Where to Incorporate Offshore While Staying Tax Compliant

At a glance

Where to incorporate offshore while staying tax compliant is the wrong question if the assumed answer is one of the classic offshore jurisdictions. The compliant answer for an inbound corporate structure in 2026 is, in most cases, not “offshore” at all. It is an EU low-tax regime with substance. Madeira sits at the centre of that family. Companies incorporated in Madeira are subject to the Portuguese tax code in full, file the same declarations as any mainland company, and operate under the general regional CIT rate of 13.3% or, where the substance conditions of Article 36-A of the Tax Benefits Statute (EBF) are met, under the Madeira International Business Centre (MIBC) reduced rate of 5%. Neither rate is the product of an offshore structure. Both are the product of an EU substance regime authorised under the State aid framework.

“Offshore” is the wrong frame for Madeira

The label “offshore”, as used in tax-structuring conversations, refers to a specific class of small-jurisdiction regimes characterised by no or minimal corporate income tax, light substance requirements, limited transparency on beneficial ownership, restricted information exchange, and the absence from the EU’s internal market. Classic offshore jurisdictions are tracked on three lists that any serious analysis returns to: the OECD Global Forum’s assessment of jurisdictions for information exchange and the OECD list of non-cooperative jurisdictions; the EU’s list of non-cooperative jurisdictions for tax purposes (Annex I of the Council conclusions, updated twice a year); and Portugal’s own national blacklist of jurisdictions with clearly more favourable regimes, set out in Portaria n.º 150/2004 of 13 February, as most recently amended by Portaria n.º 292/2025 of 30 December, which removed Hong Kong, Liechtenstein and Uruguay from the list with effect from 1 January 2026.

Madeira does not appear on any of these lists, for the conclusive reason that it is not a jurisdiction in the international tax sense. Madeira is an autonomous region of the Portuguese Republic, a Member State of the European Union since 1 January 1986. The fiscal autonomy that Madeira exercises is the fiscal autonomy permitted to it under Portuguese constitutional law and under the Lei de Finanças das Regiões Autónomas (Lei Orgânica n.º 2/2013, as amended). The tax regimes available in Madeira, whether the general regional CIT or the MIBC, are Portuguese tax regimes operating under the Portuguese tax code, the EU directives that Portugal has transposed, the OECD instruments to which Portugal is a party, and the Pillar Two global minimum tax framework as implemented by Portugal under Lei n.º 41/2024.

The question of “where to incorporate offshore” therefore loses its operational sense the moment the inbound investor is told what Madeira actually is. The right question is where to incorporate within a low-tax substance regime that is fully tax compliant. The answer is shaped by the activity, the group structure, the Pillar Two perimeter, and the substance the investor can credibly build.

Madeira’s general regional corporate tax: 13.3% CIT in 2026

The first of the two Madeira regimes is the simplest. A company incorporated in Madeira, with its registered office and effective management in the region, is taxed on its profits at the general Madeira regional CIT rate. Under the Lei das Finanças Regionais, the Madeira Legislative Assembly is empowered to reduce the mainland Portuguese CIT rate by up to 30%, and that is the reduction currently applied under the Madeira regional budget framework. With the mainland 2026 CIT rate set at 19% (down from 20% in 2025, with the Portuguese government’s announced trajectory at 18% from 2027 and 17% from 2028), the Madeira general regional rate works out at 13.3%.

For small and medium-sized enterprises and small-mid-cap companies on the first EUR 50,000 of taxable base, the mainland reduced rate of 15% applies in 2026 (down from 16% in 2025). With the 30% regional reduction, the equivalent Madeira regional SME rate on that first slice is 10.5%.

Two practical points follow. First, this rate applies to any company resident for tax purposes in Madeira, with no licensing requirement, no minimum substance threshold beyond the ordinary substance test (effective management and economic activity in Madeira), and no taxable-income ceiling. Second, the Madeira general regional CIT is layered with the standard municipal surtax (derrama municipal) and the state surtax (derrama estadual) where the income tiers are met. The municipal surtax is collected for the benefit of the municipality of fiscal domicile and is calibrated under Article 18.º of Lei n.º 73/2013 (Regime Financeiro das Autarquias Locais); the state surtax applies in tiers from EUR 1.5 million of taxable profit upwards, under Article 87.º-A of the CIRC.

