MBIC – The Madeira International Business Centre
Being Madeira part of the European Union, the MIBC is an ideal entry point to the EU market.
The MIBC has constantly been authorised by the European Union as a valid form of State Aid for regional development and is fully regulated and supervised by the Portuguese tax authorities, the Bank of Portugal and other regulatory entities.
It is well worth noting that Madeira has reduced operational costs when compared to other EU countries, as well as high-quality support services. We, therefore, like to consider Madeira an onshore domicile of excellence.
Further information is provided in the links below:
The approved Tax Regime IV provides the following main tax benefits:
- A reduced corporate tax rate of 5%, guaranteed until 2027;
- Exemption of withholding tax on dividends paid to non-Portuguese resident shareholders (corporate or individuals), as long as these are not resident in a blacklisted jurisdiction;
- No withholding tax on interest and other forms of payment for shareholders’ loans, capital allowances or advances made by the shareholders to the company, as long as the shareholders are non-residents in Portugal.
- Worldwide participation exemption regime applicable to dividends, reserves, capital gains, and losses;
- Exemption of withholding tax on royalties, services fees or interest paid to third parties;
- Possibility to apply Portugal’s recent Patent Box Regime;
- Capital gains tax exemption on the sale of participations held in the Madeira company;
- Exemption of notarial and registration fees;
- 80% reduction on the rate of Stamp Duty, municipal transaction taxes and municipal property taxes;
- 80% reduction on regional and municipal surcharges.
- Reduction of the PEC – Special Advance Tax Payment and Autonomous Taxation in the proportion of the applicable corporate tax rate (reduction of 76,2%).
A MIBC company can also apply the Portuguese worldwide participation exemption regime which provides a full tax exemption on dividends or reserves received by a Portuguese company, under the following conditions:
- the participation in the subsidiary is equal or superior to 10% and held for at least 12 months;
- the entity distributing dividends is NOT located in a blacklisted jurisdiction;
- the entity distributing dividends is subject and not exempt to Portuguese income tax (when the subsidiary is located in Portugal), to a tax
referred in article 2 of the Parent/Subsidiary Directive (when the subsidiary is located within the EU) or, in other cases, to a tax identical
or similar to Portuguese corporate income tax and is subject to a tax rate that is no less than 60% of the normal Portuguese tax rate;
- This participation exemption regime is also applied to capital gains or losses resulting from the sale of participations under the conditions mentioned above.
To be entitled to these benefits, the licensed companies should comply with one of the following substance requirements:
- creation of one to five jobs in the first six months and a minimum investment of €75,000.00 in the acquisition of tangible or intangible fixed assets, during the first two years; or
- creation of six or more jobs in the first six months.
Furthermore, the referred reduced tax rates will only apply to certain limits of the annual taxable income, which depend upon the number of employees engaged by the MIBC company in each tax year, as follows:
- 1 to 2 jobs: € 2,730,000.00;
- 3 to 5 jobs: € 3.550,000.00;
- 6 to 30 jobs: € 21,870,000.00;
- 31 to 50 jobs: € 35,540,000.00;
- 51 to 100 jobs: € 54,680,000.00;
- More than 100 jobs: € 205,500,000.00.
The portion of the year’s taxable income which exceeds the plafond applicable, taking into account the number of employees engaged by the MIBC company, will be taxed at the general income tax rate applicable in Madeira (in 2021 the standard corporate tax rate in Madeira is fixed at 14,7%). A MIBC company can also carry out activities in Portugal, however, all income obtained from Portuguese sourced activities will be taxed at the standard corporate income tax rate.
Additionally, a newly licensed Regime IV company will also need to ensure that its tax benefit is subject to one of the following additional annual maximum limits:
- 15,1% of the annual turnover; or
- 20,1% of the annual gross value added; or
- 30,1% of annual costs incurred with the workforce.
Capital gains derived by non-residents from the sale of participations of a Portuguese company continue to be exempt from taxation in Portugal unless the non-resident is domiciled in a blacklisted jurisdiction or the Portuguese company holds real estate located in Portugal.
A MIBC company can also benefit from the Portuguese Patent Box Regime providing a 50% exemption from corporate tax for companies exploiting patents, industrial designs, and models protected by IP rights and registered after 01.01.2014.
The combination of the CIT Code and special tax regime applicable to MIBC companies may result in the income derived from the temporary use of patents and industrial drawings or models being subject to an effective tax rate of 2,5%, in case certain conditions are met.
From a tax perspective, this regime is highly competitive (compared to other European countries’ regimes) and may represent a significant saving, regarding patents and industrial designs or models which are registered in Portugal.
As a Portuguese company, MIBC companies are also automatically registered for VAT purposes upon incorporation and subject to Portuguese VAT regulations, thus benefiting from the rate of VAT in Madeira – currently 22%.