|  Guernsey Office  |  Isle of Man Office  |  Madeira Office  |  Malta Office  |  Nevis Office  |  Sark Office  |  Switzerland Office  |  UK Office  |  Resourcing  |  

Madeira - Benefits

Madeira has become a successful international business centre since the Free Trade Zone Legislation was enacted with the full support of both the Portuguese Government and the European Union. 

The International Business Centre Legislation provides for the setting up and development of the following:

  • Manufacture and Warehousing of Goods
    Industrial activity must be undertaken in the designated area of Canical in Madeira, and may include activities of an industrial or commercial nature. In particular this includes manufacturing, assembling, packaging or warehousing of goods, provided that these operations do not present any threat to national security, public health or the natural environment.

  • International Services
    As in other financial centres, international services, predominantly of a non-financial nature, may operate in and from Madeira. These activities may include, amongst others, international trading, management services, consulting services, the provision of trustee services and holding and property companies. As these types of activity do not normally involve the physical movement of goods, they can be established anywhere on the island, including the capital, Funchal.

  • Financial Activities
    The legislation allows for the establishment in Madeira of branches of both international and Portuguese banks, as well as other financial institutions. Such bank branches can deal in foreign exchange operations, free from any Portuguese domestic exchange control regulations, and transactions can be carried out in any foreign currency.

  • International Shipping Registry
    Madeira has created an international register for ships and yachts. Vessels are registered as operating under the Portuguese flag, a traditional and respected maritime jurisdiction. No taxation (or a very low level) will arise on the activities of the vessel when operating outside Portuguese territory, as long as the vessel is owned by a company licensed to operate within the International Business Centre.

Conditions have been created under the International Business Centre Legislation to give Madeira a competitive edge over many other international financial centres. These advantages are:

1.      Tax Benefits

Companies licensed to operate in the International Business Centre of Madeira enjoy a number of tax benefits which are guaranteed to the end of 2020.

  • Corporate tax rates ranging from 4%-5% (see table on Key Characteristics page).*
  • No capital duty, no stamp duty and no property transfer tax.
  • Automatic VAT registration is applied at the attractive rate of 16%.
  • Access to the EU Parent-Subsidiary Directive for dividends and to the EU Interest and Royalties Directive for interest and royalty payments. 
  • No capital gains tax for companies licensed prior to the year 2001.
  • Access to most of the Double Taxation Agreements that are currently in place between Portugal and other countries.
  • Madeira offers an International Register for ships and yachts. This can provide substantial tax saving opportunities for vessel owners.

*Please note: for financial institutions approved by the Bank of Portugal and licensed to operate within the International Business Centre, higher rates of corporation tax apply.

The shareholders of the licensed companies are also exempt from any withholding tax on profits received from those companies.

For companies not licensed in the IBC of Madeira, the taxation system remains the same for local companies and individuals, as those which exist in the rest of Portugal.

As the companies incorporated in Madeira are Portuguese companies, they are also entitled to virtually all the benefits produced by the network of Double Taxation Agreements between Portugal and other countries.

2.      Customs Duties and VAT

There is an exemption from customs duties for many goods and raw materials imported into the International Business Centre.

On incorporation, all Portuguese companies are automatically provided with a tax reference number, which is also used for value added tax purposes. The companies themselves are registered for value added tax, and when trading within the European Union can take advantage of the exemptions from value added tax on the movement of goods within the European Union.

3.      VAT Opportunities

When goods or services are supplied from one EU country to another, benefits can be achieved if the supply is from a country that charges a low rate of VAT. Madeira currently has one of the lowest standard rates of VAT charged in Europe. This low rate compares favourably with other European countries and is very attractive in a competitive market. It is therefore no surprise that many multinationals are using Madeira as their gateway into Europe.

A business based either inside or outside the EU could form a Portuguese subsidiary based in Madeira. The company is automatically registered for VAT in Madeira and would only be liable to charge VAT at the standard rate on sales to private individuals in the EU. If the Portuguese subsidiary is registered under the Madeira International Business Centre Legislation, then other tax exemptions and advantages are available to the company.

  • DixcartNet.pt
    DixcartNet.pt provides internet service facilities for international companies operating from the island of Madeira. We offer a totally dedicated ISP and ASP infrastructure, which means that DixcartNet.pt clients are fully assured of their IT service supply. Specific IT maintenance contracts can also remove the need for companies and clients to employ on-site IT specialists.

  • VAT on Internet Delivered Services within Europe
    Location is an extremely important consideration, as sales of electronically delivered services are taxable.

    Madeira is a highly relevant jurisdiction to consider for two types of vendor:

    i)        Non-EU Vendors
    From July 2003, registration in one of the member states of the EU has been required to enable VAT to be added to the cost of supply by non-EU vendors. VAT will be charged based on the rules applicable in the customer's country. With a number of EU member states, different rates of VAT could technically be charged.

    Enormous simplification can be achieved through the incorporation of a European subsidiary, and the registration of the subsidiary in one EU country. Financial benefits can be obtained from registering in a location where the VAT rate is at a relatively low level. Madeira provides one of the lowest rate locations in the EU and therefore offers vendors a competitive advantage over suppliers registered elsewhere.

    The complication of the requirement to clarify the location of the customer within the EU may also not arise for a company incorporated in Madeira, as local Portuguese VAT regulations would apply and the entity would be regarded as a normal EU enterprise.

    ii)      EU Vendors
    Location of a subsidiary in Madeira will ensure that a vendor can charge one of the lowest rates of VAT in Europe, as opposed to higher rates applicable in other EU countries.

    With Madeira increasingly being considered as a jurisdiction for the location of internet based corporations, the provision of reliable IT resources and services is absolutely essential.

  • VAT on the Supply of Telecom and Digitalised Services
    The advantage in supplying telecom and digitalised services from Madeira lies in the fact that Madeira can offer one of the lowest rates of VAT on the supply of such services in the EU.

4.      Additional Commercial Advantages

  • European Union Status
    Companies incorporated in Madeira are Portuguese companies, so the Madeira International Business Centre is within the European Union. Such status provides benefits for both companies within the EU and outside because the movement of goods between member countries can be arranged without VAT or taxation complications. Madeira is also entitled to benefits arising from most of the Double Taxation Agreements currently in place between Portugal and other countries.

  • Exchange Controls
    All companies licensed to operate in the International Business Centre of Madeira benefit from complete freedom from exchange controls. The companies can operate using any currency and they may transfer capital, profits and funds freely. There is specific legislation covering bank secrecy and there are both civil and criminal penalties for those convicted of breaches of confidentiality.

  • Substance Requirements
    The establishment of the Dixcart Business Centre in Madeira offers the opportunity for subsidiary companies to demonstrate a real presence and management organisation within Madeira.

  • Work Force
    The Madeira authorities prefer that the local workforce be employed. However, there are no legal limitations on the ability of companies to employ expatriate workers of any level of skill.

The benefits of the Madeira International Business Centre Legislation are not restricted to Portuguese companies, they are available to companies registered anywhere in the world through the opening of a branch in Madeira. Dixcart has detailed knowledge and experience of this process and is able to assist companies in setting up a branch in Madeira if this is preferred to setting up a subsidiary. We also advise on the advantages and disadvantages of a branch versus a subsidiary.