Extension of the Deadline for New Licences

On the April 20th 2021, the Portuguese Tax Benefits Code was changed, including Article 36-A, which regulates the regime applicable to licensed entities in the Madeira Free Trade Zone. 

The main impact of this law is the extension of the deadline to apply for new licences to operate under the Madeira Free Trade Zone ('MIBC'), until the end of the year 2021, allowing companies to benefit from the tax advantages until the end of 2027.

Additional Clarification

Additionally, this law also clarified several concepts and questions that were not clear in the previous legislation, namely:

  • The jobs to be created and maintained in the company, must be filled by full-time workers (or by two or more part-time workers who together represent at least one full-time worker, in terms of annual work units).
  •  The jobs to be created and maintained in the company, must be filled by workers with tax residence in the Autonomous Region of Madeira, if not residing, they must exercise their activity there or be a crew member of a ship/ vessel registered in the International Shipping Register of Madeira.
  •  Only income generated/realized in the Autonomous Region of Madeira and through a business structure appropriate to the activity in the Autonomous Region of Madeira, can benefit from the 5% of Corporate Income Tax (CIT) rate.

Dixcart Expertise

We at Dixcart have more than 30 years advising businesses and companies regrading establishment and management in Madeira, always following strict policies of governance and compliance.

Tax Advantages Available to Companies Operating in the MIBC

Entities operating within the scope of the MIBC benefit from one of the most advantageous tax regimes in the European Union, enjoying all of the following:

  • Reduced corporate income tax rate: 5% (until 2027);
  • Participation exemption regime applicable internationally to dividends, reserves, capital gains and capital losses;
  • Exemption from withholding tax on the distribution of dividends to shareholders;
  • No withholding tax on royalties, services or interest paid to third parties;
  • Tax credit for international double taxation, both legal and economic;
  • Capital gains tax exemption for the sale of shares in Madeira companies;
  • Capital gains tax exemption on the sale of subsidiary companies, under the conditions of the participation exemption;
  • No withholding tax on dividends, interest and royalties received from associated companies from the EU, providing that the requirements of the parent-subsidiary directive or the interest and royalties directive have been met;
  • 80% reduction on the rates of; stamp duty, Real Estate Transfer Tax (IMT), Municipal Property Tax (IMI), regional and municipal surcharge, notary and registration fees;

Criteria

MIBC registered companies, must meet ONE of the following eligibility requirements:

  1. Create 1 to 5 jobs, during the first 6 months of activity, and make a minimum investment of €75,000 in the acquisition of tangible or intangible fixed assets during the 2 first years of activity; OR
  2. Create 6 jobs or more, during the first 6 months of activity.

Tax benefits are limited to the following ceiling amounts, depending on the number of full-time employees residing or carrying out their activity in Madeira:

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If the tax base exceeds the limit detailed above, the excess will be taxed at the 14.7% rate (Madeira general corporate tax rate).

The tax benefits are also subject to one of the following maximum annual thresholds:

  • 15.1% of the turnover obtained in Madeira; OR
  • 20.1% of the gross value added generated in Madeira; OR
  • 30.1% of labour costs borne in Madeira.

Summary and Additional Information

MIBCs offer a number of attractive advantages and certainty has been established in terms of formation of these companies until at least the end of 2021.

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.