Madeira Free Trade Zone: starting a company and getting tax benefits

The Madeira Free Trade Zone is a special economic area that was created in order to attract investors and increase the number of jobs for the island’s inhabitants. The main tax benefit for licensed companies in the Free Trade Zone is a reduced rate of income tax (only 5%). The benefits can be enjoyed by companies deriving income from transactions with foreign entities or other businesses with a license IBCM (International Business Center of Madeira). Permits to operate in the free zone will be issued until the end of 2023.

The International Business Center of Madeira was founded to register organizations that will operate at a reduced tax rate. In order to take advantage of this, companies must start operating within six months (in the case of international services) or one year (in the case of industrial or shipping activities) of the licensing date.

Who can benefit from registering a company in Madeira

Registering a company provides great opportunities for the following individuals:

• business immigrants who want to move to Europe and continue their activities;
• entrepreneurs from countries outside the EU who want to expand their business to Western markets;
• freelancers who wish to take up permanent residence in Madeira;
• entrepreneurs who are planning to obtain funding for a start-up and set up a business in an economically stable region.

Companies and holdings of the jurisdiction of Madeira receive favorable tax conditions, which allows them to invest in business development, increasing the salaries of the company’s employees or bringing in customers. New or existing small businesses also have the opportunity to receive up to 50,000 EUR of non-refundable investment aid.

Tax law in Madeira

The Madeira International Business Center offers a special tax status to companies registered before the end of 2023. The reduced tax rate is set until 2027, after which it is subject to further review and possible extension. Companies must meet one of the following requirements in order to be eligible:

• creation of one to five jobs (for Madeiran residents, regardless of their nationality) during the first 6 months of activity;
• investment of at least 75,000 EUR in Madeira’s economy during the first 2 years.

Cooperation with local Portuguese companies will be subject to a general income tax of 21%. According to Article 36 of the Portuguese Tax Relief Law, shareholders of IBCM companies are fully exempt from withholding tax on dividends, unless they are residents of jurisdictions included in the Portuguese blacklist.

Types of companies in the Madeira Free Zone

• Private Limited Company (LDA). The LDA (Sociedad por Quotas) is the most common type of entity whose capital is divided into “quotas” (at least 1 EUR each). It can be registered with a single shareholder. Instead of a director, it is allowed to appoint a managing director, who by law has the authority to manage the company.
• Public Joint Stock Company (SA). The SA (Sociedare Aberta) is suitable for large businesses. Authorized capital is 50 000 EUR (at least 30% must be paid at registration). The minimum number of shareholders is 5 people. Information about their identity must be publicly available. A board of directors is created to manage the business.
• Holding company (SGPS). A firm must first be registered either as a private limited company or as a joint stock company. Then a holding company is formed to manage the shares of other firms. SGPS can be formed by one foreign shareholder. The minimum capital is 1 EUR. One manager can be appointed to manage it.
• Branch of a foreign company. There are no requirements for the minimum amount of share capital. Registration is mandatory if the business has been operating for more than one year. A subsidiary does not have a board of directors. As a rule, representative powers are vested in one or more employees of the branch.

Permitted activities

The International Business Center of Madeira allows you to do business in the following areas:

• international trade;
• free industrial zone (manufacturing activity);
• information technologies;
• consultancy, professional and technical services;
• international registration of ships under Portuguese flags;
• maritime transport;
• air transport.

Financial activities need a permit from the state and do not fall under the tax benefits of a special economic zone (SEZ).

Conditions for opening a company in Madeira

• having at least one shareholder (individual or legal entity) and one director (individuals only);
• registration of the director’s name (the FTZ has its own business register);
• keeping of accounting records and declaration of income at the end of the fiscal year.

A shareholders’ meeting must be held at least once a year to approve the annual accounts. Companies are required to have an auditor, who is elected at their annual general council. The auditor and directors are responsible for submitting annual accounts in accordance with the requirements of the Madeira government.

Reduced tax deductions apply only to specific limits on annual profits, which depend on the number of employees employed.

Registering a business in Madeira: a step-by-step procedure for opening a company

1. Application to the Portuguese Commercial Registry (RNPC) for permission to use the company name. The certificate is valid for 90 days.
2. Opening a corporate account with a Portuguese bank. The procedure includes preparing the necessary documents and filling in the forms (sometimes an interview is required). The process takes 7 working days or more.
3. Registration of an organization (obtaining a license). The application is submitted to the Society for the Development of Madeira (SDM) in duplicate in the name of the existing company. At the same time, it is necessary to notify the financial department to obtain a tax card. Company registration takes 7 to 14 days.

The company registration process can be done remotely, if you have a power of attorney for a Portuguese lawyer beforehand.

List of documents for opening a company in Madeira

• Name of future company;
• confirmation of registered address;
• details of shareholders and directors;
• details of the company secretary (in case of appointment);
• passport (EU citizens provide ID card);
• TIN in Portugal;
• proof of residence;
• bank statement;
• copy of the Articles of Association.

Additional paperwork may be required (worth discussing with a lawyer). All submitted documents need to be translated into Portuguese and notarized.

MIBC – the ideal option of obtaining tax benefits in the EU

MIBC provides more than half of the island’s income through foreign direct investment. Registered companies receive a tax payer number (VAT), which gives access to the EU internal market. EU directives are applicable to the island and provide a disciplined legal system to protect the interests of entrepreneurs.

The MAR Registry (Madeira Shipping Register) is recognized worldwide as a high-quality and safe maritime registration center. It is fully compliant with the technical requirements for safe registration in the EU. Special tax rates apply to both ships (excluding fishing boats) and MIBC shipping and yachting companies. The wages of the crew of commercial vessels and yachts registered with the MAR are exempt from individual income tax.

Advantages of the Free Zone in Madeira

• The most favorable tax rate in the European Union, taking into account direct taxes;
• low operating costs relative to other European jurisdictions;
• affordable prices for real estate, products and services;
• reduction of stamp duty and local taxes by 80%;
• qualified labor force.

The Free Zone is properly regulated at the municipal and national level. It does not belong to the category of offshore, so all possibilities of this program can be used by entrepreneurs to successfully expand their business.

The Free Economic Zone is considered to be a profitable starting platform and provides access to the EU market. Organizations registered in MIBC not only receive appropriate tax benefits, but are also eligible to apply for special financing. The funds can only be used to cover the initial costs of a new venture.

In addition, after moving to Madeira, the entrepreneur is allowed to apply for a Portuguese residence permit for investment (together with his family). On the basis of this it is possible to obtain a European passport after a few years. To create a small, medium or large enterprise, it is worth contacting experienced professionals. They will advise on the current tax regime and collect all the necessary documentation.