The Madeira archipelago is part of Portugal and is located in the Atlantic Ocean, 978km southwest of Lisbon. The island of Madeira was discovered in 1419 by the Portuguese navigator João Gonçalves Zarco; the first Portuguese Discovery during Europe’s Age of Discoveries and Exploration, and the start of a period in history where Portugal became one of the key players in global trade and commerce.
Today, almost six centuries later, Portugal is regaining global relevance. Due to the Non-Habitual Residents tax program implemented in 2009 and the Golden Visa residency program introduced in 2012, Portugal has become one of the main ‘Start Up’ centres in the world and the preferred choice for relocation of companies and highly qualified professionals and their families.
The first Portuguese initiative, aimed at attracting highly qualified professionals and businesses during the “Modern Era”, started in 1980 with the creation of the Madeira Free Trade Zone. Also known as the “Madeira International Business Centre”, the MIBC, was sanctioned by the European Union (EU) upon Portugal’s entry into the EU, with the aim of diversifying the regional economy which was previously dependent on agriculture and tourism in the 1980’s.
The MIBC policies, consisting of a set of incentives predominantly of a tax nature, were authorised by the EU for a limited period of time (currently extended to the end of 2027), and granted based on the objective of attracting international and domestic investment into Madeira. Under the EU supervision and protection, the MIBC is recognised as the most efficient mechanism in which to modernise, diversify and internationalise the economy of the island and to attract foreign investment to Portugal.
Although created more than 30 years ago, the legal framework of the Madeira International Business Centre continues to be an efficient and clearly defined structure in regard to transparency, compliance and economical substance.
The Madeira International Business Centre Tax Regime
Businesses registered in the MIBC benefit from the following tax advantages:
- Reduced corporate income tax rate of 5% is applicable to active income (such as income resulting from trading activities or provision of services, etc.).
- Under Portugal’s Participation Exemption Method, Madeira companies are exempt from withholding tax on the distribution of dividends, if certain conditions are met.
- The participation exemption regime is also applicable to:
- capital gains received by the MIBC entity (a minimum of 10% ownership, held for 12 months, is required)
- by the sale of its subsidiaries, and
- on the payment of capital gains to the shareholders, by the sale of the MIBC company.
- Exemption from withholding tax on interest, service fees and royalties paid to non-residents.
- Exemption from stamp duty, property tax, property transfer tax, and regional and municipal surcharges (subject to an 80% limitation per tax, transaction, or period).
- Application of the double taxation treaties signed by Portugal.
- Application of the investment protection treaties signed by Portugal.
Madeira International Business Centre Conditions
- The MIBC company must apply for a Government Licence.
- The reduced corporate income tax rate on income (5%) is applicable when the income is derived from an international activity, i.e. outside Portugal, or, when in Portugal, the business relationship is with another MIBC company.
- The capital gains tax exemption (applicable to the sale of shares in the MIBC company) is not applicable to shareholders who are considered tax resident in Portugal or within a “tax haven”.
- Exemption from Real Estate Transfer Tax (IMT) and Municipal Property Tax (IMI) only for properties exclusively used for the company’s business.
One of the important features of the Madeira International Business Centre regime is that the law clearly defines appropriate substance requirements to be met in order for the company to obtain its tax benefits. These substance requirements lie essentially in the creation of jobs.
There are two stages in which MIBC companies need to comply with substance requirements:
- After the incorporation of the company (one-off requirement):
- Within the first 6 months of activity of the company, the company must hire at least 6 workers, OR;
- During the first 2 years of activity, the MIBC Company must invest €75,000 in the acquisition of tangible or intangible fixed assets.
- On an ongoing basis:
- The company must have at least one employee on its payroll, paying Portuguese individual income tax and social security. This employee can be the Director or Board Member of the MIBC company.
The corporate tax rate of 5% applies to a company’s taxable income, the limit of which depends on the number of jobs created. These figures are detailed below:
How can Dixcart Help?
- Dixcart provides a complete range of services related to the incorporation of a company and its day-to-day obligations; from bookkeeping through to tax compliance.
- Dixcart has a strong network of contacts within the wider professional and commercial sectors, both on the island of Madeira and mainland Portugal, and can introduce businesses to relevant individuals.
- Dixcart experts can assist entrepreneurs and their families in relocating to Portugal and obtaining the necessary residence permits.
- Dixcart operates two Business Centres in Madeira, both of which are located in the central commercial area of Funchal, the capital of Madeira. Our serviced offices provide a productive work environment and an effective option for organisations with international interests wishing to operate from the island, whilst meeting substance requirements. For more information on the Dixcart business Centre in Madeira, please refer to Dixcart Article: IN401 Dixcart Business Centres in Madeira: Serviced Offices for International Companies and for Co-Working.
If you require further information regarding this topic and the types of company and tax frameworks available in Portugal and/or the types of visa and residency options, please speak to your usual Dixcart contact, or to Carlos Santos at the Dixcart office in Portugal: firstname.lastname@example.org - https://www.linkedin.com/in/carlosperdigaosantos.