Invest in the International Business Center of Madeira
The International Business Center of Madeira (IBC) offers very advantageous conditions for the incorporation of new companies, including a corporate tax rate of only 5%. Trading, consultancy, holding companies and international services companies, industrial activities, among others, may be registered in the IBC. Companies registered in the IBC must comply with some eligibility requirements and have an adequate level of substance, located in Madeira.
Here are a few of the key elements:
- Reduced corporate income tax rate: 5% (until 2027);
- Participation exemption regime applicable internationally to dividends, reserves, capital gains and capital losses;
- Exemption from withholding tax in the distribution of dividends to shareholders (provided they are not resident in Portugal or in tax havens);
- No withholding tax on interest and other forms of payment for shareholders’ loans, capital allowances or advancements made by the shareholders to the company;
- No withholding tax on royalties, services or interest paid to third parties;
- Tax credit for international double taxation, both legal and economic;
- Capital gains tax exemption from the sale of shares in Madeira companies;
- Capital gains tax exemption on the sale of subsidiary companies under the conditions of the participation exemption;
- No withholding tax on dividends, interest and royalties received from associated companies from the EU, providing that the requirements of the parent-subsidiary directive or the interest and royalties directive have been met;
- 80% reduction on the rates of stamp duty, Real Estate Transfer Tax (IMT), Municipal Property Tax (IMI), regional and municipal surcharge, notary and registration fees;
- Reduction of the Autonomous Taxation, in proportion to the applicable corporate tax rate (in this case, a reduction of 66%).
Requirements
Companies must be licensed in the IBC and must begin their activity within a period of six months from the date of licensing, in the case of international services, and one year, in the case of industrial or shipping activities.
Shall comply with one of the following requirements:
- Create 1 to 5 jobs, in the the first 6 months of activity, and a minimum investment of €75,000 in the acquisition of tangible or intangible fixed assets during the 2 first years of activity; or
- Create 6 jobs or more, in the first 6 months of activity.
Tax benefits will depend of the number of full-time employees residing or carrying out their activity in Madeira. It’s limited to the following ceiling:
Full-time employees Minimum investment Limit
1 to 2 € 75.000 € 2.73 M
3 to 5 € 75.000 € 3.55 M
6 to 30 – € 21.87 M
31 to 50 – € 35.54 M
51 to 100 – € 54.68 M
more than 100 – € 205.5 M
If the tax base exceeds the limit, the excess shall be taxed at Madeira general regime rate of 14,7%.
Additionally, companies will be subject to one of the following annual maximum limits applicable to the tax benefits provided for in this regime:
15.1% of the turnover obtained in Madeira;
20.1% of the gross value added generated in Madeira;
30.1% of labor costs borne in Madeira.
The income and gains, as well as the expenses and losses, are deemed to be obtained, generated or borne in Madeira if attributable to the activity carried out by the company through an adequate economic substance in Madeira.
Participation Exemption
Profits and reserves distributed to Madeira companies by their subsidiaries or associated companies, along with capital gains or losses occurring due to the transfer of shares in these companies, regardless of the percentage of the shares transferred and its transfer form, shall not contribute to their taxable profit, under certain conditions.
Distribution of Profits/Dividends
A tax exemption (withholding tax) applies to the distribution of profits/reserves by a Madeira company, providing that certain conditions are met.
Capital Gains
Capital gains earned by non-residents in Portugal from the sale of a shareholding in a Madeira company shall not be taxed if the company’s main assets do not include real estate in Portugal. This exemption shall not apply to shareholders residing in tax havens.
Capital gains earned by a Madeira company on the sale of their subsidiaries or associated companies shall be exempt from taxation under the terms of the Participation exemption.
Some sector of activities have specific tax benefits:
Shipping
Corporate income tax exemptions/reductions apply to income derived from this activity, except income derived from the transport of passengers or freight between Portuguese ports.
The crew of the ships registered in the International Ship Registry are exempt from paying personal income tax.
Crew members and their respective employers are exempt from social security contributions in Portugal, provided they are covered by another social security system or voluntary insurance policy that covers illness, occupational illness and parenthood.
If the crew members are Portuguese or resident in Portugal, they shall be subject to obligatory registration under the Portuguese general social security system with a contribution rate of 2,7%, 0,7% being paid by the crew member and 2% by the employer. It should be stressed that, according to Portuguese law, crew members onboard ships at the service of entities resident in Portugal, are deemed to be resident in Portugal for tax purposes.
Industrial Free Trade Zone
Exemptions/reductions of corporate income tax apply to all industrial income generated in the Industrial Free Trade Zone, including income obtained in Portugal. The withholding tax exemption on dividends and interest paid to shareholders also applies to individual or corporate shareholders resident in Portugal.
Companies performing industrial activities also benefit from a 50% corporate income tax deduction provided they meet at least two of the following conditions:
They contribute to modernizing the regional economy, namely through technological innovation of products and manufacturing processes or business models;
They contribute to the diversification of the regional economy, namely through new activities with high added value;
They promote the hiring of highly qualified human resources;
They contribute to improving environmental conditions;
They create at least 15 jobs that must be maintained for at least 5 years.
