There are three types of company that can be incorporated in Portugal and it is important to understand the differences, as the relevant corporate income tax rates and substance criteria vary widely substantially.
The Three Types of Portuguese Company
The three types of company that can be incorporated are; through the Portugal mainland, or the island of Madeira, or the International Business Centre of Madeira (also based on the island of Madeira).
What Corporate Income Tax Rates are Applicable for these Types of Company?
The corporate income tax rates, vary significantly and are detailed below for the three types of company:
|Portuguese Mainland Company||Madeira Company||International Business Centre of Madeira Company (for international activity)|
|First €25,000 of taxable income||17%||11.9%||5%|
|Taxable income above €25,000||21%||14.7%||5%|
As you can see the corporate tax rate for companies incorporated in the International Business Centre of Madeira are very attractive but very specific substance requirements need to be met, as detailed below.
What Substance Criteria are Applicable for Companies Registered in Mainland Portugal and in Madeira ?
Portugal and Madeira do not have specific substance requirements that need to be met. However, to be able take advantage of Portugal's double taxation treaty network, substance does need to be maintained.
How this can be achieved, is detailed below:
- Maintaining an open and active bank account in Portugal;
- A registered office address and/or premises for the exclusive use of the company in Portugal;
- A qualified director and/or permanent employee, resident in Portugal;
- Making important business decisions in Portugal and evidencing these through minutes of board meetings;
- Ensuring sufficient commercial activity occurs in Portugal.
A Summary of the Advantages Available to Companies Registered in Portugal
Portuguese companies can offer a number of advantages. An important positive is the extensive network of Portuguese double taxation treaties with numerous jurisdictions around the world, with more than 70 agreements in place. This enables cooperation regarding taxation between respective jurisdictions and the smooth enforcement of respective tax laws.
Portugal is also part of the European Union and therefore has free access to the European market.
Please see below a Dixcart Article that summaries the advantages that are available: the-advantages-of-portuguese-companies-including-portuguese-holding-companies
What Substance Criteria are Applicable for Companies Registered in the Madeira International Business Centre of Madeira?
Specific substance criteria are required to be met for companies operating in the International Business Centre of Madeira (IBCM).
This criteria includes:
- Following the incorporation of a company:
- Within the first 6 months of activity, the IBCM company must hire at least, one worker, and undertake a minimum investment of €75,000 in fixed assets, within the first 2 years of activity. OR;
- If it hires six employees, during the first 6 months of activity, it will be exempt from undertaking the minimum investment of €75,000.
- On an ongoing basis, the company must have at least one full time employee on its payroll, paying Portuguese personal income tax and social security. This employee can be the Director or a Board Member of the IBCM company.
A Summary of the Advantages Available to Companies Registered in the International Business Centre of Madeira
Please see the following Dixcart Article, which explains the benefits available to companies registered in the International Business Centre of Madeira in more detail and also explains the capping of benefits that is applicable:
Additional Information and Assistance from Dixcart
Dixcart has extensive experience in the incorporation of each of the three types of company detailed above. Dixcart Portugal also has expertise in advising how substance may be established and maintained, as well as having an in-depth knowledge regarding Portuguese double taxation agreements.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.