.
How MCS can help
MCS – Madeira Corporate Services is a corporate services and accounting firm based in Funchal, Madeira. We license and run companies in the Madeira International Business Centre every day, and we advise on the substance that the 5% rate depends on. We help design a Madeira-based operation that can withstand scrutiny: real jobs, real activity, and clean documentation. We work in English and Portuguese, and we deal with the tax authority directly. If your structure leans too heavily on work performed off the island, our tax compliance and accounting team can review it with you.
FAQ
What is the economic substance requirement under Article 36.º-A EBF? The 5% rate depends on real activity and employment in Madeira. The entity must create qualifying jobs (one to five plus €75,000 of investment, or six or more) and carry out its activity through an adequate business structure in the region. Income only benefits where it is attributable to that local activity.
Do freelancers or independent contractors count as jobs? No. Article 36.º-A counts employees on a contract of employment, paid by the licensed entity, who are tax resident in the Autonomous Region of Madeira or perform their activity there. Independent contractors do not count, even if resident in Madeira, and nor do temporary-agency workers for the user entity.
Why is outsourcing work outside Madeira a risk? It thins your local payroll, weakens the link between your income and the region under paragraph 17, and undermines the regional-aid rationale that the rate offsets insularity costs. The tax authority may re-attribute part of the taxable base elsewhere, or question the regime.
Can a Madeira company simply invoice internationally tradable services? Issuing the invoice is not enough. What matters is where the value-adding work is effectively performed. For the 5% rate, the substance of the service should sit in Madeira, delivered by people based there.
Has European case law settled this? Largely. From the Azores line (Decision 2003/442/EC; Case C-88/03) to the recent MIBC Regime III recovery (Decision (EU) 2022/1414, upheld by the General Court in December 2024 and confirmed by the Court of Justice in December 2025), the position is consistent: regional benefits must be proportionate to costs actually borne in the region, and cannot reach activity or jobs outside it.
This article was prepared by MCS – Madeira Corporate Services for general information purposes only. It reflects the legal and tax framework, administrative practice and case law in force as at the date of publication (8 June 2026). Tax legislation, the rules governing the Madeira International Business Centre, European State aid law and the related jurisprudence are subject to change, and may be amended, repealed or reinterpreted after that date.
Nothing in this article constitutes legal, tax, accounting or financial advice, nor an offer to provide such services, and it should not be relied upon as a substitute for professional advice on your specific circumstances. The application of Article 36.º-A of the Estatuto dos Benefícios Fiscais, the economic-substance requirements and the European case law referred to here depends on the particular facts of each case, and outcomes may differ accordingly. Reading this article does not create any client, advisory or other professional relationship between you and MCS.
The references to legislation, decisions of the European Commission and judgments of the national courts, the General Court and the Court of Justice of the European Union are provided for general guidance; the official published texts prevail. To the fullest extent permitted by law, MCS accepts no liability for any loss arising from action taken, or not taken, in reliance on this article.
Before making any decision, or implementing or amending any structure, you should obtain advice tailored to your situation. Please book a consultation with our team.
Rosana Rodrigues is a co-founder and partner of TFRA Law Firm. Her work mainly involves advising foreign investors in Portugal, particularly in areas of Corporate and Tax law. She has also worked extensively in Shipping law… Read more
