Madeira

Basic taxes (briefly)

Personal tax 14,5-48%
Corporate tax (in detail) The standard tax rate is 21%. In some regions and for small enterprises, the rate may be lower in terms of part of income.
Capital gains tax. Details Madeira has no capital gains tax
VAT. Details Стандартная ставка НДС составляет 23%. В отношении некоторых товаров и услуг применяются пониженные ставки в размере 13% и 6%
Other taxes No
Government fee
Stamp duty Rates vary by transaction

International tax agreement

   


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TAXES

General Info

Madeira is part of Portugal, so that taxation follows Portuguese principles. However, due to its IBC status, Madeira enjoys it own features:
  • Reduced Income tax (IRC): 5% (2013 – 2020);
  • Exemption of mandatory withholding tax at source for royalties, interest and services;
  • Tax credit for international double taxation;
  • Exemption of capital gains tax resulting from the sale of equity interests in the company;
  • Exemption of Stamp Duty;
  • Exemption from Real Estate Transfer Tax (IMT) and Municipal Property Tax (IMI);
  • Exemption of notary and registration fees.

Personal tax

Personal income tax is charged on income of individual residents and non-residents. In general Portuguese resident individuals are assessed on their worldwide income, whereas non-residents are assessed on Portuguese sources of income, subject to the terms of double taxation treaties.
The tax is levied at progressive rates, varying according to bands of income:
Income, EUR Tax rate
Up to 7,000 14.5%
From more than 7,000 up to 20,000 28.5%
From more than 20,000 up to 40,000 37%
From more than 40,000 up to 80,000 45%
From more than 80,000 48%

Besides, since 2013 a solidarity surcharge applies:
Income Rate
Over 6,790 3.5%
80,000 – 250,000 2.5%
Over 250,000 5%

There are 6 categories of income that are subject to personal income tax: employment income, business and professional income, investment income, real estate income, increases in net worth and pensions.
Deductions are available, including health and education expenses, health and pension plan contributions. There are also tax credits that depend on marital status, the number of children and income.
In 2009, in order to attract high net worth individuals, a new more favorable personal income tax regime for non-habitual residents was created and will apply for a period of 10 consecutive years. Expatriates, who establish their tax residence in Portugal but have not had resident status during any of the previous five years, are not considered to have habitual residence in Portugal. Net income from paid employment and self-employment, included in the list of high value-added activities of a scientific, artistic or technical nature (see below), which is earned in Portugal by non-habitual residents, shall be taxed at a fixed rate of 20%. Provided that certain conditions are met, the regime offers tax exemption in Portugal for income earned abroad.
Tax year ends on December, 31. The tax return filing deadline is 31 March (30 April if filed electronically).

Corporate tax

This new regime establishes that companies will be generally subject to 5% income tax from 2013-2020, in respect to income derived from licensed activities and provided that such income is not obtained from Portuguese sources.
To be entitled to these benefits, the licensed companies should however comply with the following requirements:
  • The company must have at least one paid employee or director (full-time or part-time) on its payroll;
  • If the company employs fewer than 6 employees (or directors), during the first two years of activity, it must make a minimum investment of €75 000 in the acquisition of tangible or intangible fixed assets.

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:
Number of employees Income, €
1-2 2,730,000.00
3-5 3,550,000.00
6-30 21,870,000.00
31-50 35,540,000.00
51-100 54,680,000.00
More than 100 205,500,000.00

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 and which is currently 23%.

Tax year

In principle, the tax year corresponds to the calendar year.
Corporation tax is declared and payable five months after the end of the tax year. A pre-payment of the final tax due must be made by the seventh, ninth and twelfth months of the tax year, based on the tax assessed in the precedent year.

Capital gains tax

Capital gains earned by non-residents in Portugal from the sale of a shareholding in a Madeira company shall not be taxed if the company's main assets do not include real estate in Portugal. This exemption shall not apply to shareholders residing in tax havens. Capital gains earned by the Madeira company on the sale of their subsidiaries or associated companies shall be exempt from taxation under the terms for a Participation Exemption (See under Participation Exemption). If the capital gains are not exempt because the Participation Exemption requirements have not been met, there is also the possibility of only half (50%) of the capital gains being considered if the capital gains are reinvested under certain conditions.

Losses

Tax losses can be deducted over the 12 subsequent taxation periods up to 70% of the taxable profit calculated for each tax period using the FIFO criterion. If the nature of the activity of the company has changed or at least 50% of the capital or the majority of the voting rights has been transferred, carryforward is allowed only if authorized by the Minister of Finance. The carryback of losses is not allowed.

