Company and Tax Benefits in Madeira

One of the most important aspects you must take into consideration when incorporating a company is the tax burden to which this one will be subject. For that reason, the Madeira has incorporation company and tax benefits.

The current regime of tax benefits of the International Business Centre of Madeira (IBC). Known as the Madeira Free Trade Zone, allows the incorporation of new companies until the end of 2023. Which will benefit from the application of a reduced corporate tax rate of 5% until December 31, 2027.

This article aims to explain how we can help you incorporate a company in Portugal with a reduced profit tax rate and the procedure to obtain this tax benefit.

INTRODUCTION

Madeira is an autonomous region of Portugal and the special circumstances of its location and development have fostered the approval of special tax regimes, designed to attract investment, particularly, foreign investment.

It is important to note that there are two different tax benefit regimes in the Madeira archipelago.  

The International Business Centre of Madeira (IBCM), which corresponds to the Free Trade Zone of the Autonomous Region of Madeira, is one of them. Its purpose was to attract international investment. In order to enhance the social and economic development of that region. As long as the legal requirements are met, which will be addressed below, a company registered in the Madeira Free Trade Zone benefits from a 5% tax on profits until 2027. 

The other tax regime in force in Madeira corresponds to situations where companies are registered in Madeira but outside the Free Trade Zone. This gives a more beneficial tax regime, with a tax rate of 14.7% as opposed to 21% for a company registered in mainland Portugal. 

THE INTERNATIONAL BUSINESS CENTER OF MADEIRA (CINM)

The tax incentives provided in this region are intended to modernize and internationalize the production of goods and services in wood. But also, allow companies to be compensated for disadvantages that may arise from the peripheral region.

The point of greatest interest in this area comes from the diverse list of activities that a company can have to fit into the requirements for the tax benefit, which can be operations of an industrial, commercial, maritime, and service nature.

REQUIREMENTS 

JOB CREATION 

The first requirement is related to job creation in Madeira. And the law gives two possibilities in which only one must be fulfilled:

POSSIBILITY 1: Creation of one to five jobs during the first six months of activity. As well as a minimum investment of € 75,000. By the acquisition of fixed, tangible or intangible assets during the first two years of activity

POSSIBILITY 2: Creation of six or more jobs during the first six months of activity

ANNUAL LIMIT

Companies shall be subject to one of the following annual thresholds applicable to the tax benefits foreseen in this regime:

(a) 20.1 % of the gross value added generated annually in the Autonomous Region of Madeira; or

b) 30,1 % of the annual labour costs borne in the autonomous region of Madeira; or

c) 15,1 % of the annual turnover generated in the autonomous region of Madeira.

TAXABLE INCOME 

Under this regime, companies are subject to a limitation of the benefit to be granted, through the application of maximum ceilings to taxable income, determined according to the number of jobs created, to which the reduced Corporate Income Tax rate is applicable, under the following terms:  

a) EUR 2.73 million for the creation of one to two jobs; 

b) EUR 3.55 million for the creation of three to five jobs; 

c) EUR 21.87 million for the creation of six to 30 jobs; 

d) EUR 35.54 million for the creation of 31 to 50 jobs; 

e) EUR 54.68 million for the creation of 51 to 100 jobs; 

f) EUR 205.50 million for the creation of more than 100 jobs.

To understand what is to be considered under jobs, the law has come to densify that jobs are determined by reference to the number of people who earn income from dependent employment. This is as long as they are resident for tax purposes in the Autonomous Region of Madeira. Or, if they are not, they exercise their activity there. 

INDUSTRIAL ZONE

An industrial company established in the Madeira Free Trade Zone may have an added tax benefit. In addition to the 5% tax reduction on taxable profit, of a 50% reduction on taxable profit provided that they meet at least two of the following requirements: 

a) They contribute to the modernization of the regional economy. Namely through technological innovation of products and manufacturing processes or business models; 

b) They contribute to the diversification of the regional economy. Namely through the development of new activities with high added value 

c) Promote the hiring of highly qualified human resources; 

d) Contribute to the improvement of environmental conditions; 

e) They create at least 15 jobs, which must be maintained for a minimum period

OTHER COMPANY AND TAX BENEFITS IN MADEIRA

In addition to the reduction in corporate income tax. Companies licensed in the IBC of Madeira that meet the requirements presented also enjoy other tax benefits, namely.

• 80% exemption in Stamp Duty (“Imposto do Selo”) on documents, books, papers, contracts, operations and other acts that require public registration provided. They can carry out the activities with non-resident entities in Portugal. Or licensed in the IBC under the terms of the applicable legislation.
• The benefits granted to entities in stamp duty, municipal property tax, municipal real estate transfer tax, regional and municipal surcharges and fees, are subject to an 80% limitation for each of these taxes and for each act or period subject to them.

The shareholders of companies licensed to operate in the Madeira Free Trade Zone, which benefit from this regime have an exemption from Personal Income Tax or Corporate Income Tax until December 31, 2027, regarding:

• Profits distributed by those companies. Including the amortization of shares without capital reduction, in the proportion of the results which benefit from the application of the reduced rate, and, even if they do not benefit, result from income obtained outside the Portuguese territory, with the exception of operations carried out with entities domiciled in black-listed countries.
• Interest and other forms of remuneration of shareholder loans, allowances or advances of capital made by shareholders to the company;

ACTIVITIES EXCLUDED FROM THE SCOPE OF TAX BENEFITS

When considering this Madeira incorporation company and tax benefits. , it is important to remember that it does not cover all activities. The activities excluded from tax benefits are: 

(a) Entities engaged in intra-group activities. And whose principal activity falls under Business and other management consulting activities. As well as entities whose principal activity falls under Financial and insurance activities.

(b) Entities active in the steel and synthetic fibers sectors.

(c) Entities operating in the agriculture, forestry, fishing, aquaculture, and extractive industry sectors.

(d) Entities considered to be undertakings in difficulty under the provisions of paragraph 18 of Article 2 of Commission Regulation (EU) No 651/2014 of 16 June 2014; 

(e) Entities subject to an outstanding recovery order following a decision of the European Commission declaring an aid illegal and incompatible with the internal market. 

LICENSING PROCEDURE

The application for a license to operate in the Madeira Free Trade Zone under the tax benefits is submitted to “Sociedade para o Desenvolvimento da Madeira, S.A. (SDM) – the managing company of the IBC. 

All types of companies may be established in the IBC of Madeira. The most common being private limited companies, subsidiaries and branches. In order to be granted a license, the company may be unincorporated, already incorporated in Portugal or only have or wish to have a representative of a foreign company in Portugal. 

In the case of an unincorporated company, the incorporation of the company is subject to the same procedures as an unincorporated company in mainland Portugal. But with a differential exemption from fees and emoluments before the Commercial Registry. The company submits the licensing application prior to registration.

There are two operating and installation fees that an IBC licensed entity is subject to. Service companies will be subject to an installation fee of €1,000 and an annual operating fee of €1,800.

CONCLUDING REMARKS OF THE COMPANY AND TAX BENEFITS IN MADEIRA

The regime that comes with IBC licensing may be very beneficial. But only if the requirements are foreseen and can contribute to a favorable growth of a business. This embodies a set of incentives, namely of a fiscal nature. The procedure for submitting the license can be complex, especially when it comes to verifying the requirements required by law.