European Commission approves Regime IV of the International Business Centre of Madeira
Under the terms agreed with the EC, companies licensed to operate within the framework of the IBCM will enjoy until the end of the year 2027 a reduced corporate tax rate of 5%, one of the lowest in the European Union, among other significant tax benefits.
The regime now agreed with the European Commission will be soon published by the Portuguese Government through the respective internal legislation.
The present tax regime allows the incorporation of new entities within the legal framework of the International Business Centre of Madeira (IBC) until the end of 2020, granting a reduced corporate tax rate of 5%, applicable on the taxable income, until the end of 2027.
In the case of international services activities, the reduced rate is applicable to profits derived from operations exclusively carried out with non-resident entities or with other companies operating within the ambit of the IBC of Madeira. There are no restrictions, nevertheless, on the development of business activities with Portuguese companies which will be taxed at the general corporate tax rate in Madeira, currently 21%.
Production and assembling activities carried out by companies in the Industrial Free Trade Zone of Madeira, on the other hand, will benefit from the tax reductions also in operations with Portuguese residents.
Madeira's IBC companies qualify for the Portuguese participation exemption regime, applicable to both dividends and capital gains, for which the following conditions must be fulfiled:
- A minimum shareholding of 10% held for 12 consecutive months;
- The subsidiary must be subject to taxation at a rate of at least 60% of the Portuguese general rate;
- The subsidiary must not be resident in a jurisdiction included in Portugal's "black list".
Shipping companies, vessels and yachts
Shipping companies will have full access to the reduced taxation regime until the end of 2027.
In addition, non-Portuguese crew members aboard commercial vessels and yachts registered in MAR are not obliged to contribute to the Portuguese social security regime provided some form of insurance is guaranteed, public or private. On the other hand, Portuguese nationals or residents in Portuguese territory shall be mandatorily covered by the general Portuguese social security regime. In this case, a total contribution rate of 2,7% will be applicable, of which 2,0% shall be borne by the employing entity and 0,7% by the employee.
All crew members will be exempt from personal income tax.
Production, assembling and warehousing companies
In addition to the reduced tax rate of 5% until 2027, manufacturing companies in the Industrial Free Trade Zone may also benefit from a 50% reduction on the taxable income, when fulfilling two of the following criteria:
- Contribution to the modernisation of the economy through technical innovation, new products and procedures;
- Diversification of the regional economy by introducing new activities of added value;
- Fixation of qualified human resources;
- Contribution to the improvement of the environment;
- Creation of 15 jobs for a period of 5 years.
These companies will also benefit from a suspension regime, under whose provisions import duties will be charged on the non-E.U. incorporated raw materials and components only when the final products leave the IFTZ.
Tax benefits for Shareholders
Non-resident single and corporate shareholders of Madeira's IBC companies will benefit from a full exemption from withholding tax on dividend remittances from the Madeira companies, provided that they are not resident in jurisdictions included in Portugal's "black list". Moreover, Portuguese corporate shareholders will also be exempt if holding a participation of at least 10% for 12 consecutive months.
In addition, the following benefits will be applicable:
- Exemption on capital gains payments to shareholders not resident in black listed jurisdictions;
- No withholding tax on the worldwide payment of interest, royalties and services.
Other tax benefits and exemptions
Capital duty and other local taxes
Documents, contracts and other operations requiring public registration carried out by IBC companies will benefit from an 80% exemption on stamp (capital) duty, provided that other parties involved are not resident in Portuguese territory or are also companies operating within the legal framework of the IBC of Madeira.
Companies licensed in the IBC of Madeira will also benefit from an exemption of 80% applicable to municipal property tax and property transfer tax, regional and municipal surtax as well as any other local taxes.
Double Taxation Agreements
All companies licensed to operate in the International Business Centre of Madeira may also benefit from the large network of international treaties to avoid double taxation ratified by Portugal.
Tax benefits requirements
To qualify for the tax reductions, companies incorporated in Madeira's IBC have to comply with one of the following pre-established requirements:
- Creation of one to five jobs in the first 6 months of operation and undertake a minimum investment of €75.000 in the acquisition of fixed assets, tangible or intangible, in the first two years of operation;
- Creation of six or more jobs in the first 6 months of operation.