The Portuguese Madeira Island International Business Centre Tax Benefits

Published 12 August 2014 by DCS - Sociedade de Advogados RL

The International Business Centre (IBC) of Madeira exists for almost thirty years and Madeira continues to be a highly attractive jurisdiction for international business. Numerous opportunities s IBC. Such a company can be used efficiently for trading activities, providing and rendering of services, to hold investments or even industrial and shipping activities, amongst others.

Madeira is an integral part of Portugal and of the European Union, where it is recognized as an outermost region, as per article 349 of Treaty on the Functioning of the European Union. In this sense, the IBC of Madeira was designed and established with the main objective of contributing to the economic development of Madeira by upgrading and diversifying the productive structure of the Region.

IBC was recognized by the Community as a relevant instrument for regional development and was framed in community terms as a State Aid aiming to create the most adequate conditions for the s economy.

In June 2007 the European Commission approved and extension of the current Maedeira's  preferential tax regime until the year 2020, and negotiations are now being held for the extension of this regime until 2027.

Under this regime, Madeira’s IBC companies benefit from a reduced Corporate Income Tax (CIT) rate of 5%, amongst other advantages, such as:
➢ A full exemption from withholding tax on the payments of interests, royalties and
services to non-residents (corporate or individuals);
➢ A full exemption from local taxes, administrative and notary fees;
➢ A full exemption of capital duty and stamp duty;
➢ A full exemption on immovable property taxes in Madeira;
➢ Automatic VAT registration;
Subsidiary and all other EU Directives, as well as Portuguese Double Tax Treaties.

Additionally, being part of Portugal, allows Madeira’s IBC companies to benefit from all the Portuguese tax legislation, which currently foresees:
➢ A Worldwide Participation Exemption regime, which exempts dividends and capital
gains received/obtained in Portugal;
➢ A territorial regime for income derived from branches of Portuguese companies abroad,
which also exempts CIT in Portugal;
➢ An exemption on the payment of dividends to corporate shareholders that are in
countries that have signed a DTT with Portugal (currently 65);
➢ A unilateral tax credit relief for withheld taxes paid by Portuguese companies in other
countries that can be deducted in a 5-year period;
➢ A Patent Box regime is available, where 50% of the income derived from temporary disposal or use of Industrial Property Rights subject to registration, such as Patents and Industrial designs or models, is now exempt from CIT in Portugal, which will allows a CIT of 2.5% in the MIBC;
➢ Intangible assets, including goodwill and industrial property rights such as brands, production processes, models, and other similar rights, are now depreciated for a period of 20 years;
➢ Exemption of capital gains obtained by non-residents, resulting from the transfer of any participation in a Portuguese entity.

The access to the tax advantages of Madeira’s IBC regime depends on the meeting of specific eligibility criteria: creation of at least one local job and the realization of a minimum investment of EUR 75 000 in the acquisition of tangible or intangible fixed assets during the first two years of operations.

Tax benefits are also limited to the creation of certain number of jobs, and companies must also have (or rent) a fixed place of business in any part of Madeira, from which the activity is carried out.