A company looking for a competitive corporate tax position in an EU Member State, without the substance investment that the MIBC requires, finds in the Madeira general regional rate of 13.3% a structurally lower CIT than the mainland Portuguese rate, the standard EU mid-tier rates, and most large EU economies, while remaining fully within the Portuguese and EU regulatory perimeter.

The Madeira International Business Centre: 5% CIT under substance conditions

The Madeira International Business Centre (Centro Internacional de Negócios da Madeira, CINM, also referred to as the Madeira International Business Centre or MIBC) is the substantive low-tax regime that has made Madeira a competitive jurisdiction for inbound structuring since the 1980s. The current iteration, Regime IV, is grounded in Article 36-A of the EBF and operates under the State aid authorisation granted by the European Commission in Decision SA.51983 (2021), with subsequent extension.

Under the Madeira International Business Centre, companies licensed to operate from the region benefit from a reduced corporate income tax rate of 5% on the taxable income generated from their licensed activity, subject to substance conditions calibrated by job creation, taxable-income tiers, and minimum investment commitments. The reduced rate is applicable until 31 December 2033, by reference to taxable income generated up to that date, for entities that obtain their MIBC licence by 31 December 2026 (the new-licence deadline confirmed by the State Budget Law for 2026 and surfaced in the MCS pipeline on 11 May 2026).

The MIBC reduced rate operates alongside a set of secondary benefits: exemption from withholding tax on dividends paid to non-resident shareholders (subject to the ordinary EU Parent-Subsidiary Directive conditions and Article 14.º of the CIRC); exemption from withholding on interest and royalties under the EU Interest and Royalties Directive and Article 14.º-A of the CIRC; an 80% exemption from stamp duty on transactions with non-residents; an 80% exemption from notarial fees and registration fees on instruments executed by MIBC companies with non-residents; an 80% exemption from the municipal property tax (IMI) on properties used by MIBC companies for their activity; and similar 80% reductions in the municipal property transfer tax (IMT) and the municipal surtax (derrama municipal) on MIBC-licensed activity.

None of these benefits, taken individually or in combination, constitutes an “offshore” position. Each is a statutory regime under the Portuguese tax code, designed and authorised within the EU State aid framework, available only on satisfaction of substance conditions, and reported in full to the AT under the standard declarative obligations.

What MIBC requires under Article 36-A EBF

Article 36-A of the EBF makes the reduced 5% CIT rate conditional on three structural requirements: real economic activity carried on in Madeira, job creation calibrated to the income tier, and (in the alternative or in addition, depending on the activity) a minimum investment in the acquisition of tangible or intangible fixed assets located in the region.

The job-creation thresholds operate as a stepped scale, by reference to the taxable income on which the 5% rate is applied. The scale operates as follows (figures to verify against the current consolidated text of Article 36-A EBF):

For entities in the 1-to-5 jobs band, Article 36-A EBF provides an alternative or cumulative substance route through a minimum investment in fixed assets located in Madeira, in an amount of EUR 75,000 within the first two years of activity. Where the taxable income exceeds the ceiling applicable to the relevant job-creation tier, the excess is taxed at the general Madeira regional rate, not at the MIBC reduced rate.

Article 36-A EBF also imposes general benefit ceilings designed to anchor the regime within the EU State aid limits. The total tax benefits obtained by an MIBC entity in a year cannot exceed the lower of three caps: 20.1% of the gross value added (GVA) generated by the entity in the region, 30.1% of the labour costs incurred annually in the region, or 15.1% of the annual turnover. These caps ensure that the reduced rate tracks substantial economic activity in the region rather than serving as a flat fiscal arbitrage.

Certain activities are excluded from the MIBC regime, including financial intermediation, insurance, and intra-group financial and insurance services performed for related parties. The exclusions are calibrated to reflect the EU State aid framework and the political context in which the regime is renewed periodically.

