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 20%.
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.
Rules regarding certification as a non-resident
Companies based in Madeira have to prove that the entities with which they establish relations are non-residents. Proof of non-residency must be made through the submittal of the relevant Portuguese official form accompanied by a document issued by the relevant authorities of the respective country of residence, attesting to the taxpayer’s fiscal residence during the period in question and his or her requirement to pay income tax in that country.
Note that the following payments must never be made without first receiving proof of non-residency by one of the means referred to in the previous paragraph:
- Dividends and advance payment of profits;
- Interest and other capital income;
- Royalties and other intellectual property income;
- Fees for brokering any contract;
- Provision of services implemented or used in Portugal, except those concerning transport, telecommunications and financial activities.
In the event of non-presentation of proof of non-residency it is assumed that the operations were performed with entities residing in Portugal, therefore cancelling out the benefits granted to all the entities involved in the operation in question.
Given that the status of non-resident of the entity with which the company in Madeira transacts is a necessary requirement for the attribution of applicable tax incentives, we only execute instructions received after receipt of the respective proof of non-residency.
Special advance tax payments
Companies with tax liabilities as well as those who do not fulfil their tax compliance obligations within the deadline are subject to a special advance tax payment. Companies licensed to operate within the International Business Centre of Madeira as of the 1st of January 2015 benefit from a reduction of the special advance tax payment, in proportion to the applicable corporate tax rate (in this case, a reduction of 75%). To learn more about the special advance tax payments visit Obligations and Duties in Portugal.
Additional payments on account
Additional payments on account must be made in cases in which, in the previous taxation period, the regional surcharge was payable. 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||0,5|
|From 7.500.000 to 35.000.000||4,5||0,9|
Greater than 35.000.000
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.