In relation to the company |
Companies licensed after January 2007
Companies licensed to operate under the jurisdiction of the IBC Madeira, after January 2007 benefit from:
- Reduced Income tax (IRC): 4% (2010 – 2012) 5% (2013 – 2020);
- Exemption of mandatory withholding tax at source for royalties, interest and services;
- Tax credit for international double taxation;
- Exemption of Stamp Duty;
- Exemption of municipal transaction taxes and municipal property taxes;
- Exemption of notary and registration fees;
- One of the lowest VAT in the European Union: 16%.
General Requirements
- Licensed by the Madeira Regional Government to operate in the IBC;
- Exemption from withholding tax only applicable on payments to non-residents in Portugal or on payments to other entities operating in the IBC;
- Reduced Income Tax (IRC) applicable to income obtained outside of Portugal and income obtained from other entities operating at the IBC Madeira;
- Regarding maritime transportation companies, the reduced income tax (IRC) does not apply exclusively to income from passenger transportation or to freight between national Portuguese ports;
- Exemption on municipal transaction tax and municipal property tax is only applicable to real estate located in Madeira and registered for company business use.
Substance Requirements
- International services should commence trade within six months, and industrial and shipping businesses within one year from licensing;
- One of the following requirements of eligibility should also be present:
a)The company must include in its payroll, at least one employee or director (full-time or part-time); Only one employee or director must be resident in Madeira;
b)If the company has less than 6 employees (or directors) the company should, in the first 2 years of trading, make a minimum investment of 75.000€ for the acquisition of fixed tangible or intangible assets, which do not necessarily have to be located in Madeira.
For more information on how to fulfill the employment requirements, specifically on how to do it in a simple and inexpensive way, contact us.
As listed below, tax benefits have limits, depending on the number of employees (or directors) under the above referenced conditions:
i) Eur 2 million of taxable income - 1 to 2 employees
iI) Eur 2,6 million of taxable income - 3 to 5 employees
iii) Eur 16 million of taxable income - 6 to 30 employees
iv) Eur 26 million of taxable income - 31 to 50 employees
v) Eur 40 million of taxable income - 51 to 100 employees
vi) Eur 150 million of taxable income - more than 100 employees
If taxable income exceed the limit, the excess will be taxed at 20% (general regime in Madeira).
Holding Companies (SGPS) are not subject to any of the substance requirements.
Companies licensed before January 2001
Companies licensed to operate under the jurisdiction of the IBC Madeira before January 2001, benefit from the same regime and exemptions described above for companies licensed after January 2007, with the following exceptions:
- Are exempt from Income tax (IRC) until December 31, 2011;
- Are not subject to the Substance requirements.
On January 1, 2012 these companies automatically migrate to the regime for companies licensed after January 2007.
Some business sectors have specific tax relief:
Pure holdings
SGPS - Sociedades Gestoras de Participações Sociais holding companies comply with the requirements of the parent subsidiary directive, thereby allowing the SGPS to receive dividends from subsidiaries domiciled in the European Union exempted from withholding tax at source in the origin country.
Income from subsidiaries of Pure Holding companies are subject to the following tax regime:
Equity interests within the European Union and European Economic Area1:
- 100% participation exemption on dividends, if:
o dividends have been taxed at the subsidiary;
o SGPS holds at least 10% of the capital of the subsidiary;
- 100% participation exemption on capital gains;
- Services rendered and interest: Corporate tax rate of 20%.
Equity interests from Portuguese Speaking African Countries (PALOPs)2:
- 100% participation exemption on dividends, if:
o subsidiary is subject to and not exempt from corporate income tax;
o SGPS holds directly 25% of the capital of the subsidiary for 2 years;
o dividends must result from profits taxed at a rate not lower than 10%;
o dividends must not result from passive income; - 100% participation exemption on capital gains;
- Corporate tax rate of 4 - 5% on income from dividends.
Equity interests in non-EU countries:
- Corporate tax rate of 4 - 5% on income from dividends;
- 100% participation exemption on capital gains;
- Services rendered and interest: Corporate tax rate of 4 - 5%.
Requirements for capital gains exemption
- Holding of the participation for more than 1 year;
- Holding of the participation for more than 3 years, if the subsidiary is resident in tax havens;
- The participations must not have been acquired from entities with which there is a special relation;
1
Note:"The member states of the European Economic Area are the 27
European Union member states plus Iceland, Liechtenstein and Norway."
2
Note:"PALOP is the Portuguese acronym for Portuguese Speaking African
Countries and its members are Angola, Cape Verde, Guinea-Bissau,
Equatorial Guinea, Mozambique, São Tomé e Príncipe."
Maritime transport
Corporate tax exemption/relief is applicable to all income from this business activity, except for the transport of passengers or freight between Portuguese ports.
The crew of vessels registered in the International Shipping Register are exempt from income tax.
The crew and their employers are exempt from contributing to Social Security in Portugal, when they are covered by other social security systems or have private insurance.
Shareholders residing in Portugal can also enjoy the above-described tax relief.
Industrial Free Zone
Corporate tax exemption /reduction is applicable to all income of an industrial nature from business implemented in the Industrial Free Zone, including income obtained in Portugal.
Entities pursuing industrial activities also benefit from a deduction of 50% of income tax (IRC), provided at least two of the following conditions are present:
a) They contribute to the development of the regional economy, specifically through technological innovation of products and manufacturing processes or business models;
b) They contribute to the diversification of the regional economy, particularly through the pursuit of new activities with high added value;
c) They encourage employment of highly qualified human resources;
d) They contribute to the improvement of environmental conditions;
e) They create at least 15 jobs, which must be maintained for a minimum period of five years.
Shareholders residing in Portugal can also enjoy the above-described tax relief. | 