For a company assessing the MIBC against alternatives, the calculus is straightforward. Where the activity can credibly support the substance commitment (jobs in the region, real economic activity, GVA generated locally), the 5% rate is materially lower than the general Madeira regional rate, the mainland Portuguese rate, and the rates obtained in most EU substance regimes. Where the substance commitment is not credible, the 5% rate is not available, the general regional rate of 13.3% is the working position, and the choice between Madeira and other EU low-tax regimes is decided on operational and commercial grounds.

How EU and OECD frameworks distinguish Madeira from classic offshore jurisdictions

The structural feature that separates Madeira from a classic offshore jurisdiction is the regulatory perimeter. Madeira sits inside every framework that defines whether a jurisdiction is or is not offshore for international tax purposes.

Madeira applies the full corpus of EU directives transposed by Portugal. The Anti-Tax Avoidance Directive (ATAD I and ATAD II) is in force. The Administrative Cooperation Directives (DAC1 through DAC9), including the automatic exchange of information on financial accounts under DAC2 / CRS, the country-by-country reporting under DAC4, the mandatory disclosure of cross-border arrangements under DAC6, the platform economy reporting under DAC7, the crypto-asset reporting framework under DAC8, and the Pillar Two reporting layer under DAC9, all apply to Madeira-resident entities on the same terms as mainland entities. The EU Anti-Money Laundering Directives (AMLD4, AMLD5, AMLD6) and the Anti-Money Laundering Regulation (AMLR, applicable from 10 July 2027) bind Madeira-resident obliged entities in full, supervised under the Portuguese AML framework (Lei n.º 83/2017 and the Banco de Portugal regulatory architecture). The beneficial ownership register (Registo Central do Beneficiário Efetivo, RCBE), governed by Decreto-Lei n.º 115/2025, applies to all Portuguese entities, Madeira-resident entities included.

Pillar Two applies. The OECD Pillar Two global minimum tax regime, transposed into Portuguese law by Lei n.º 41/2024, is in force for fiscal years beginning on or after 1 January 2024 (the UTPR rule applying from fiscal years beginning on or after 1 January 2025). For an MIBC entity that forms part of a multinational group with consolidated revenue above EUR 750 million in two of the four preceding fiscal years, the 5% effective rate of the MIBC is subject to a top-up tax mechanism that brings the effective rate to the 15% global minimum. The top-up is, in operational terms, calculated and paid through the qualifying domestic minimum top-up tax (QDMTT) provided for under the Portuguese implementation, ensuring that the Portuguese treasury collects the difference rather than another jurisdiction. For groups below the Pillar Two threshold, including the substantial majority of inbound MIBC clients, the 5% rate continues to operate as designed.

OECD information exchange is in force. Portugal is a signatory of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, the CRS Multilateral Competent Authority Agreement, the Country-by-Country Reporting Multilateral Competent Authority Agreement, and the Multilateral Instrument (MLI) implementing BEPS treaty-related measures. Madeira is within the same exchange architecture, with no separate jurisdictional treatment.

Portugal applies the FATF standards through the Banco de Portugal supervisory framework. Madeira-resident obliged entities (banks, asset managers, accountants, lawyers, real estate intermediaries) are subject to the same customer due diligence, beneficial ownership identification, transaction monitoring, and suspicious activity reporting obligations as mainland entities.

In short, every framework that defines the regulatory perimeter of a non-offshore jurisdiction binds Madeira on the same terms it binds mainland Portugal. The MIBC reduced rate of 5% operates inside that perimeter as a State-aid-authorised substance regime, not outside it as a black-box low-tax flag.

What Portugal’s own tax-haven blacklist shows

The clearest formal evidence that Madeira is not an offshore is that Portugal, which maintains one of the more developed national tax-haven blacklists in the EU, does not list Madeira on it. The Portuguese blacklist, contained in Portaria n.º 150/2004 of 13 February (as amended), enumerates the jurisdictions with which Portuguese taxpayers face aggravated tax treatment under multiple provisions of the CIRS, CIRC, EBF, and CIMT (the latter applying surcharges on real estate held through tax-haven structures, recently litigated before the CJEU in the Meritpanorama reference C-661/25 surfaced in the MCS pipeline on 12 May 2026). The blacklist was last amended by Portaria n.º 292/2025 of 30 December, which removed Hong Kong, Liechtenstein and Uruguay from the list with effect from 1 January 2026.