Dividends

Under Portugal’s participation exemption, dividends received by a resident company from another resident company are exempt from tax provided the recipient is not considered a transparent entity and has held directly at least 10% of the capital of the payer company for one year before the distribution takes place.

Participation Exemption

Profits and reserves distributed to Madeira companies by their subsidiaries or associated companies, along with capital gains or losses occurring due to the transfer of shares in these companies, regardless of the percentage of the shares transferred and its transfer form, shall not contribute to their taxable profit, provided that:
  1. The Madeira company holds, directly or indirectly, and uninterruptedly, for the two years that precede the distribution or transfer, a participation that is no less than 5% of the share capital or the voting rights of the entity that distributes the profits/reserves or whose participation has been transferred.
  2. The entity that distributes profits/reserves or whose participation was transferred is not resident in a tax haven.
  3. The entity that distributes the profits/reserves or whose participation has been transferred is subject to and not exempt from corporate income tax (Portuguese companies), any tax referred to in the Parent-Subsidiary Directive (companies resident in the EU) or a tax of an identical or similar nature to that of corporate income tax, provided that the rate applicable to said entity is not less than 60% (13.8%) of the corporate income tax rate (other cases).
  4. The distributed profits/reserves do not correspond to costs deductible by the entity that distributed it.
  5. The company is not subject to a tax transparency regime.

For cases in which the Participation Exemption does not apply, there is a unilateral tax credit for international economic double taxation, namely income tax paid abroad by the entity residing outside Portugal on profits/reserves distributed to the Madeira company, provided that the first two aforementioned requirements are complied with in terms of the participation exemption.

Withholding tax

Companies in Madeira are exempt from withholding tax. A tax exemption (withholding tax) applies to the distribution of profits/reserves by a Madeira company, for entities that:
  1. Are resident in another EU Member State or the European Economic Area (EEA) – provided that administrative cooperation is guaranteed with respect to taxation in terms equivalent to those established in the EU – or in a state with which it has signed a convention to avoid double taxation;
  2. Are subject to and not exempt from a tax mentioned in the Parent-Subsidiary Directive (companies resident in the EU) or a tax that is identical or similar to Corporate Income Tax, providing the rate applicable to the entity is not less than 60% (13.8%) of the corporate income tax rate (other cases);
  3. Hold, directly or indirectly, and uninterruptedly for the 2-year period prior to distribution, a participation no smaller than 5% of the share capital or voting rights of the Madeira company that distributes the profits or reserves.

Council Directive 2003/49/EC of 3 June 2003 regarding a common tax regime applicable to the payment of interest and royalties between affiliated companies from different Member States also applies to Madeira companies. Payment of interest and royalties between companies in the EU shall be exempt from tax if:
  1. Both companies meet the criteria of one of the corporate forms stipulated in the Directive Annex;
  2. Both are subject to income tax;
  3. The direct capital relationship between both companies is >= 25%, or if both are directly held in >= 25% by a third party fulfilling the two abovementioned requirements, if in both cases the stake has been held for at least two years.

Madeira companies fulfill the first two requirements. If the third one is also met, it shall be possible for entities resident in another EU Member State to pay interest or royalties to Madeira companies without being taxed in the State of origin.
Payment of interest to third parties is exempt from withholding tax.

Special Regime for the Industrial Free Trade Zone

The Industrial Free Trade Zone (FTZ) is one of the business areas included within the institutional scope of the IBC, which is available to Portuguese and international investors. The FTZ offers an attractive customs and tax regime and a strategic location next to the commercial port and the Madeira International Airport, covering a total area of 130 hectares.
Reduction of corporate income tax and other exemptions apply to all industrial income generated in the Industrial Free Trade Zone, including income obtained in Portugal.
Companies performing industrial activities also benefit from a 50% corporate income tax deduction provided they meet at least two of the following conditions:
  • contribution to modernizing the regional economy, namely through technological innovation of products and manufacturing processes or business models;
  • contribution to the diversification of the regional economy, namely through new activities with high added value;
  • promotion of the hiring of highly qualified human resources;
  • contribution to improving environmental conditions.
  • xreation of at least 15 jobs that must be maintained for at least 5 years.

Final products obtained in the FTZ shall be considered to be of Portuguese origin when produced in accordance with European Community regulations pertaining to the origin of goods. Customs duties shall only be payable when the final product leaves the Industrial Free Trade Zone, and they shall only apply to non-EU raw materials and components used in the manufacture of the product.

