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Madeira, an autonomous region of Portugal, is more than just a picturesque island destination. Over the years, it has evolved into an appealing business hub for international companies looking for favorable tax structures and strategic positioning within the European Union (EU). Thanks to its special tax incentives, excellent infrastructure, and a business-friendly environment, forming a company in Madeira has become a smart choice for entrepreneurs and corporations alike.

Why Choose Madeira?

1. Strategic Location and EU Access
Located off the northwest coast of Africa, Madeira offers a unique gateway between Europe, Africa, and the Americas. Companies formed here can benefit from access to EU markets, enjoying the freedom of trade and movement across Europe while remaining outside the Schengen visa zone. This location also allows businesses to capitalize on trade opportunities with Africa and Latin America.

2. Madeira International Business Centre (MIBC)
The real draw of forming a company in Madeira comes from the Madeira International Business Centre (MIBC), an initiative by the Portuguese government to promote investment in the region. Companies registered under the MIBC can enjoy a reduced corporate tax rate of 5%, compared to the standard Portuguese corporate tax rate of 21%. This special regime has been extended by the European Commission until 2027, giving businesses long-term stability in planning their operations.

Tax Advantages in Madeira

One of the most significant benefits of setting up a company in Madeira lies in its attractive tax regime. Unlike mainland Portugal, Madeira offers a number of incentives for businesses under the MIBC.

1. Reduced Corporate Tax Rate
Companies registered under the MIBC enjoy a 5% corporate tax rate until 2027. This makes Madeira one of the most attractive jurisdictions in the EU in terms of corporate tax. By comparison, businesses operating in mainland Portugal are subject to a standard corporate tax rate of 21%, with an additional municipal surcharge that can increase the rate to as high as 31.5%.

2. Exemption from Withholding Taxes
In addition to the reduced corporate tax rate, dividends paid to non-Portuguese resident shareholders are exempt from withholding taxes. Furthermore, Madeira offers exemptions on interest, royalties, and capital gains under certain conditions, making it highly beneficial for companies with international operations or holding structures.

3. VAT and Custom Duties
Being part of Portugal, Madeira applies the European Union VAT regime, but with a reduced VAT rate of 22%, compared to 23% in mainland Portugal. Moreover, Madeira's location outside the European customs territory allows companies to benefit from exemptions on certain customs duties, making it an ideal hub for trade and logistics operations.

Double Taxation and Treaties

Portugal has an extensive network of Double Taxation Agreements (DTAs) with more than 80 countries. This means companies incorporated in Madeira can enjoy relief from double taxation on income, avoiding the situation where both Madeira and the country of the company's foreign investors or partners levy taxes on the same income. These treaties facilitate smoother business operations for international investors, allowing them to operate without the fear of excessive taxation on dividends, interest, or royalties earned by the company or its shareholders.

Substance Requirements and Compliance

It’s essential to note that Madeira’s tax benefits under the MIBC come with certain substance requirements. In particular, companies must prove that they are carrying out genuine economic activities in Madeira. This means maintaining an office, employing staff, and demonstrating business operations that generate revenue. These requirements ensure that businesses are not simply shell companies set up to take advantage of tax benefits.

However, these substance requirements can be met without excessive burden, especially considering Madeira’s favorable labor costs and growing infrastructure. Moreover, companies in industries such as shipping, aviation, renewable energy, and financial services can particularly benefit from the island’s specialized frameworks, support, and access to skilled workers.

Benefits of Setting Up in Madeira vs. Mainland Portugal

1. Tax Optimization
The key advantage of choosing Madeira over mainland Portugal is the opportunity for tax optimization. The 5% corporate tax rate in Madeira, coupled with exemptions on dividends and capital gains, provides companies with the tools to significantly reduce their tax burden. On the mainland, these same companies would be subject to much higher corporate tax rates and withholding taxes on dividends paid to non-residents.

2. Access to Skilled Labor at Competitive Costs
Madeira offers access to a skilled and multilingual workforce at a lower cost compared to many other Western European locations, including Portugal’s mainland. This is a significant advantage for businesses that want to optimize operational expenses while maintaining quality.

3. Infrastructure and Connectivity
The island boasts modern infrastructure, including international ports and airports, high-speed internet, and advanced telecommunications networks, ensuring seamless connectivity with international markets. Madeira also benefits from a strong financial services sector, with access to EU banks, insurance, and legal services that support international business.

4. Political and Economic Stability
As an autonomous region of Portugal, Madeira enjoys the political and economic stability of being part of the EU. This offers investors the security of operating within a legally and economically stable environment, with the added benefits of EU legislation, regulations, and protections. Companies operating here also benefit from Portugal's overall stable and diversified economy.

5. Lifestyle and Environment
Madeira is known for its quality of life, offering a mild climate, excellent healthcare, and a safe environment. This makes it an attractive location not just for businesses but also for entrepreneurs and executives looking to relocate with their families. The island’s charm and natural beauty add to its appeal, creating an ideal work-life balance.

Conclusion: A Strategic Choice for Global Businesses

For companies seeking tax efficiency, access to European and international markets, and a stable, business-friendly environment, Madeira stands out as a strategic choice. While it enjoys all the benefits of being part of Portugal and the EU, it offers a more favorable tax regime, unique business incentives, and a lower cost of operation compared to mainland Portugal. Whether you’re looking to establish a holding company, manage international logistics, or expand into the EU, Madeira provides a robust platform for sustainable growth and international success.

Frequently Asked Questions

What are the steps to start a business in Madeira?

To start a business in Madeira, you need to register your company with the local authorities, obtain necessary licenses and permits, open a bank account, and comply with tax obligations.

Can foreigners start a business in Madeira?

Yes, foreigners can start a business in Madeira. However, they may need to fulfill certain requirements such as obtaining relevant visas or permits.

What are the benefits of starting a business in Madeira?

Starting a business in Madeira offers advantages like low corporate tax rates, access to EU markets, financial incentives for specific sectors, and an attractive business environment.

Do I need to have previous experience or qualifications to start a business in Madeira?

No specific qualifications or previous experience is required to start a business in Madeira. However, having knowledge about your chosen industry will be beneficial for your success.

How long does it take to set up a new business in Madeira?

The time taken to set up a new business in Madeira varies depending on factors like the complexity of the registration process and obtaining necessary approvals. It can range from several weeks to months.
 

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