The structural point is that a sovereign state does not blacklist its own jurisdiction or regions thereof. Portugal cannot list Madeira as a tax haven, because Madeira is part of Portugal. But the same is true at the EU level. The EU’s list of non-cooperative jurisdictions, contained in the Annex to the Council conclusions on EU policy on non-cooperative jurisdictions for tax purposes (updated semi-annually, most recently in February 2026), does not list any EU Member State or any region of a Member State. Madeira is therefore, by EU law, not on the EU list of non-cooperative jurisdictions. It is in the white space that the list does not reach, by design.

The implication for a Portuguese resident company, an EU resident shareholder, or a third-country resident investing through a Portuguese structure is meaningful. Investments routed through a Madeira-resident MIBC company are not subject to the aggravated tax treatment that Portuguese law applies to investments routed through blacklisted jurisdictions. The CFC rules under Article 66.º of the CIRC, the participation-exemption denial under Article 51.º of the CIRC, the increased withholding rates under Article 87.º of the CIRC, the IMT and IMI surcharges under the relevant Codes, and the aggravated stamp duty treatment all operate on a “passes through a blacklisted jurisdiction” trigger that a Madeira structure does not pull.

Practical takeaways for inbound corporate structuring

1. Madeira is not an offshore in any legally meaningful sense. It is an EU low-tax substance regime, fully inside the OECD, EU, FATF, and Portuguese regulatory perimeters. The “offshore” label, where applied to Madeira, reflects loose usage rather than a technical position.
2. Two distinct Madeira regimes exist. The general regional CIT of 13.3% in 2026 applies to any Madeira-resident company without licensing or substance conditions beyond effective management in the region. The MIBC reduced rate of 5% applies to entities licensed under Article 36-A EBF, on satisfaction of job-creation, taxable-income, and investment substance conditions.
3. The MIBC requires real substance. Job creation in the region, GVA generation, and (for small entities) an investment in fixed assets located in Madeira are the structural conditions. The regime cannot be operated as a brass-plate construct.
4. Pillar Two is decisive for in-scope groups. For multinational groups above the EUR 750 million consolidated revenue threshold, the MIBC’s 5% rate is topped up to the 15% global minimum through the Portuguese QDMTT mechanism. For groups below the threshold (the substantial majority of inbound MIBC clients), the 5% rate continues to operate.
5. The new-licence window closes on 31 December 2026. Entities that obtain a MIBC licence by that date benefit from the reduced rate until 31 December 2033. Inbound structuring decisions that contemplate the MIBC should be calendared accordingly.
6. The general regional 13.3% is a serious alternative. Where the substance commitment of the MIBC is not credible, the general regional rate of 13.3% remains structurally competitive within the EU. Inbound investors who would otherwise look to classic offshore jurisdictions for a low-tax position find in Madeira an EU jurisdiction with a comparable headline rate and a fundamentally different regulatory posture.

Where MCS can assist

Madeira Corporate Services advises Portuguese and foreign clients on the corporate, fiscal, and compliance work that an inbound Madeira structure requires. The scope of services includes: assessment of the appropriate Madeira regime (general regional CIT at 13.3% or MIBC at 5%) by reference to the activity, the substance the investor can credibly build, and the Pillar Two perimeter of the group; preparation and submission of the MIBC licence application within the 31 December 2026 window; design of the corporate, employment, and asset structure to meet the Article 36-A EBF substance conditions; ongoing tax and accounting compliance for Madeira-resident entities, including coordination with the Pillar Two Modelo 62 (RIMG) filing and the standard Modelo 22 IRC declaration; bank account opening and operational set-up; corporate secretarial work, including beneficial ownership registration with the RCBE; and tax controversy work where the Madeira regime engages with cross-border tax positions. Each engagement is subject to a case-by-case review of the client’s facts, the relevant statute, regulatory, and treaty position, and the procedural calendar in train.