VAT

Value-added tax (VAT) is a sales tax charged on the supply of goods and services provided in the course of a business in Portugal. VAT is also charged on the importation of goods from non-EU countries into Portugal, receipt of some international services in Portugal, and acquisition in Portugal of goods from other EU Member States. VAT rates differ in Portugal, Madeira and Azores, in the latter two regions the rates are lower.
There are different rates of VAT in Madeira due for different goods and services. These rates are:
  1. IVA geral (general) 22%: prepared food, non-essential products and services. Also on electricity and natural gas, lawyers, solicitors and legal representatives, etc.
  2. IVA intermedio (intermediate) 12%: bottled spring and mineral water; theatre, cinema tickets. fuel and oils used for heating, fishing, agricultural machines, etc.
  3. IVA reduzido (reduced) 5%: non-processed food (fresh meats, fresh fish, bird eggs), etc.

VAT Registration

A reverse-charge mechanism may apply to local supplies made by nonresident entities, avoiding the registration obligation for the supplier. However, nonresident suppliers are generally required to register for VAT in Portugal on the transfer of their own stocks to Portugal for the purposes of their own undertakings or if they sell goods or supply services to private customers.

VAT tax period and returns

Monthly returns must be filed when annual turnover exceeds EUR 650,000, otherwise, quarterly returns are permitted. Payment is required at the time of filing. Monthly VAT returns should be filed by the 10th day of the second month following the end of the relevant month. Quarterly returns should be filed by the 15th day of the second month following the end of the relevant quarter.

Other taxes and duties

Companies established in the IBC of Madeira are exempt from Property transfer tax, donations and inheritance tax due on the acquisition of immovable property for their premises; local taxes and levies.

Stamp duty

Documents, contracts and other operations requiring public registration carried out by IBC companies will be exempt from stamp (capital) duty, provided that other parties involved are not resident in Portuguese territory or are also companies operating within the legal framework of the IBC of Madeira.

Government fee

Madeira companies are required to pay annual government fee of 1800 EUR. If incorporation is done through the management company, the fee is 1300 EUR.

Foreign exchange control

There are currently no exchange controls in force in Madeira.

Double Tax Agreements

Portugal has exchange of tax information relationships with the following jurisdictions through:
  • 79 DTCs: Algeria, Andorra, Austria, Bahrain, Barbados, Belgium, Brazil, Bulgaria, Canada, Cape Verde, Chile, China, Colombia, Croatia, Cuba, Cyprus, Czech Republic, Côte d'Ivoire, Denmark, Estonia, Ethiopia, Finland, France, Germany, Greece, Guinea-Bissau, Hong Kong, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Japan, Kazakhstan, South Korea, Kuwait, Latvia, Lithuania, Luxembourg, Macao, Malta, Mexico, Moldova, Montenegro, Morocco, Mozambique, Netherlands, Norway, Pakistan, Panama, Peru, Poland, Qatar, Romania, Russia, San Marino, Saudi Arabia, Senegal, Singapore, Slovakia, Slovenia, South Africa, Spain, Sweden, Switzerland, São Tomé and Príncipe, Timor-Leste, Tunisia, Turkey, Ukraine, United Arab Emirates, United Kingdom, United States, Uruguay, Venezuela, Viet nam.
  • 16 TIEA: Andorra, Anguilla, Antigua and Barbuda, Belize, Bermuda, British Virgin Islands, Cayman Islands, Dominica, Gibraltar, Guernsey, Isle of Man, Jersey, Liberia, Saint Kitts and Nevis, Saint Lucia, Turks and Caicos Islands.

Anti-Avoidance rules

Transfer pricing: Portugal’s transfer pricing rules generally follow the OECD transfer pricing guidelines. The tax authorities may make pricing adjustments if special relations exist between the parties. Companies must prepare documentation to support their transfer pricing policies.
Thin capitalization: the thin capitalization rules were abolished since 1 January 2013; the rules are replaces by specific limitations on the tax deductibility of interest expense. Under the new rules, net financial costs are deductible only up to the greater of the following thresholds:
Percentage Year
70% 2013
60% 2014
50% 2015
40% 2016
30% 2017 and subsequent years

The amount exceeding the threshold in a given year may be carried forward to the following five years up to the 30% threshold.
Controlled foreign companies: under the CFC regime, undistributed profits of a nonresident company resident in a low-tax jurisdiction may be attributed to Portuguese resident participators with a substantial interest therein and taxed in proportion to their holdings. A substantial interest is a direct or indirect ownership (including beneficial interest) of at least 25% of the capital, voting rights or rights to income or assets or a 10% stake where more than 50% of the capital, voting rights or rights to income or assets is owned by Portuguese resident participators. The CFC regime is not applicable in an EU member state or in a EEA member state with which an agreement for administrative cooperation in tax matters equivalent to that established for the EU has been concluded.
Disclosure requirements: taxpayers or their agents are obliged to disclose to the Portuguese tax authorities certain corporate restructurings or transactions in which they are involved that may lead to substantial tax benefits.

