Business entities in Madeira
Wholly foreign owned entities
- Foreign entrepreneurs can wholly own a Madeira company in 1 week. This company must be owned by a minimum of one director and one shareholder of any nationality and residing anywhere in the world. Corporate directors are not allowed;
- The minimum share capital for a LLC company (Limitada/Lda) amounts to only €1 per shareholder. This is the most common type of incorporated companies. A Corporation or a Public Limited Company (Sociedade Anónima/SA) requires minimum paid-up capital of €50,000;
- A foreign company can register a branch in Madeira to invoice customers, sign local sales contracts and receive income from local customers;
- A foreign company can register a representative office in Madeira to engage in activities such as i) promoting the business of the parent company and ii) market research. A representative office in Madeira cannot make direct sales.
Madeira free zone company
- Many international entrepreneurs considering Madeira company formation opt to set up a legal entity in the International Business Centre of Madeira (IBC)/Free Trade Zone (FTZ);
- Madeira International Business Centre company formation provides a tax-efficient solution for international trading or a holding company. A Madeira company formation is a perfect entity to book international profits with minimal tax liability;
- Madeira is an attractive jurisdiction to form an EU manufacturing company because:
- A Madeira Free Trade Zone is exempt from income tax and capital gains tax;
- Madeira has both skilled and unskilled labour, speaking multiple languages and available at relatively low cost;
- Low operating costs compared to other European jurisdictions, particularly in relation to wage levels, telecommunications, facilities, energy and many others;
- The cost of living in Madeira is 50% lower than the rest of Europe;
- Certain types of business in Madeira within the finance sector can apply for International Service Entity status, which means that they will be outside the scope of GST. These companies are generally deposit takers, or trust or fund services businesses and the majority of their business is not the provision of goods and services to Madeira residents;
- An EU VAT number can be obtained for this entity.
- For International Business Centre of Madeira (IBC) company registration, a registered address is enough. Our Client will not have to rent premises in order to conduct business;
- International entrepreneurs undertaking Madeira company formation in the IBC are liable to pay a corporate tax of only 5% until 31 December 2020 provided some conditions are met. This is the lowest corporate tax in the entire EU;
- A Madeira IBC company, if proper structured, are able to remit dividends to non-residents without the imposition of withholding tax;
- Unlike other territories of Europe, Madeira IBC is not an “off-shore” territory. It is ruled by Portuguese law and considered a part of the EU territory according to the EC Treaty (article 299). A Madeira IBC company is, for legal and tax purposes, a Portuguese company but with special tax benefits;
- A Madeira IBC company, being a Portuguese company, can provide a Certificate of Residence issued by the Portuguese Tax Agency.
- Corporate directors are not permitted;
- IBC companies are allowed to conduct trade business with Portuguese companies, however, profits arising trade activates with Portuguese companies outside the IBC will be taxed at the normal rate of 23%;
- All Madeira International Business Centre companies must fulfill the obligations as any other Portuguese company. Generally these obligations are i) submit annual accounts to the relevant authorities, ii) lodge an annual corporate tax return, iii) have correct bookkeeping procedures (IAS/IFRS), iv) submit a quarterly or monthly VAT return and report to the tax agency all tax invoices issued to customers and v) submit a monthly social security return for resident employees;
- A Madeira IBC company is subject to special licensing process and in order to benefit from the low corporate tax has to comply with one of the following pre-established requirements:
- Creation of at least one job in the first 6 months of operation and undertake a minimum investment of €75.000 in the acquisition of fixed assets in the first two years of operation. The assets do not have to be acquired in Portugal or be in Portuguese territory and can be tangible or intangible;
- Creation of at least six jobs in the first 6 months of operation. The jobs can be for a nonresident workers or nonresident directors, regardless if they are remunerated or not, in Portugal or abroad, or if there is withholding taxes and social security contributions to be paid in Portugal or not.
On the other hand, the reduced corporate tax rates are applicable up to a ceiling placed upon the annual taxable income, which varies according to the number of jobs created, as follows:
Number of Jobs Minimum Investment Ceiling 1 to 2 €75,000 €2,730,000 3 to 5 €75,000 €3,550,000 6 to 30 - €21,870,000 31 to 50 - €35,540,000 51 to 100 - €54,680,000 More than 100 - €205,500,000