FAQ

Is Madeira an offshore jurisdiction?

No. Madeira is an autonomous region of Portugal, a Member State of the European Union, fully inside the OECD, EU, FATF, and Portuguese regulatory perimeters. Madeira does not appear on the OECD list of non-cooperative jurisdictions, the EU list of non-cooperative jurisdictions for tax purposes, or Portugal’s own blacklist under Portaria n.º 150/2004 (as amended).

What is the corporate income tax rate in Madeira?

There are two rates. The general Madeira regional rate is 13.3% in 2026, reflecting a 30% regional reduction on the mainland Portuguese rate of 19%. The Madeira International Business Centre (MIBC) reduced rate is 5%, available to licensed entities on satisfaction of substance conditions under Article 36-A of the Tax Benefits Statute (EBF).

Who qualifies for the MIBC 5% rate?

Entities licensed under the Madeira International Business Centre regime, on creation of a minimum number of jobs in the region (calibrated to the taxable-income tier) and, in the 1-to-5 jobs band, a minimum investment of EUR 75,000 in fixed assets located in Madeira within the first two years of activity. The licence must be obtained by 31 December 2026 for the reduced rate to apply until 31 December 2033.

Is the MIBC regime EU-compliant?

Yes. The current Regime IV is authorised by the European Commission under State aid Decision SA.51983 (2021), within the EU regional aid framework. The regime is subject to specific benefit ceilings (20.1% of GVA, 30.1% of annual labour costs, or 15.1% of annual turnover, whichever is lowest) to anchor the reduced rate to substantial economic activity in the region.

Does Pillar Two apply to MIBC companies?

Yes, for in-scope multinational groups. The OECD Pillar Two global minimum tax regime, transposed in Portugal by Lei n.º 41/2024, applies to multinational groups with consolidated revenue above EUR 750 million in two of the four preceding fiscal years. For these groups, the 5% MIBC effective rate is topped up to the 15% global minimum through the Portuguese QDMTT mechanism. Groups below the threshold are not affected.

Are Madeira companies subject to Portuguese reporting obligations on the same terms as mainland companies?

Yes. Madeira-resident entities file the IRC Modelo 22 declaration on the same terms as mainland entities, file the IES dossier fiscal on the same terms, comply with the Modelo 30 reporting on payments to non-residents, comply with the Modelo 39 reporting on certain financial instruments, and report under the RCBE beneficial ownership register and the CRS / DAC architecture on the same terms as mainland entities.

What is the practical alternative to Madeira for a low-tax EU position?

The set of EU Member States with substance-based low-tax corporate regimes is limited and changes over time as Pillar Two and the EU State aid framework evolve. The right choice in any given case depends on the activity, the group structure, the Pillar Two perimeter, the substance the investor can credibly build, and the operational considerations (language, time zone, regulatory access, banking, talent base) that drive long-term execution. A case-by-case assessment is the only basis for a sound decision.

The information set out in this article is provided for general informational purposes and does not constitute legal, tax, or financial advice. The corporate income tax rates referenced (mainland 19%, Madeira general regional 13.3%, MIBC 5%), the thresholds referenced (the EUR 50,000 SME tier, the Article 36-A EBF taxable-income ceilings, the EUR 750 million Pillar Two threshold), and the regulatory references are accurate as at the date of preparation, to the best of our knowledge. Tax rates and ceilings move with the annual State Budget Law (Lei do Orçamento do Estado) and the periodic updating of the EBF, and may have been updated subsequently. Each matter requires a case-by-case review of the facts, the applicable statutes, treaty positions, and Pillar Two perimeter before any incorporation or restructuring decision is taken. Readers should not act, or refrain from acting, on the basis of the content of this article without first seeking professional advice from Madeira Corporate Services or another competent adviser. Madeira Corporate Services accepts no liability for actions taken in reliance on the information set out above.

Miguel Pinto-Correia

Miguel Pinto-Correia holds a Master Degree in International Economics and European Studies from ISEG – Lisbon School of Economics & Management and a Bachelor Degree in Economics from Nova School of Business and Economics. He is a permanent member of the Order of the Economists (Ordem dos Economistas)… Read more