Tax regime of the International Business Centre of Madeira
Entities operating within the scope of the IBC benefit from one of the most advantageous tax regimes in the European Union:
- 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%).
General Requirements
- Must be licensed to operate within the scope of the IBC by the regional Government of Madeira;
- Tax exemption for payments to non-residents in Portugal nor in tax havens, or other entities operating within the scope of the IBC;
- Reduced corporate income tax rate on income obtained outside Portugal or income from with other entities operating within the scope of the IBC;
- Capital gains tax exemption from the sale of shares in the company is not applicable to shareholders residing in Portugal or in tax havens;
- In the case of maritime transport companies, the reduced corporate income tax rate does not apply only to income derived from the transport of passengers or cargo between Portuguese domestic ports;
- Exemption from Real Estate Transfer Tax (IMT) and Municipal Property Tax (IMI) only for property located in Madeira used for the company’s business.
Substance requirements
Companies 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.
They must also comply with one of the following eligibility requirements:
- Create 1 to 5 jobs, during the first 6 months of activity, and it must make 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, during the first 6 months of activity.
Please contact us to learn more about the fulfilment of this employment requirement.
Tax benefits shall be limited to the following ceiling amounts, depending on the number of full-time employees residing or carrying out their activity in Madeira:
| Taxation Base | Number of Employees |
|---|---|
| € 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 |
| € 35,54 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 |
If the tax base exceeds the limit, the excess shall be taxed at the 14,7% rate (Madeira general regime).
The tax benefits are also subject to one of the following maximum annual thresholds:
- 15.1% of the turnover obtained in Madeira;
- 20.1% of the gross value added generated in Madeira;
- 30.1% of labour 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. To learn more click here.
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 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.
Companies licensed before the 31st December 2014
Companies licensed within the International Business Centre of Madeira before the 31st December 2014, which have not chosen to benefit from the new regime of the IBC, described above, are subject to a tax regime that is very similar thereto, with the following exceptions that shall only apply until the end of 2020 (in which date they may choose to benefit from the new regime):
- The maximum annual threshholds are not applicable;
- Exemption from Stamp Duty, Real Estate Transfer Tax (IMT), Municipal Property Tax (IMI), regional and municipal surcharge;
- The withholding tax exemption on the distribution of dividends to shareholders is not applicable. However, corporate shareholders may benefit from withholding tax exemption on the distribution of dividends from the Madeira company, provided some requirements are met.