ACCOUNTS

Accounting records

Companies based in Madeira must keep accounting records in Portuguese and should be set out according to the accounting standards.
An accountant is responsible for all record books. This accountant must be a certified member of Câmara de Técnicos Oficiais de Contas (the official Portuguese accountants’ society).
Portuguese law also requires that all accounting documents are kept at the company´s registered office.
All transactions of companies based in Madeira must be duly reported in the accounts with the originals of the supporting documents.

Financial statements

Each Madeira Company is obliged to prepare accounts in the Portuguese language. The General Assembly must approve the annual financial statements within 3 months from the close of the fiscal year to which it relates. The application for registration of the accounts must be submitted online through the IES, until the 15th July. The financial statements of a company must be submitted by a registered accountant.
Accounts must be prepared in accordance with the Portuguese Chart of Accounts. Financial statements must include a balance sheet, income statements, a cash flow statement and related notes.
All duly approved account approval documents must be deposited in the Company Registry Office, thereby placing them in the public domain.
Failure to comply with the registration of the accounts, precludes the registration of any facts about the company, except the appointment and removal from office of directors and supervision, for any reason other than the passage of time, administrative authority decisions, court actions, decisions, procedures and provisional measures, including seizure, pledge of shares or quotas or other rights over them, and other acts or measures affecting the free disposal and any other deposit registrations.
Companies that, for two consecutive years, fail to comply with the registration of accounts, are subject to an administrative procedure of dissolution and liquidation of the company.

Audit

As a rule, limited companies are exempt from audit of financial statements. However, Lda. companies that exceed two of the following three limits during two consecutive years are required to appoint a registered auditor (“Revisor Oficial de Contas»):
  • income amount: 3 million euros;
  • total net assets:1,5 million euros;
  • number of employees:50.

Annual Return

Generally speaking, Annual Return is a short review on the current state of the company, which is prepared by the company secretary annually. As a rule it includes the following information:
  • Incorporation information (registration date, registered address);
  • Information about directors and their resignation;
  • Information about secretaries and their resignation;
  • Information about registered capital, nominal value of shares and amount of issued shares;
  • Information about shareholders and share transfer.

Madeira companies are not obliged to prepare or file Annual Return.

Tax returns

In principle, the tax year corresponds to the calendar year.
Periodical tax returns must be submitted to the Portuguese authorities, through the Portuguese Fiscal Authorities website http://www.dgci.min-financas.pt/.
Corporation tax is declared and payable five months after the end of the tax year. Entities whose main activity is of a commercial, industrial or agricultural nature and those that are non-residents with a stable establishment in Portugal must pay corporate income tax (IRC) in three advance tax payments due in July, September and 15 December during the year when the taxable profit was earned, or in the case of companies that have adopted a fiscal year that does not coincide with the calendar year, during the 7th month, 9th month and on the 15th day of the 12th month of the respective taxation period.
Advance tax payments are calculated on the basis of the tax paid during the taxation period immediately before the period when such payments must be made, net of deducted withholding tax not subject to compensation or refund.
Advance payments by companies whose turnover during the taxation period immediately preceding the period when such payments must be made is equal to or less than €500,000 are equivalent to 80% of the tax paid during that year divided into three equal amounts rounded up in euros. If turnover is more than €500,000, advance tax payments shall be 95% of the amount of the tax, also divided into three equal amounts rounded up in euros.
Companies are not required to make advance tax payments when the tax of the immediately preceeding taxation period is less than €199.52.
If the company ascertains, through information available to it, that the amount of the advance tax payment already made is equal to or greater than the amount owed, it is not required to make the third advance tax payment. Likewise, if the third advance tax payment is greater than the difference between the total tax the company believes it owes and the payments already made, the company may limit the amount of the third payment to that difference. If an amount greater than 20% of the amount that normally would have been paid has not been paid, penalty interest shall apply.
If the payment is not made within the stipulated time periods, penalty interest shall immediately apply.

    Taxes of Madeira

    Min. rate for corporate tax 21%
    Capital gains tax No
    VAT 23%
    Withholding tax 25%/25%/25%
    Exchange control No
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