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Madeira International Business Centre (MIBC): EU Extends Licensing Period for New Companies until 31st December 2023

Background

The Madeira International Business Centre (MIBC), located in Portugal, was originally authorized by the European Union in 1986. The MIBC and the tax advantages that it enables companies to enjoy, are subject to periodic review by the European Union in conjunction with the Portuguese Government.

Due to the coronavirus outbreak, negotiations for the extension of the MIBC regime (which will correspond to the start of the 5th Regime), have been delayed until at least the end of 2020.

Due to this decision it has been necessary to make some amendments to the current 4th Regime, including the extension of the licensing period for new MIBC companies that, otherwise, would end in December 2020 (as the 5th Regime would then be applicable).

  • A press release, issued by the European Commission on 2nd of July 2020, has announced that the MIBC licensing period for new companies has now been extended until 31st December 2023, allowing the MIBC to continue to operate as normal, and for the 5th Regime negotiations to develop without being subject to any time pressure.

Madeira: Where and What

The Madeira archipelago is part of Portugal and is located in the Atlantic Ocean, 978 km southwest of Lisbon. The ‘Madeira International Business Centre’(MIBC) was approved by the European Union (EU), when Portugal formally joined the EU in 1986.

The MIBC Tax Regime

Businesses registered in the MIBC benefit from the following tax advantages:

  • A reduced corporate tax rate of 5%, applicable to ‘active’ income (such as trading activities or provision of services, etc.).
  • Under Portugal’s Participation Exemption Method, Madeira companies are exempt from withholding tax on the distribution of dividends, if certain conditions are met.
  • The participation exemption regime is also applicable to:
    • capital gains received by the MIBC entity (a minimum of 10% ownership, held for 12 months, is required), and
    • the sale of its subsidiaries, and
    • the payment of capital gains to the shareholders, by the sale of the MIBC company.
  • Exemption from withholding tax on interest, service fees and royalties paid to non-residents.
  • Exemption from stamp duty, property tax, property transfer tax, and regional and municipal surcharges (subject to an 80% limitation per tax, transaction, or period).
  • Application of the double taxation treaties signed by Portugal.
  • Application of the investment protection treaties signed by Portugal.

Substance Requirements

MIBC companies need to comply with well-defined and detailed substance requirements:

  1. After the incorporation of the company (one-off requirement):
  2. within the first 6 months of activity, the company must hire at least 6 workers, OR;
  3. during the first 2 years of activity, the MIBC company must invest €75,000 in the acquisition of tangible or intangible fixed assets.
  • On an ongoing basis, the company must have at least one employee on its payroll, paying Portuguese personal income tax and social security. This employee can be the Director or a Board Member of the MIBC company.

The corporate tax rate of 5% applies to a company’s taxable income. There is an upper limit of income, which can enjoy this favourable tax rate, based on the number of jobs that have been created in Madeira by the company.

These figures are detailed below:

The total benefits granted to companies licensed to operate in the Madeira International Business Centre are capped at one of the following amounts:

•          15.1% of the annual turnover; OR

•          20.1% of the annual earnings before interest, tax and amortisation; OR

•          30.1% of the annual labour costs.

The Madeira International Shipping Register

Madeira operates an International Shipping Register (MAR). Vessels registered with MAR carry the Portuguese flag and are subject to the International Treaties and Conventions entered into by Portugal.

Shipping companies licenced to operate within MAR also benefit from the corporate income tax rate of 5% until 2027. As with other Madeira registered entities, they also enjoy automatic VAT registration and have access to the Portuguese double taxation treaty network.

Ship owners of vessels registered in MAR are not required to have their head office in Madeira; it is sufficient to have local legal representation with adequate powers. Dixcart in Madeira can provide this service.

How can Dixcart Help?

  1. The Dixcart office in Madeira can provide a complete range of services related to the incorporation of a company in the MIBC and its day-to-day obligations, including: accounting, legal, human resources, tax compliance and IT.
  2. Dixcart experts can assist entrepreneurs and their families in relocating to Portugal and/or Madeira and obtaining the necessary residence permits.
  3. Dixcart operates two Business Centres in Madeira, both of which are located in the central commercial area of Funchal, the capital of Madeira. Our serviced offices provide a productive work environment and an effective option for organisations with international interests wishing to operate from the island, whilst meeting substance requirements.
  4. Dixcart can provide management services for ship owners with vessels registered on MAR.

Additional Information

If you require further information regarding the MIBC and/or if you would like information regarding the types of company and tax frameworks available in Portugal, please speak to your usual Dixcart contact, or to Carlos Santos at the Dixcart office in Portugal: advice.portugal@dixcart.com

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