Madeira Tax Benefits: Why Businesses are Moving to Madeira

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Madeira Tax Benefits: Why Businesses are Moving to Madeira

by | Tuesday, 25 June 2024 | Corporate Income Tax, Investment

Madeira Tax Benefits: Why Businesses are Moving to Madeira

Madeira tax benefits for companies occur mostly under the Madeira International Business Center (MIBC). 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 in 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.

The incorporation of new companies or the re-domiciliation of existing ones is subject to license availability under the MIBC applicable rules.

Madeira International Business Center

Learn more about all the Madeira tax 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 they are not residents 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 blacklisted 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 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.

Allowed Entities

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.

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.

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.

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 employees, who qualify from an immigration and taxation standpoint as residents of 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 carry out the business activities conducted 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 always provided 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 on the current MIBC regulations, advice from the Portuguese Tax and Customs Authority and best practices. Different interpretations by the European Commission, in case of an audit, may apply given the nature of the state aid regime.

Limits to the Madeira Tax Benefits under the MIBC

To prevent abuse of the existing tax benefits within the MIBC, all fully 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.

Remember, this article provides a comprehensive overview of tax advantages in Portugal. Still, for more detailed information, we recommend seeking the expertise of our team at MCS, who are here to support you throughout your business journey.

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