Madeira: Country and Foreign Investment
Relationship with the EU
Madeira is part of Portugal and is fully integrated into the European Union. However, a number of special local regimes which are accepted by the EU combine to make Madeira a particularly advantageous location for many types of company with business activities in the EU. See the Free Trade Zone below; also see Offshore Business Sectors and Offshore Legal and Tax Regimes.
Madeira was declared an outermost region of the European Union both by the declaration on the outermost regions of the Community attached to Final Act of the Treaty of the European Union and subsequently by the Treaty of Amsterdam. Both of these treaties provided for the possibility of regional aid schemes that included special tax incentives to stimulate economic and social development.
Although Madeira's Free Trade Zone legislation represents a temporary regional aid scheme enacted by the Portuguese Government under the authorization of the European Commission pursuant to Article 92(3)(a) of the Treaty of Rome, the report of the Primarolo Code of Conduct Committee in 2000 included Madeira's Free Trade Zone on a list of 66 'harmful tax practices'.
The EU asked Portugal to review the tax regime in Madeira, and in December 2000 the government enacted a Tax Reform Act which moderated the existing tax incentives and somewhat reduced banking secrecy in Madeira.
During 2001 there were some doubts about the EU's willingness to continue its approval of the MIBC (Madeira International Business Centre) but a newly-elected Portuguese government in 2002 emphasised its support for the MIBC, and at the end of 2002 the EU approved the continuation of the MIBC regime, although with modifications.
Companies that, between 1 January 2003 and 31 December 2006, applied for and obtained a proper licence to carry out their activities within the MIBC benefited from a reduced rate of corporate tax of 1% in 2003-2004, 2% in 2005-2006 and 3% in 2007-2011. However, companies are obliged to create a certain number of permanent jobs. Companies that create more than five jobs will have access to the regime without further conditions. Those that create between one and five jobs will be eligible only if they undertake a minimum investment of EUR75,000 during the first two years of operations.
In January 2008, the Portuguese government issued a decree that allows new companies licensed from January 2007 to December of 2013 to enjoy reduced corporate tax rates of 3% between 2007 and 2009, 4% between 2010 and 2012 and 5% between 2013 and 2020. Companies licensed to operate within Madeira's International Business Centre before the year 2001 continued to benefit from a full exemption from corporate tax until the end of 2011, as well as from withholding taxes on dividends, royalty payments and capital duty. As of 2012, such companies fall under the new regime which is valid until the year 2020.