This post is devoted to Madeira, a Portuguese island where there is a free trade zone that attracts entrepreneurs from all over the world. This is a great place for company incorporation if you want to combine a well-reputed European jurisdiction and benefits typical of the best tax havens available. And if you are interested in a European residence permit, you will be able to easily get one if you register a company in Madeira as Portugal offers a program for those who wish to live there (and it leads to permanent residence and citizenship by naturalization within no more than 10 years).
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Madeira Free Zone: Overview
Madeira, Portugal, is a jurisdiction that set up an International Business Center (IBCM) to attract foreign businesses by offering special tax benefits to them. The company incorporated in Madeira Free Zone will only pay 5% on its profits. For comparison, if it is based in Madeira, the tax rate equals 14.7%, and companies that make their profits in Portugal will be liable for 21%.
Madeira Company: Special Features
Let’s look at the benefits and limitations of company registration in Madeira.
Limitations for Certain Companies
There are some businesses that have no right to obtain tax discounts even if they are registered in the Madeira free trade zone:
- Insurance companies
- Financial institutions (banks, and so on)
- Entrepreneurs that deal with cryptocurrencies and similar risky activities.
You can incorporate this kind of company in Portugal if you want to, but you will need special permission and you will have to comply with different tax rules.
Exemption from Taxes on Dividends and Capital Gains
If you want to benefit from zero tax rates on dividends and capital gains, your offshore company will have to fulfill certain requirements:
- They are required to hold at least 10% shares in a Madeira IBC for no less than 12 months.
- The subsidiary company needs to pay 60% of the tax rates applicable in Portugal.
- The subsidiary company cannot be a resident of any jurisdiction that is on the blacklist.
Manufacturing and Warehouse Companies
These companies can pay taxes at lower rates set in the Madeira Free Trade Zone and get a 50% tax reduction if they comply with some of the criteria below:
- They add value to the Portuguese economy by introducing tech advancements, new products, and so on.
- They expand the kinds of business activities to add variety to Madeira’s local economy.
- They actively employ qualified specialists to make the region more economically prosperous.
- They make important improvements to the environment.
- They create at least 15 jobs within 5 years.
In addition, the above companies can use a suspension mechanism, which means that import duties are only levied if the goods are transported outside the Madeira Free Trade Zone’s boundaries.
Tax Advantages for Shareholders
If you are a non-resident investor (an individual or a legal entity) who holds shares in Limited Liability Companies, you will not have to pay withholding taxes on the dividends received from businesses in Madeira. If you want to be eligible for these benefits, you should not be a resident of countries that are on Portugal’s blacklist, and you are required to own no less than 10% of shares for at least 1 year.
Tax Benefits for Madeira IBCs
Madeira IBCs enjoy some benefits in addition to those discussed above:
- 80% discount on the stamp duty if the involved parties are not residents of Portugal.
- 80% reduction on property taxes, property transfer taxes, and others.
Company Incorporation: General Requirements
Here are the conditions you will need to fulfill to successfully register a company:
- Your company needs at least 1 shareholder (a resident of any country)
- You will need a local office to keep the company documents.
- You will need to hire at least one director who can be a tax resident of any country.
- Company financial reports have to be submitted on an annual basis.
- Annual general meetings of shareholders can be held online.
- Audits are not required.
If you want to form a company in Madeira’s Free Trade Zone, we can do it for you within 15 business days. Please click on the above link to get in touch with our expert and discuss all the important issues.