| Madeira Tax Highlights - Low tax rate (0-5%) until 2020
- So-called old companies enjoy full tax-free status until the end of 2011 (after that 5% until 2020)
- EU turnover tax identification number
- No capital gains tax
- No property transfer tax
- No tax on capital earnings
- No withholding tax
- No gift or inheritance taxes
Madeira is an autonomous region of Portugal, which is a member state of the European Union and the OECD. Tax planners are looking to set up companies in Madeira to take advantage of low personal and corporation tax. The attractive Madeiran tax regime applies to new trading from Madeira's International Business Centre until 2020. Madeira companies also get exemption from withholding taxes on the distribution of dividends, royalties and interest payments. Particular businesses running the rule over Madeira are hedge funds and property companies. Other tax havens, like several Caribbean islands, have found that establishing tax haven status has had a knock-on effect on tourism and property investment as wealthy business people visit for meetings with tax advisors and accountants.
Entities operating within the scope of the International Business Centre of Madeira benefit from the European Union's most advantageous tax system, in terms of both direct taxation (0 to 5% rate of tax on profits) as well as indirect taxation (14% VAT, which is the European Union's lowest rate). For financial institutions approved by the Bank of Portugal and licensed to operate within the International Business Centre, higher rates of corporation tax apply.
Corporate tax exemption /reduction is applicable to all income of an industrial nature from business implemented in the Industrial Free Zone of Madeira, including income obtained in Portugal. Shareholders residing in Portugal can also enjoy the above-described tax relief.
Madeira is part of the European Monetary System (euro), a fact that provides for reduced operating costs and eliminates exchange rate risk.
Madeira Corporate Tax RatesThe table below shows the corporation tax rates for newly established companies (new corporations) in Maderia up to year 2020.
Years / Tax Rate %
2007-2009 3%
2010-2012 4%
2013-2020 5%
The use of the low tax rates requires creating a certain number of jobs in relation to the taxable income/profit. Up to an income/profit of € 2 million, 1 to 2 jobs are required. Part-time jobs count as well as full-time jobs. In addition, it is required that if no more than 5 jobs are created, a minimum amount of € 75,000.00 must be invested in the first 2 years.
Work Places / Jobs Reduced Tax Rate up to the Following Income / Profit
1-2 € 2.0 million
3-5 € 2.6 million
6-30 € 16.0 million
31-50 € 26.0 million
51-100 € 40.0 million
above 100 € 150.0 million
All joint stock companies (old corporations) licensed before 31.12.2000 are totally tax-free until the end of 2011. As of 2012 they will then be taxed at 5%. At the same time the preferential tax rate will probably depend on the number of jobs created.
Holding Companies
The SGPS is a special form of holding company. According to the EU parent-subsidiary directive, the holding company can receive dividends from other subsidiaries within the EU without any deduction of capital gains tax. The so-called old corporations with the legal form of SGPS benefit from total tax exemption up to and including 2011. Any other income of the holding company is taxed at the reduced tax rate of 22.5% instead of the Portuguese standard rate of 25%. No capital gains tax is charged for dividends paid by the Madeira SGPS.
Turnover Tax
A reduced turnover tax rate of 14% applies on Madeira, giving it one of the lowest rates in Europe. This is especially interesting for data services offered via the Internet in the form of downloads for example.
Madeira Company Types
All companies incorporated in Madeira are subject to the same company law as companies incorporated on the mainland. Here are the most common forms:
Private Limited Liability Company ("Limitada"): The Limitada has a minimum capital of € 5,000. This can be split into shares of a minimum of € 100.
Stock Corporation ("SA"): The SA is a share holding company. Its minimum capital amounts to € 50,000. Splitting shares into a minimum value of € 0.01 is permitted. Bearer shares are permitted. The minimum number of shareholders is 5.
Holding Company ("SGPS"): The holding (SGPS) can be incorporated as Limitada or SA. It only holds shares in other companies and carries out its own financial administration.
Company Form
Companies can only work within the frame of its described purpose/form. The following activity can only be carried out with a special licence: banking, health insurance, other insurance and reinsurance, asset management as well as property agency.
Madeira Free Trade Zone
The most important sources of income are tourism, wine, agriculture and fishing. In order to enlarge the economic basis, a Free Trade Zone (International Business Centre - IBC) was introduced. The special status of Madeira is accepted and sanctioned by the EU.
Madeira Customs Duties and VAT
Companies registered in the "IBC" are exempt from duties for many goods and raw materials. On incorporation, all Portuguese companies are automatically provided with a tax reference number, which is also used for value added tax purposes. The companies themselves are registered for value added tax, and when trading within the European Union can take advantage of the exemptions from value added tax on movement of goods within the European Union.
VAT on the Supply of Telecom and Digitalised Services
The advantage in supplying telecom and digitalised services from Madeira lies in the fact that Madeira has the lowest rate of VAT on the supply of such services than any other EU country.
Shipping Companies, Vessels and Yachts
Shipping companies will have full access to the reduced taxation regime of Madeira until the end of 2020. In addition, 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) and are exempt from personal income tax.
Tax Year: Tax year in Madeira is the calendar year.
Special Advance Tax Payment (PEC): Special Advance Tax Payment (PEC) must be paid during the month of March, or in two instalments - one in March and one in October.
Double Taxation Agreements: Madeira, as an integral parte of Portugal, benefits from the large network of Double Taxation Agreements that Portugal is party to.
Madeira Personal Income TaxIndividuals who are resident in Madeira for more than six months in any tax year are liable to Portuguese income tax on their worldwide income. A nonresident is liable to Portuguese taxation on certain types of income derived from sources within Portugal.
Personal taxation in Madeira follows Portuguese taxation regime. A person is considered to be resident for taxation purposes if he is physically present within Madeira for at least 183 days during a tax year, or if an individual has his permanent residence, meaning that he is domiciled within the jurisdiction. Residents are liable to pay taxes on their worldwide income derived from employment, self-employment, commercial profits, capital gains, agricultural activities, rents, pensions and several other sources. Nonresidents are liable to pay income tax only on income derived from activities conducted in the jurisdiction and Portugal, including income from investments, pensions, employment, commercial activities, scientific artistic or technical services. After having applied various deductions, income tax is levied on a scalable basis, depending on the total income of an individual in a tax year, starting from 10.5% and up to 42%.
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