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Madeira, the best business entry way to the EU
As of today, the wonders of this island are yet to be discovered by many.
Madeira is directly associated with romance. But to those few who know the secret of corporate structuring, Madeira’s magic holds a far deeper meaning.
We’re talking about the Madeira International Business Centre, which is Portugal’s best-kept secret: one of the few advantageous free economic zones in Europe with a 5 % corporate tax rate and with no other major withholding and dividend taxes.
It may seem too good to be true, but it’s exactly the case. Madeira is much more than wine and breathtaking sights.
Let’s summarize the advantages we’ll explain in depth in this article:
- Access to the European trading, financial and payment gateways via European and Portuguese banks with full substance requirements met and a duly-licensed corporate structure in Madeira.
- Tax rates lower than many midshore and even offshore jurisdictions with no blacklisting or other sanctions allowing you to trade and invest large capital volumes with total freedom.
- A surprisingly low-cost and effective labor force. If you make a minimum investment of €75k you only need to have one employee, and if you have at least six employees, which we can help you to hire, you don’ have any minimum investment requirements.
- A jurisdiction perfectly accepted by the OECD as an onshore, EU-compatible free trade zone, which means payments in and out will not be scrutinized like other blacklisted or offshore jurisdictions.
- A gorgeous place to have a second home and office. A welcoming local population, magnificent sights at every corner and almost COVID-19 free.
Madeira is a gorgeous island, which is part of Portugal, and fully integrated into the EU. It is located in the Atlantic Ocean, more than 900 km southwest of Portugal´s mainland.
The archipelago is well-known for its natural beauties, making it one of the top touristic destinations of Portugal, along with the Azores islands, Porto and Lisbon.
Its marvelous sights and top touristic destinations such as Cape Girão, the Funchal wine cellars, and Porto Moniz, have turned Madeira into a popular year-round destination.
The archipelago has more than 250.000 inhabitants and has Funchal as its main center. Madeira is an Autonomous Region of Portugal, which is one of the fastest-growing economies in the EU.
But we’re not here to talk to you about the natural wonders of Madeira or its political relationship with mainland Portugal.
We’re here to talk about opening a business in Madeira. Why? Simple. Madeira has one of the most important Free Trade Zones in the EU: The International Business Centre of Madeira.
When Portugal accessed the CEE (today EU), it agreed with the Community that to diversify and develop the economy of the island, Madeira would be able to offer tax benefits to attract foreign investment. This agreement gave birth to the International Business Centre of Madeira (IBCM).
The IBCM is the island’s primary tool for obtaining FDI, to the point it contributes with more than half of the island’s revenues in corporate tax.
Its success added to its full integration with Portugal and the EU, making it one of the best destinations for investment in all Europe. It is an efficient investment jurisdiction with sound and attractive regulations and guidelines.
The wide array of activities that can be carried out in the IBCM show that it has been tailored to appeal to the attentive investor that wants to invest in a reliable and beneficial environment. The economic activities that are benefited from the IBCM are incredibly varied, from manufacturing and services to e-businesses and shipping.
Madeira is a privileged gateway to the European market for many companies from non-EU countries. Using it as a principal base of operations has substantial tax benefits, and it’s a steady environment from which to manage your European businesses.
It gives you duty-free access, no transaction costs, and lower interest rates to a market of almost 500 million people.
And, if even that doesn’t seem enough, IBCM companies are subject to a reduced tax rate of 5 %, at least until 2027, as long as they comply with certain substance requirements (more on that ahead). Moreover, investing in the IBC of Madeira comes with reduced operational costs when compared with other European countries.
Let’s just compare one stat that will give you a good idea of what we’re talking about. The average office monthly rental cost in a prime Funchal location is €20/m2, while in Lisbon, the Portuguese capital,is of €25/m2, and in Madrid,is €35/m2.
But let’s talk in detail about the kind of advantages you may obtain from registering your business in the Madeira IBC.
Why Madeira? Seven reasons why you should establish your business in Madeira
An interconnected island
Madeira has an intercontinental airport with many daily connections from and to Lisbon and several weekly connections from and to London, Berlin, Zurich, Paris, Hamburg, and some North African capitals.
