We will tell you about the benefits of registering a business in Madeira and how the head of a new company can become a resident of Portugal. The favorable conditions are valid until the end of 2021.
Madeira Special Economic Zone
The International Business Center of Madeira (IBCM) is a regional development program that provides tax incentives to local businesses. The program was created in 1980 in agreement with the Portuguese government and the European Commission. The program is enshrined in Legislative Decree No. 500/80 of 20 October.
The IBCM program comprises three areas: export processing zone, international shipping register, and international services. The program covers e.g. trade, marketing, consulting, telecommunications, manufacturing, installation and storage, intellectual property ownership, use of commercial vessels, and yachts.
Madeira on the world map. The flight from Lisbon to Funchal, the main city of the archipelago, takes three hours
Valid business tax incentives
Corporation tax. Entities with an IBCM license pay corporate tax in Madeira at a reduced rate of 5%. The rate applies to companies that derive income from transactions with foreign entities or other businesses with an IBCM license.
If the income is derived from cooperation with Portuguese companies, it is taxed at the rate of 14.7%. The exception is income from manufacturing and assembly work, which is in any case taxable in Madeira at a reduced rate of 5%.
Tax on dividends, interest, royalties. Dividend, interest, and royalty payments to shareholders are tax-free if the recipients of the income are not tax resident in Portugal and offshore jurisdictions. Tax residents of Portugal do not pay tax on dividends if they own 10% or more of the company's shares for at least 12 months.
No capital gains tax needs to be paid on the sale of shares in a Madeira registered company or the sale of subsidiaries of a business.
Stamp duty is reduced by 80% for documents, contracts, and transactions for which state registration is required. The exemption applies provided that the counterparties are not registered in Portugal and do not hold an IBCM license.
The rule applies to municipal transaction tax, municipal property tax, regional and municipal charges, notary fees, and registration fees.
Avoidance of double taxation. Companies incorporated in Madeira are subject to all double taxation treaties that are in force between Portugal and other countries.
For a full list of tax incentives and conditions for receiving them, see article 33 of Legislative Decree No. 215/89 of 1 July.
Comparison of corporate tax rates in Portugal
|Tax||Madeira rate||The rate in mainland Portugal|
|On profit||5 or 14,7%||21%|
|VAT||From 5 to 22%|
depending on the type of goods and services
|From 6 to 23%|
depending on the type of goods and services
|On dividends, interest and royalties||0%||28%|
|Capital gains on sale||0%||28%|
|Stamp duty||-80% from the standard rate||0,8%|
when buying property
When gifting and inheriting
when selling a business
Conditions for the application of preferential tax rates
The time frame for company registration and validity of benefits. If a company registers in Madeira before the end of 2021, it can benefit from the preferential tax regime until the end of 2027.
Job creation and investment in a new business. In order to start paying taxes at reduced rates, a business must meet one of the conditions:
- Create one to five new jobs in the first six months of operation and invest at least €75,000 in asset purchases in the first two years of operation;
- create six or more new jobs in the first six months of operation.
Annual income and number of employees. The reduced income tax rate applies to the annual income of a company up to a certain level. It depends on the number of employees.
|Workplaces||Investing in business||Annual income with a tax rate of 5%|
|From 1 to 2||From €75000||Up to €2730000|
|From 3 to 5||From €75000||Up to €3550000|
|From 6 to 30||Not obligatory||Up to €21870000|
|From 31 to 50||Not obligatory||Up to €35540000|
|From 51 to 100||Not obligatory||Up to €54680000|
|More than 100||Not obligatory||Up to €205500000|
Limits on the effect of tax exemptions. The difference between the amount a company would pay at the standard rate of income tax in Madeira and the 5% rate must not exceed any of the limits:
- 20.1% of annual gross value added;
- 30.1% of annual labor costs for the year;
- 15.1% of the annual turnover of the company.
How to register a company in Portugal
Since 2005, Portugal has had an online business registration service, On The Spot Firm. It allows you to set up a company within an hour by filling in just one form at justica.gov.pt.
The registration procedure takes place in four steps:
The list of documents for registration depends on whether the shareholders of the new company are individuals or legal entities.
If the founders are individuals, ID cards or passports are sufficient for registration.
If the company is established by legal persons, the following will be required:
- an up-to-date extract from the register of legal entities from the country of incorporation;
- Minutes of the shareholders' meeting stating the decision to incorporate the new company;
- Document certifying the identity of the person authorized to sign at the formation of the new company;
- Originals of the articles of association of the companies that are registering the new business.
When all the documents are ready, you should contact any Empresa na Hora office and book a time to meet in person.
The company name should be chosen in advance from a list of pre-approved and free names. Another option is to come up with your own name, but there is a risk that it is already occupied by another company.
The articles of association of a company are drawn up according to a template depending on the form of the legal entity. All templates are publicly available:
- for a closed joint-stock company with limited liability;
- for the company with the sole shareholder;
- for an open joint-stock company with limited liability.
The articles of association must state the address of the head office, the amount of the share capital, and the name of the head of the company.
Registration at the Empresa na Hora requires all the founders of the new company to be present in person. If any of the founders are unable to travel to Portugal, they must make a power of attorney in advance for their representative.
The founders first obtain a Portuguese tax number. The number can be obtained in advance by yourself or at the time of business registration.
Empresa na Hora staff register the company and publish the memorandum of association on the government website. The founders receive:
- A certificate of incorporation of the legal entity;
- A company identification card;
- Certificate of incorporation in the State Register of Legal Entities.
There is a fee for the registration procedure. If the company name is chosen from an approved list, the cost of registration will be €360. The cost of registration with approval of a new name is €435.
When the company is incorporated, it is compulsory to create a deposit in a Portuguese bank for the amount of the share capital. The company must employ a licensed accountant and file a declaration of commencement of business with the Portuguese tax authorities – within 15 days of incorporation. Within 30 days, the company must also register with the social security service and the register of beneficiaries.
The IBCM licence must be obtained separately in Madeira. The cost of applying is €1000.
The nuances of the business registration procedure can be found on the Portuguese government website.
Which investments lead to a residence permit in Portugal
Businessmen can obtain a residence permit in Portugal by investing in a business if they:
- Start a new company and create 10 jobs;
- invest €350,000 or more in a Portuguese company and help create or maintain at least 5 jobs.
From 1 January 2022, the conditions for obtaining a residence permit by investment and business will change. Investors will invest €500,000 instead of €350,000. The condition to create and maintain jobs will remain unchanged.
In addition to investments in business, the Portuguese residence permit is issued for the purchase of real estate - residential or commercial, purchase of units in venture capital funds, opening a bank deposit, financing scientific research, and cultural projects.
90% of investors choose to buy a property in order to obtain a residence permit in Portugal in 2021. The minimum transaction amount is €500,000. Between January and June, investors bought properties worth a total of €220 million.
Examples of properties to buy in Madeira
Apartment in a modern apartment complex near the beach in Funchal. Price - from €398,000
Apartments and premises for commercial use in Funchal. Price from €260,000
Apartment in a new residential complex in Funchal. Price from €580,000
Portuguese residence permit cards replace Schengen visas: Portuguese residents are free to travel within the region and stay in any country for up to 90 days in a six-month period. After five years of maintaining residence permit status, it is possible to apply for Portuguese citizenship.
Immigrant Invest is a licensed agent for Portugal's residence permit program by investment. If you want to become a resident of the European Union state, please seek advice from experts in investment programs.