The Continuance of Madeira’s Tax Benefits

By Robert Homem, Dixcart Management (Madeira), Lda, Madeira (01/12/2011)

The jurisdiction of Madeira offers a number of attractive tax benefits to companies licensed to operate in the International Business Centre (IBC) of Madeira - most significantly the low corporate tax rates.

In 2007 the European Commission announced that the Madeira Tax Regime had been extended to 2020. The announcement, and the certainty that it created, has meant that Madeira continues to attract international investment, with a large number of companies establishing a presence on the island.

Historically, many of the organisations using Madeira licensed companies have been from EU member states. Madeira remains an attractive option for organisations located in EU countries but in addition it now attracts investors from across the world, many of whom are taking advantage of international agreements. Madeira offers particular benefits for organisations with business interests in countries such as Angola, Brazil, Russia, South Korea, Turkey and Venezuela.

Additional Benefits for New Regime Companies

In addition to the reduced corporate tax rates, companies also enjoy the following tax benefits until the end of 2020:

  • Dividend withholding tax – zero per cent to 30 per cent depending on location of shareholder.

  • Exemption from capital duty, notary and registration fees.

Corporate Tax Rates

Under the New Tax Regime companies are subject to a low level of corporate tax on taxable profits as follows:

  • 2012 – 4%

  • 2013-2020 – 5%

Annual Taxable Income, Job Creation Criteria and Minimum Investment

The reduced corporate tax rate is limited to a ceiling of annual taxable income, which varies and is dependent upon the number of jobs created.

Job creation (number of employees)

Reduced Tax Rate applies to the following taxable income

1 to 2

€ 2 million

3 to 5

€ 2.6 million

6 to 30

€ 16 million

31 to 50

€ 26 million

51 to 100

€ 40 million

over 100

€ 150 million

The employment criteria is flexible. Employees do not need to be based in Madeira and can work on a part-time basis. Company directors can also be included in meeting this criteria, under certain circumstances[i].

Investment Criteria

Within the first two years of the company’s activity, a minimum investment of €75,000 must be made. Alternatively, if the company employs six or more people within the first six months of incorporation, it is then exempt from this minimum investment requirement. The employment of part time workers, who can be Madeira resident or non-resident can help meet this criteria during this period.

The following assets qualify as investments, ie, assets of a medium to long term nature:

  • Intellectual property including patents, trademarks, image rights.
  • Property and other immovable assets for commercial use.
  • Fixed assets used in day to day activity of the company.
  • Medium to long-term financial assets ( > 1 year) including participations held in other companies.

The following assets do not qualify as an investment:

  • Short-term financial assets (< 1 year ).
  • Cash Deposits held in the company’s bank account.
  • Investment Portfolios.

Summary of Benefits

Companies licensed to operate in the International Centre of Madeira enjoy a number of tax benefits, which are guaranteed until the end of 2020. These include the following:

  • Corporate tax rates ranging from four to five per cent.
  • Madeira pure holding companies (SGPS) are exempt from capital gains on the sale of participations of more than 10 per cent, which have been held for more than one year.
  • Madeira is an integral part of Portugal and as such a full member of the European Union. Automatic VAT registration applies on incorporation.
  • Access to most of the Double Taxation Treaties that are currently in place between Portugal and other countries. There are approximately 50 such treaties in existence.
  • Madeira offers an International Register for ships and yachts. This can provide substantial tax saving opportunities for vessel owners.
  • Madeira companies are tax resident in Portugal and therefore enjoy full access to all EU directives, including the Parent Subsidiary Directive. Fiscal resident certificates confirming tax residence in Portugal are easily obtained.

[i] Dixcart can provide advice regarding the employment criteria and can help ensure that the requirements are fully met, therefore maximising the tax benefits available.