The island is a top tourist and retirement destination, which means locals are used to dealing with foreigners and are amazingly welcoming. German, Spanish, and French are widely spoken and English is, along with Portuguese, the business language.
A young and prepared workforce
The University of Madeira graduates around 300 students per year, and many Madeirans have studied in mainland Portugal or in Europe, which means you can recruit and hire highly qualified Portuguese young professionals, as more than a third of the population is under 24. Moreover, you don’t have any restrictions on employing qualified foreign staff, which means you have a larger pool from which to choose your team.
Fantastic quality of life
Madeira is a gorgeous island that captivates everyone at first sight. It enjoys a privileged climate and is one of the safest locations in all Europe. For its small size, Funchal, the capital, is a cosmopolitan place with a fantastic mix of cultures, a rich history, and spectacular vegetation.
Low cost of living
Madeira is a fantastic place to live in. Portugal has a top-notch education and health system, which is terrific. But what’s even better is that Madeira has one of the lowest costs of living in the European Union while enjoying a fantastic quality of life.
A variety of activities
The IBCM includes a wide array of activities, which covers pretty much all industrial, commercial, shipping, and service-oriented economic activities. Still, the largest benefits are on the trading, shareholding, e-business, shipping and yachting, and managing of intellectual property businesses.
A trust in Madeira is a top asset-protection vehicle. It allows you to designate the foreign legislation that will regulate your trust, as Portugal doesn’t have its own trust law. IBCM companies can establish trusts in Madeira for their non-financial income, which is entirely tax-free and kept safely under the trust.
Want to know more about our trust services in Madeira? Check out our article.
Fully integrated with the EU system
Madeira isn’t a European pariah. The IBCM is wholly harmonized with the EU and supported by the Union’s authorities. Moreover, it’s one of the most recommendable gateways to Europe. You can establish your first and primary headquarters in Madeira to do business across the EU, which means it opens the door for plenty of investment, asset protection, and tax planning strategies.
The main appeal of investing in the IBCM is its 5 % corporate tax rate until 2027. Moreover, if properly structured, dividends, capital gains, royalties, and interests are generally tax-free.
How to setup an IBCM company?
Setting up a company in the IBC of Madeira is a relatively simple process as long as you have an expert helping hand.
First, to obtain tax benefits, your company must comply with certain substance requirements.
The company must begin its activities within six months from licensing or one year if your company is an industrial or shipping business.
Also, the company must:
- Make a minimum investment of €75k in tangible or intangible fixed assets during its first two years of activity while creating at least one to five jobs during its first six months of activity,
- Create six jobs or more during its first six months of activity without minimum investment.
Also, the 4% corporate tax rate has certain ceilings depending on the number of employees the company has:
Applicable taxation base
€ 2.73 million
€ 3.55 million
€ 21.87 million
€ 35.54 million
€ 54.68 million
€ 205.5 million
Now, creating an IBCM company is somewhat simple. It’s a two-phase process if you wish to incorporate your business in Portugal directly:If the tax base exceeds the limit, then, from that point, it will be taxed at the general 20 % corporate tax rate.
Phase 1: Licensing the company within the IBCM
Phase 2:Registering the company
Although it may seem strange, we request the license even before incorporating the company. This will avoid paying unnecesary notary and registration fees since IBCM companies have a dedicated Registration Office. Moreover, if the license isn’t granted, it will avoid the additional process of liquidating a company that already existed.
Let’s explain Phase 1.
To obtain an IBCM license, you must submit an application to the SDM (Sociedade de Desenvolvimento da Madeira) in two copies in the name of an existing company, whether it’s in Portugal or abroad, or of a company that will be incorporated. That means branches of already existing companies can be licensed.
The application requires you to disclose the following information:
- Company name
- Company address
- Articles of association
- Activity to be undertaken under its respective NACE code
- Value of the investment
- Number of jobs to be created
Now, we can discuss Phase 2.
Creating a company in Portugal is a straightforward process, as in most OECD countries. The process can be completed in less than a week. The process to establish a limited private company, which is the most common corporate structure, is as follows:
Register at the one-stop-shop. You can do it physically in less than one hour as long as you submit all required documents, choose an available name, and pay the fee. You’ll get the articles of association and commercial registry. Partners will obtain the corporate ID card, SSN, and original by-laws. Generally, you can also register a Portuguese company online, but that’s not possible for ICBM companies.
