The Tax System in Madeira (Portugal)

Resident companies in Madeira are taxed on their worldwide income. Companies incorporated and domiciled in different regions of Portugal are subject to different corporation tax rates. When a company is established in mainland Portugal, its taxable profits are hit with a corporate income tax rate of 21%. But the regular corporate tax rate for a Portuguese company based in the Autonomous Region of Madeira is only 14.7%. The Autonomous Region of Madeira is the most tax-friendly region in Portugal for business and investment.

In addition to the benefits mentioned above of establishing a company in Madeira, the first EUR 25.000 of taxable profit earned by a Portuguese company registered in Madeira and qualifying as a small and medium enterprise is 11.7%.

Starting a business in Portugal in 2022, specifically on Madeira Island, can entitle the said company to a corporate income tax rate of 5%. Companies that provide international tradable services duly registered and licensed within the Madeira International Business Centre (MIBC) are entitled to the lowest corporate tax rate in the European Union.

Companies operating from within the MIBC and that have their labor force working from the island benefit from the abovementioned corporate tax rate but also the following tax benefits:

Non-resident single and corporate shareholders of Madeira’s IBC companies will benefit from a total exemption from withholding tax on dividend remittances from the Madeira companies, provided that they are not resident in jurisdictions included in Portugal’s “black list”. Moreover, Portuguese corporate shareholders will also be exempt if holding a participation of at least 10% for 12 consecutive months.

In addition, the following benefits will be applicable:

• Exemption on capital gains payments to shareholders not resident in blacklisted jurisdictions;
• No withholding tax on the worldwide payment of interest, royalties and services.

There are three VAT rates: the standard rate of 23% (22% in the Autonomous Region of Madeira; 18% in the Autonomous Region of the Azores), the reduced rate of 13% (12% in Madeira; 9% in the Azores), and the super reduced rate of 6% (5% in Madeira; 4% in the Azores).

The reduced rate is applicable to the supply of some food products, some food and beverage services, musical instruments, agricultural tools or ornamental flowers.

The super reduced rate is applicable, among others, to the supply of some essential food products, periodic publications, books, pharmaceutical products, hotel accommodation, agricultural products, passenger transport, supply and installation of solar thermal and photovoltaic panels, as well as respiratory protective masks and disinfectant gel.

Exports and intra-EU supplies of goods are zero-rated.

LDAs are not subject to compulsory audits (these only apply to S.A.’s and SGPS – pure holding companies). Should an LDA exceeds two of the three thresholds indicated below during two consecutive years, an audit is required:

• Balance Sheet Total: € 1,500,000.00;
• Total net sales and other revenues: € 3,000,000.00;
• Number of Employees: 50

PRICE SHEET FOR ACCOUNTING SERVICES AND TAX FILINGS

Accounting Services Including:

• Bookkeeping;
• Balance sheet and financial statements;
• Approval of annual accounts and preparation of shareholders resolution;
• Delivery of the annual returns (Modelo 22 and IES);
• Delivery of quarterly VAT returns;