Established in the 1980s as an instrument for regional economic development, the International Business Centre of Madeira (IBCM) currently accounts for some 12% of all direct foreign investment in Portugal, having generated approximately 120 million euros in tax income in 2014.
After some legislative changes that resulted in a significant loss of competitiveness by the IBCM in relation to other competing jurisdictions, the European Commission approved and published on 1 July 2015 the so called 4th Regime of IBCM tax benefits, allowing the licensing and incorporation of new entities within the institutional scope of the IBCM, with effects that are retroactive to 1 January 2015, and application of benefits until 31 December 2027.
The new regime has kept its previous structural outline, including one of the lowest corporate tax rates in the European Union, namely 5%, and exemption from taxation on shareholder dividends, along with some other benefits that make it even more competitive.
In order to better understand the jolt that this new regime has provided and what it means for the future of the IBCM, we interviewed Francisco Costa, the main person behind the Free Zone of Madeira and current Chairman of the Board of Directors of S.D.M. – Sociedade de Desenvolvimento da Madeira, S.A, the entity that, as concessionaire, is responsible for managing, administrating and promoting the IBCM:
- This year, the European Commission approved a new tax regime for the IBCM. What does this approval mean for the IBCM and Madeira?
With the European Commission’s agreement, a new tax regime was in fact created for the IBCM, namely the 4th Regime, which came into force as of last July with clear rules and broad deadlines for admitting companies and producing effects for enjoying tax benefits. Conditions have thus been created for re-establishing trust in the stability and proper functioning of the IBCM.
- Portugal has faced volatile political and economic cycles that have impacted the tax regimes in force. What impact does the EC proposal have in terms of guarantees of security for investors?
As you know and contrary to what happens in many competing jurisdictions, the successive tax regimes of the IBCM have always been assessed and authorized or agreed to in advance together with the European Commission. This fact has been correctly understood by investors and businesspersons as being an additional guarantee in terms of security for all operators.
- What is in store for the IBCM after 2027?
Right now it is too soon to say. However, given the IBCM goals as an instrument of modernization, development and sustainability for this small and peripheral island economy of Madeira, which has permanent limitations, it is not difficult to believe that some form of continuity with corporate efficacy will therefore be found and adopted.
- Approval of this regime takes place during a phase in which all international taxation activity is being questioned and re-assessed. Let us take for instance the BEPS project. How does the IBCM fit into this current international context?
The IBCM has always been regulated in accordance with the best practices that are in force internationally at a particular moment in time. The positive assessments that it has always obtained in terms of OECD and EU Council plans prove this, and indeed this could not be otherwise, given the prior authorization processes from the European Commission, which are a fundamental characteristic. The same solution will certainly occur in the face of the new international initiatives.
- Substance has become increasingly important for companies that re-structure their operations internationally. What is Madeira’s capacity to respond to foreign investors’ needs for substance?
This is true. I am convinced that all official entities with responsibilities in this area will do everything they can to guarantee the best possible conditions for international companies to operate, and to supply the local resources that are necessary for this.
- Which IBCM sectors have been the subject of most interest from foreign investors?
Over time, there have been fluctuations in the business areas of greater interest to operators in accordance with the realities of international markets, which as we know are always changing and evolving. However, the dominant trend has been for the International Services and Navigation sectors to be the activities that are most popular in the Industrial Free Zone.
- The new regime provides for registration of aircraft within the scope of the IBCM. When will this be operational and how will it be developed?
Indeed, the responsible authorities intend to develop this new area of activity soon in ways that are effective and competitive with the good international aircraft registries currently available in some other jurisdictions.
Download our Brochure Why Madeira to learn more about this jurisdiction.