Madeira vs. Malta: which one is actually right for you?

Setting up a company in the EU can be challenging when you’re presented with several options and can't figure out which one to pursue.

This is what happens when companies discover that Madeira and Malta are both part of the EU and can offer an effective 5% corporate income tax rate, provided certain requirements are met. So, what's the real difference here, and what does that mean to your company?

This is one of the most frequent questions we receive at NEWCO, and one we are well placed to answer: we have been working in Madeira for 36 years and in Malta for more than a decade, helping companies set up and operate in both jurisdictions.

The 5% corporate tax rate in Madeira vs. Malta

Both places can indeed offer an effective tax rate of 5% on corporate income. However, they are possible for completely different reasons and ask different things from you.

In Madeira, companies pay 5% on profits from eligible activities, up to certain caps, and the regional general rate (13.3% in 2026) on profits from non-eligible activities and on any profit above those caps. To obtain the license, the company must meet requirements such as creating jobs in the region and, in some cases, making a minimum investment.

On the other hand, Malta does not grant a reduced 5% tax rate at company level. Instead, the company pays the full 35% tax rate like any other company; then, when dividends are paid, shareholders can claim a tax refund that generally reduces the effective tax rate paid to 5%.

This results from the tax refund system, which works alongside Malta’s full imputation system, and it means that, for Malta, there is a temporary gap between the payment of the tax and the refund.

Madeira’s IBC tax benefits

The 5% tax rate on corporate income is in fact a tax incentive whose purpose is to attract real and relevant investment to Madeira’s economy.

Madeira’s International Business Centre (“IBC”) determines the requirements that must be met in order to get the license needed to benefit from such attractive conditions.

Note that the benefits granted are limited to certain caps: a ceiling on the taxable income that benefits from the 5% rate, which depends on the number of jobs created in Madeira, and annual limits linked to the gross value added generated in the region, labour costs or annual turnover.

Madeira’s rules can be perceived as demanding, but in return the 5% tax rate applies to eligible profits, whether or not the distribution of dividends occurs.

Additionally, other than this tax reduction, shareholders of a company licensed by the IBC who are not resident in Portugal or in a blacklisted jurisdiction are exempt from personal or corporate income tax on the profits distributed to them, including the amortisation of shares, in proportion to the profits taxed at 5%, as well as on interest on shareholder loans.

Malta’s tax refund system

As mentioned above, Malta’s competitive effective tax rate derives from its tax refund system. Under the full imputation system, the 35% tax paid by the company is attributed to the shareholders when dividends are distributed, so that the same income is not taxed twice.

On top of that, the shareholder may claim a refund of part of that tax, and it is this refund that brings the effective rate down to 5%. It doesn’t come from any form of special tax benefit regime, but from Malta’s general tax law.

It’s worth noting that the amount of the refund depends on the nature of the income from which the dividends are paid.

In most cases, the refund is 6/7 of the tax paid by the company; it is 5/7 for passive interest and royalties, 2/3 where double tax relief has been claimed, and 100% for income from participating holdings (which may alternatively be exempt altogether).

Madeira vs Malta : a practical example

A company makes €1,000 of qualifying trading income in Madeira (within the caps) or in Malta and distributes it to a non-resident shareholder. The outcome would be the following:

• In Madeira, the company would pay a 5% income tax rate on those €1,000, which would amount to €50.
• In Malta, the company would pay a 35% income tax rate on those €1,000, which would amount to €350. Then, after the dividend is paid, the shareholder is generally refunded €300 (6/7 of €350) through the tax refund system, which translates to €50 effectively paid in income tax.

As you can see, the result can be identical but has significant differences in timing and requirements.

The timelines as a tiebreaker

The current IBC tax benefits last until 31^st December 2033 and are only applicable to companies licensed until 31^st December 2026. After that date, the current regime will no longer grant new licenses, unless a new extension is made.

More interestingly, a new regime for the IBC is being prepared, and its methodology has already been agreed with the European Commission, but its rules have not yet been published, so we wouldn't suggest you plan around it until they are.

On the other hand, Malta’s system does not have an expiration date. This means that the refund system was designed into the tax law system itself.

However, please note that EU Member States have adopted a directive on the minimum tax component, named “Pillar 2” of the OECD’s reform of international taxation.

As a result, profits from multinational and large national groups with a consolidated annual revenue of at least €750 million (in at least two of the four preceding years) shall be taxed at a minimum effective rate of 15% to reduce, amongst other things, profit shifting.

For these groups, this impacts both options: Portugal has already implemented the rules, including a domestic top-up tax, so the 5% rate in Madeira is topped up to 15%.

Malta has transposed the Directive but, as permitted for smaller Member States, has deferred the application of its main rules, including its own domestic top-up tax, until 31st December 2029. In the meantime, the difference up to 15% may be collected by another jurisdiction, such as that of the group's parent company.

Madeira or Malta: which one fits your company best?

Neither option is universally better: each jurisdiction rewards a different kind of business, and the right choice depends on your specific reality. The good news is that both are extremely competitive.

Madeira is the stronger fit for companies building or expanding their presence in the EU, particularly in activities such as international services, industry, warehousing, or shipping, with at least one employee on the ground.

In return, the 5% rate applies to eligible profits whether they are distributed, with no tax paid upfront and reclaimed later, and dividends paid to eligible non-resident shareholders are exempt from Portuguese tax. Companies licensed in the Madeira IBC have these benefits available until 31st December 2033

Malta is the stronger fit for companies that plan to distribute profits regularly and value flexibility: there are no minimum job or investment requirements, no caps on the income that benefits from the refund, and no expiry date, since the system is part of Malta's general tax law.