The Madeira Free Trade Zone regime has been a crucial tool for promoting the region’s economic development, encouraging investment and providing tax benefits. In this article, we will explore the main features and relevant updates, with special attention to the notes provided.
The main benefit of this regime is the Taxation under Corporate Income Tax (“IRC”) is 5% and can be reduced to 2.5% if it is a project of regional interest, approved by the Regional Government of Madeira.
Renewal of the Negotiation and 5th Renewal Package for the IRC Incentive
The regime is currently valid until 2028, and the fifth package is currently being negotiated with the European Union. It is noteworthy, especially concerning companies with vessels, that there is a vast majority and a strong focus on utilising this regime. This incentive has significant implications for companies involved in the maritime sector, encouraging renewed negotiations and consolidating Madeira’s role as a centre of naval activity.
Strategic Sectors: Sea (maritime companies), Industrial Free Trade Zone and International Services
The scheme is divided into:
a) The maritime sector receives special attention, with substantial incentives for companies operating in this field.
b) Industrial Free Zone, typically factories, supplements, chip production or others; and
c) International Services, such as international trading, dropshipping, e-commerce businesses, and international consultancy, among others.
The conditions for access to the scheme involve investment in tangible fixed assets (real estate, vehicles, computers, mobile phones, printers, among others) in the amount of €75,000 euros plus the creation of one job (which can be that of the managing partner, as long as they are tax resident in Madeira).
As an alternative to investing in tangible fixed assets, the company can choose to create 6 jobs (again, the workers must be tax residents or work from the island of Madeira).
The hiring of workers in both cases has a deadline of 6 months after the incorporation of the company and the investment in tangible fixed assets of €75,000 must be made (in Madeira) within 2 years.
The creation of jobs offers an additional stimulus to the local economy and creates a positive dynamic on the island of Madeira. In addition, the Industrial Free Trade Zone, with a focus on microchips, and international services, especially in the trading sector and the digital economy (technology, e-commerce and dropshipping), are strategic areas for the economic development of Portugal and in particular for the island of Madeira.
Timing – Schedule and procedures
Company incorporation while awaiting the licence can be requested after the company admissibility certificate has been issued, and may take a month to be issued, demonstrating the need for compliance from the start of the process.
Incentives for companies and workers
Incentives for companies and workers are fundamental components of the scheme. Startup Madeira, channelling innovation from the university, offers benefits to companies that create six or more jobs in the first six months. The condition of residence in Madeira for managing partners and the eligibility of expenses, such as real estate, vehicles and equipment, stand out as tangible support measures.
Licensing and Taxation
The licensing process is a crucial stage for companies, directly impacting taxation. Industrial or commercial companies must apply for licences, with special attention to financial activities, which are excluded from the regime, which implies the exclusion of funds, trading cryptocurrencies or other assets.
Taxation under Corporate Income Tax (“IRC”) is 5% and can be reduced to 2.5% if it is a project of regional interest, approved by the Regional Government of Madeira.
When there is a distribution of profits, there is an important distinction to be made if the shareholder/member is or is not tax resident in Portugal. If they are tax resident in Portugal, they will be subject to withholding tax at the rate of 28 per cent. If they are not tax resident in Portugal, they will not be subject to withholding tax.
Accounting and Business Management
Effective management is essential for companies in the Madeira Free Trade Zone. Accounting, with a focus on partnerships with partner companies and business consultancies, is a critical aspect. Company headquarters and staff recruitment are important considerations, emphasising the importance of substance in operations being carried out on the island of Madeira.
Fees and Annual Renewals
The fees associated with the scheme should also be carefully considered. There is a registration fee, and annual renewals and invoice payments are an integral part of the companies’ ongoing commitment. Annual renewal, especially for the more than 2,000 companies involved, highlights the robustness and success of the scheme.
In summary, the Madeira Free Trade Zone Regime continues to be an attractive option for investors and companies, providing a favourable business environment. The updates for 2028, with their emphasis on strategic sectors and significant incentives, reinforce Madeira’s position as a centre of dynamic economic activity.
This summary is not binding in any way, has been written as an article of analysis and opinion and does not dispense with consultation of the Law, as well as advice regarding existing obligations. We recommend that you seek appropriate legal advice.
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Rodolfo José Santos