Unlocking IBC Madeira: Everything you need to know

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Unlocking IBC Madeira: Everything you need to know

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

Unlocking IBC Madeira: Everything you need to know

The income of entities licensed to operate in the International Business Centre of Madeira (IBC Madeira) is subject to Corporate Income Tax (CIT) until 31 December 2027, at a rate of 5%, in the following situations:

Entities licensed within the scope of the industrial free zone: in relation to income derived from carrying out activities of an industrial nature, as well as ancillary or complementary activities.

Entities licensed to carry out maritime and air transport activities: in relation to income derived from carrying out the licensed activity, except for income from transporting passengers or cargo between national ports.

Other entities not mentioned in the previous paragraphs: in relation to income derived from their activities within the institutional framework of the IBC Madeira, if they relate to transactions carried out with entities established in the IBC Madeira or with non-residents in Portuguese territory, except for permanent establishments located outside the IBC Madeira.

Entities wishing to benefit from this regime must start their activities within six months, except for industrial activities or maritime and air transport, for which the deadline is one year from the date of licensing.

Eligibility requirements

To benefit from this scheme, organisations must meet the following requirements:

Job creation: Between one and five jobs in the first 6 months of activity, make a minimum investment of EUR 75,000 in acquiring tangible or intangible fixed assets in the first two years of activity. The minimum investment is not required if 6 or more jobs are created in the first 6 months.

The application of the reduced corporate income tax rate is subject to the following limits on taxable profit, depending on the number of jobs created or maintained in each tax year:

1 to 2 employees: EUR 2.73 million

3 to 5 employees: EUR 3.55 million

6 to 30 employees: EUR 21.87 million

31 to 50 employees: EUR 35.54 million

51 to 100 employees: EUR 54.68 million

More than 100 employees: EUR 205.5 million

It is important to emphasise that all the economic activity of the company licensed in the MFZ must be carried out exclusively by the workers required above who qualify from a migratory and fiscal point of view as residents of the Autonomous Region.

Conditions for Investments in Fixed Assets

Regarding investment in fixed assets, whether tangible or intangible: said investment shall be made in assets located or received within the MIBC of Madeira, used in said IBC Madeira and which are necessary for carrying out the business activities envisaged within the scope of said IBC Madeira. Furthermore, the assets acquired must remain in the MIBC of Madeira for the duration of its status or the duration of its useful life, whichever is shorter, without being transferred. Nor may such assets be leased or assigned to third parties for their use unless the corporate purpose or commercial activity of the IBC Madeira is such leasing or assignment, and always if there is no direct or indirect link with the lessee or assignee of said property. It should be understood that this requirement is not infringed when the assets are transferred, and the amount realised is reinvested in new fixed assets under the same conditions within one year. In the case of used assets, they must not have previously been used for the purposes of another company’s IBC Madeira investment.

Interpretations and Audits

The above requirements are based on current IBC Madeira regulations, Portuguese Tax and Customs Authority guidance, and best practices. Given the scheme’s nature of state aid, the European Commission may apply a different interpretation in the event of an audit.

Taxable income that exceeds the above limits is subject to the general corporate income tax rate of 21 per cent (mainland Portugal) and 14.7 per cent (Madeira Autonomous Region and Azores Autonomous Region).

Limits on Tax Benefits

The tax benefits granted to companies authorised to operate in the MFZ are also limited to one of the following amounts:

  • 20.1 per cent of the gross added value obtained in the tax year in question.
  • 30.1% of the labour costs incurred in the fiscal year in question.
  • 15.1 per cent of the turnover obtained in the relevant tax year.

This framework provides a clear and objective overview of the tax requirements. Its benefits apply to entities operating in the Madeira Free Trade Zone, allowing for a detailed understanding of the obligations and advantages arising from this special regime.

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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