- Open a corporate bank account (this is mandatory).
- Obtain a declaration of commencement of activity and register for VAT.
- Register with social security.
- Obtain a workers’ accident insurance at a private insurer.
- Register your employees with the labor compensation funds.
Your company needs 1) A physical office, 2) at least one shareholder, 3) at least one director (it can be a foreign director).
Main types of IBCM companies
Service-oriented and shareholding companies
Madeira is a top destination for service-oriented companies to carry out activities within and outside the EU as they have full access to the 5 % corporate tax rate, a full exemption from withholding taxes on payments of dividends, interests, and royalties.
Shareholding companies qualify for the exemption regime, which is applicable to dividends and capital gains, which can be combined with the full exemption from withholding tax of foreign payment of dividends, which makes Madeira a first-level destination for tax planning purposes.
Aside from the already-explained tax benefits, e-business companies will enjoy the fantastic quality of the Madeiran telecom infrastructure and fiber optic cables. Moreover, in 2015, the government approved that the place of supply for VAT purposes for telecom, broadcasting, TV, and digital services provided to non-EU tax persons is the place where the customer is established.
Madeira also has a high-quality support service with many top IT companies established on the islands, while telecommunications costs are a little less than the EU average. The island has a submarine cable station in the Madeira Datacenter, which allows for national and international SDH network interconnectivity, which offers amazing quality, cost, and scalability benefits.
Production and assembling companies
Madeira has an Industrial Free Trade Zone located eight kilometers away from the international airport. The zone has a total area of 130 hectares for production, assembling, and warehousing companies.
They enjoy all the already-mentioned preferential tax rates of the IBCM, but may also enjoy an additional 50 % corporate tax rate reduction if they:
- Contribute to modernize and diversify the island’s economy.
- Contribute to hiring high-competence human resources.
- Contribute to improving the environment of the island.
- Create at least 15 jobs that are maintained for at least five years.
Furthermore, Madeira’s port is located beside the industrial park, which reduces loading and unloading costs.
Vessel and yacht registration
The Madeira’s Shipping Register (MAR) is a reliable and competitive register that maintains the quality levels of the EU but comes with fantastic benefits. All companies, whether they are businesses incorporated in Madeira or branches or agencies of foreign businesses that do any kind of maritime transportation, can register in the MAR and will receive full benefits from its tax regime.
They will also benefit from:
- A flexible crew nationality requisite for vessels. Only 30 % of the safe manning of the ship must be EU citizens or Portuguese-speaking countries citizens, but the requirement can be eliminated if justified.
- Yachts have no nationality requirements.
- All crew members receive a full personal income tax exemption.
- Non-Portuguese crew members are exempted from the social security regime if they have guaranteed public or private insurance and the Portuguese crew receives reduced rates.
- Vessels can be registered in the name of an IBCM licensed company or a foreign company.
- VAT exemption if the yacht engages in high sea charter activities.
Who are we, and what can we do for you?
Along with NTL, in Mundo we have more than two decades providing first-level financial advice for high net worth individuals and investors from all over the world.
We offer top asset protection, corporate, banking, financial, investment, and immigration products for our clients through an unmatched network of experts.
And we consider Madeira a hidden gem in the EU.
It offers a swift incorporation process with rarely seen tax benefits. It’s one of the best entryways to Europe you can have.
That is why we can help you to incorporate, license, and operate your business in the Madeira International Business Centre.
Madeiran companies are a safe long-term investment that provides you with fantastic tax planning opportunities in a friendly and steady business environment.
Our experts in Madeira can:
Assist you with the incorporation of a company in Madeira or the registration of a branch of a foreign company.
Assist you in preparing an application for a license to operate within the IBCM and obtain such a license.
- Open a bank account for your IBCM company.
- Find adequate office space in Madeira.
- Accounting and legal support after incorporation and licensing.
Madeira is one of the best entryways to the EU we can offer in Mundo. It offers a thriving business environment with terrific tax planning possibilities. That’s why we consider it one of the best FTZ in the EU, if not the best. What are you waiting for? Contact us right now and start your business in Madeira!
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