Tax reductions for companies and individuals - Madeira's budget for 2025

While most of Portugal is busy debating the merits of split versus portable air conditioning units, Madeira quietly concluded something a little more substantial — the 2025 Regional Budget. Published on 2 July, it arrived just in time for a quick review before everyone heads off for their well-earned summer break.

As you may recall, this year’s Budget was delayed by several months following a snap election. That election resulted in a majority win for the moderate centre-right party, likely securing political stability for the next four years.

Madeira’s 2025 tax cuts

Political updates aside, the key highlights include:

Reduction of the Corporate Tax Rate

The standard Corporate Income Tax (CIT) rate has been reduced to 14% (previously, 14.7%). For small and medium-sized enterprises (SMEs) and small-mid capitalisation companies (Small Mid-Caps), the first €50,000 of taxable income will be taxed at a lower rate of 11.2%.

Also, in most municipalities on the island — including the capital, Funchal — there is no municipal surcharge, which on the mainland can reach up to 1.5%. This results in a significant differential: an effective CIT rate of 14% in Madeira, compared to up to 21.5% on the mainland (20% CIT plus a 1.5% surcharge).

Although it does not come from the Regional Budget, it’s always worth noting that the 5% CIT rate of Madeira’s International Business Centre remains entirely in force for eligible activities. [CTA?]

Personal Income Tax Reductions

Personal Income Tax (PIT) rates are being reduced once again, continuing the region’s commitment to easing the tax burden on individuals.

Specifically, the first six brackets of the nine-tier progressive PIT scale are now 30% lower than those applied on the mainland. The table below illustrates how this widening gap translates into tangible benefits for all taxpayers, considering the progressive nature of Portugal’s PIT structure.

Withholding Tax Reliefs

The CIT withholding on various types of income earned in Portugal — including capital income, royalties, and real estate income — is being significantly reduced.

In practice, instead of applying a rate of 25%, the withholding entity (usually your employer) will be able to use a rate of 17.5%.

On the PIT side, the withholding tax applicable to freelancers is being reduced. Instead of the 23% rate applied on the Mainland, a reduced rate of 16.1% will apply in Madeira, allowing freelancers to retain a greater portion of their income.          

Moreover, the 19.6% PIT rate on dividend distributions to resident individual shareholders of companies based in Madeira will remain in effect.

Now’s the time to invest in Madeira!

The 2025 Budget sends a clear message: Madeira continues to build momentum and remains a leading destination in terms of tax competitiveness for both investors and expatriates.

In this context (and yes, you read this before), other key advantages remain in place, such as the 5% Corporate Income Tax rate under Madeira’s International Business Centre and the NHR 2.0 (IFICI) regime for individuals.