Companies licensed to operate within the scope of the International Business Centre of Madeira (IBCM) are Portuguese companies for all intents and purposes, subject to all legislative and regulatory frameworks applicable in Portugal, even though they benefit from an advantageous tax regime.
As such, from the time the company is established and begins its activity it must fulfil a series of obligations and duties, otherwise it shall face serious penalties. Some of the main obligations and duties applicable to the companies that operate within the scope of the IBCM, in addition to the all other obligations and duties applicable to Portuguese companies, are set out below.
Substance requirements /eligibility
Companies which aim to benefit from reduced income tax (5%) until the end of 2027 should begin activity within six months, in the case of international services, and one year, in the case of industrial or shipping activities, starting from the date of licensing, and should observe one of the following requirements of eligibility:
- Create 1 to 5 jobs, within the first 6 months of activity, and make a minimum investment of €75,000 in the acquisition of tangible or intangible fixed assets within the 2 first years of activity;
- Create 6 jobs or more, within the first 6 months of activity.
As listed below, tax benefits have limits, depending on the number of employees under the above referenced conditions:
|Taxation Base||Number of Employee|
|€ 2,73 million of taxable income||1 to 2|
|€ 3,55 million of taxable income||3 to 5|
|€ 21,87 million of taxable income||6 to 30|
|€ 35,64 million of taxable income||31 to 50|
|€ 54,68 million of taxable income||51 to 100|
|€ 205,5 million of taxable income||more than 100|
The tax benefits are also subject to one of the following maximum annual thresholds:
- 15,1% of annual turnover (AT);
- 20,1% of the annual gross value added (GVA);
- 30,1% of annual costs incurred with the workforce.
AT= sales + supply of services.
GVA = AT + change in inventory + own works for the entity + additional income + operating subsidies.
If the tax base exceeds the limit, the excess will be taxed at 14,7%.
For more information on how to fulfill the above referenced requirements, please contact us.
Annual operating fees payable
Each year, on completion of twelve months from the date of establishment of the company (not to be confused with the date of acquisition of the company) the respective annual operating fee to operate within the framework of the International Business Centre of Madeira is payable.
Pursuant to current legislation, non-compliance with the obligations taken on in the application and subsequent licensing of the business, namely the non-payment in good time of outstanding fees, may lead to the cancellation of the corresponding licence.
The expiry or cancellation of the license, implies the subjection to an administrative procedure of dissolution and liquidation of the company.
Special advance tax payments
Those entities with a main activity of a commercial, industrial or agricultural nature, and those that are non-residents with a stable establishment on Portuguese territory must make a special advance tax payment. The advance tax payment shall be made in March or in two instalments in March and October of the year they pertain to, or for companies that have adopted a tax year that does not coincide with the calendar year, during the 3rd and 10th month of the respective tax year.
The amount of the special advance tax shall be equal to 1% of turnover recorded in the previous taxation period, with a minimum limit of €850 and when greater, it is equal to this limit accrued by 20% of the excess amount, with a maximum limit of €70,000. The resulting amount is deducted by advance tax payments made during the previous taxation period.
Additional advance tax payments
Additional advance tax payments must be paid in July, September and on 15 December of the year that the taxable profit pertains to, or if an annual taxation period different from the calendar year has been adopted, in the 7th month, the 9th month and on the 15th day of the 12th month of the respective taxation period, and its final payment shall be made during the periodic income declaration (Form 22 of IRC).
The amount of these payments is equal to the amount that results from application of the rates stipulated in the following table, applicable to the part of taxable profit that exceeds €1,500,000 related to the previous taxation period.
|Taxable profit in euros (€)||Rate (%)||IBCM Rate (%)|
|From 1.500.000 to 7.500.000||2,5||0,36|
|From 7.500.000 to 35.000.000||4,5||0,64|
Greater than 35.000.000
You can visiti this page to find more detailed information on advance tax payments.
Proof of non-resident status
It is up to Madeira's companies to prove the non-resident status of the entities with which they establish relations.
The proof must be made by the presentation of a residence certificate or equivalent document issued by the tax authorities, a document issued by a Portuguese consulate, proving residence abroad, or a document specifically issued with the purpose of certifying residence by an official entity of the respective State, which includes its central, regional or other peripheral, indirect or autonomous public administration. In particular, an identification document such as a passport or identity card, or a document that can only indirectly be presumed to be a tax relevant residence, such as a work or stay permit, is not admissible for this purpose.
The document referred to above is necessarily the original or a duly certified copy, and must have a date of issue no earlier than three years and no later than three months in relation to the date on which the operations were carried out, unless this is the case:
- The period of validity of the document is shorter or if it indicates a reference year, it is valid for the year referred to and for the following year, when the latter coincides with that of issue of the document;
- the document which, on the date of contracting a transaction, validly proves non-resident status, in accordance with the terms of the previous points, remains effective until the end initially foreseen for that year, provided that this does not exceed one year.
Payments requiring proof of non-residency.
The following payments should never be made without first having received proof of non-residency by one of the above means:
- Dividends and advances on account of profits;
- Interest and other capital income;
- Royalties and other intellectual property income;
- Commissions through intermediation in the conclusion of any contracts;
- Services rendered or used in Portuguese territory, with the exception of those related to transport, telecommunications and financial activities.
The failure to provide proof of non-residence leads, as a consequence, to the presumption that the transactions were carried out with entities residing in Portuguese territory, annulling the benefits granted to all entities involved in the transaction in question.
To learn more about other duties and obligations that Madeira companies, as any other Portuguese company, are subject to, visit Obligations and Duties in Portugal.