International Business Centre of Madeira

The International Business Center of Madeira or Madeira International Business Centre , formally known as the Madeira Free Trade Zone, is a set of tax benefits authorised by Decree-Law 500/80 in 1980, legislated in 1986, and amended throughout the years by the Portuguese government to favor the Autonomous Region of Madeira. Its objectives are to attract foreign investment to the region and internationalise Portuguese companies by allowing them to benefit one of the lowest corporate taxation rates in Europe and in the OECD member countries.
Since 1987, the MIBC has been managed and promoted by a private company, Sociedade de Desenvolvimento da Madeira S.A., in which the Regional Government of Madeira currently holds of 48,86% the shares. The other main shareholder is Pestana Group, holding 51,14% of the shares. As of January 2020, the Vice-Presidency of the Madeira Regional Government announced its intention of acquiring 51% of the shares of SDM.
The International Shipping Registry of Madeira, created by the Portuguese government to develop its blue economy, is associated strongly with the MIBC. As one of Europe's largest ship and yacht registries, MAR accepts the registration of all types of commercial vehicles. In 2016, MAR had a total of 516 registered vessels. The registry offers benefits to shipping companies and ships, oil rigs and yachts, including a mortgage system and access to European continental and island cabotage.

European Union approval

The MIBC was created the year that Portugal became a member state of the European Union. The tax benefits approved for Madeira would be considered state aid under EU law, and subject to approval by the European Commission.
Approval of such tax benefits by the European Commission is covered by Article 349 of the Treaty on the Functioning of the European Union, which states that specific measures are to be implemented in the EU's outermost regions to offset structural, social and economic situations compounded by "remoteness, insularity, small size, difficult topography and climate, economic dependence on a few products, the permanence and combination of which severely restrain their development". Among the measures foreseen in the treaty is the creation of free-trade zones.
The MIBC is regulated and supervised by Portuguese and EU authorities. Through the MIBC, Madeira became the only jurisdiction in Portugal to allow the incorporation of trusts. In a Madeiran trust, the settlor designates the law regulating the trust.

Tax benefits

Since the 1980s, MIBC tax benefits have evolved. Their core principle is the reduction of the corporate tax rates in the Portuguese tax code.
Under the current set of tax benefits applicable to the MIBC tax benefits, the applicable corporate income tax rate—known in Portugal as IRC—for licensed companies is 5% of taxable income. However, if the company conducts business activities with other Portuguese companies which are not licensed to operate in the MIBC, the tax rate on profits is the normal 20%.
Since companies licensed in the MIBC are Portuguese companies for all legal purposes, they may qualify for the Portuguese-European participation exemption regime applicable to dividends and capital gains.

Main Tax Benefits	Tax Rate	Conditions
Corporate Tax Rate	5%	Applicable to profits derived from operations exclusively carried out with non-resident entities or with other companies operating within the MIBC.
Withholding Tax on Dividend Remittances	0%	Only applicable to non-resident single and corporate shareholders of MIBC companies and provided that they are not resident in blacklisted jurisdictions.
Capital gains payments to Shareholders	0%	Only applicable to those who are not residents in black listed jurisdictions.
Payments of interest	0%	N/A
Payments of royalties	0%	N/A
Payments of services	0%	N/A
Stamp Duty	80% exemption	Documents, contracts and other operations requiring public registration carried out by MIBC companies provided that other parties involved are not resident in Portuguese territory or companies operating within the legal framework of the MIBC.
Municipal property tax and property transfer tax, regional and municipal surtax as well as any other local taxes	80% exemption	N/A

Trusts

Apart from the unique rules applicable to trust within the MIBC, trusts are fully exempt from taxation on dividends received from shares, royalties or interest received on the deposits and all income distributed from the trustee to the trust's beneficiaries is fully exempt of taxation provided these beneficiaries are corporate entities licensed to operate within the MIBC or non-Portuguese resident entities/individuals.

Substance Requirements

The above-mentioned tax benefits, namely the reduced corporate tax rates, are only granted if the following substance requirements are met:

Number of employees required to be hired	Minimum investment	Taxable profit plafond
1–2	€75,000	€2,730,000
3–5	€75,000	€3,550,000
6–30	-	€21,870,000
31–50	-	€35,540,000
51–100	-	€54,680,000
Over 100	-	€205,500,000

Although the European Commission does not state anywhere in its regime approval, local stakeholders are of the understanding that the employees to be hire need to be on a full-time basis and resident, for tax purposes, on the Autonomous Region of Madeira.
The minimum investment, in tangible or intangible assets, of €75,000 must occur, within two years after incorporation, if the licensed company is to hire less than six employees.

Criticism

Although labor costs in Madeira are among the lowest in the Western Europe, the minimum regional wage being €850, the requirement concerning the need to create job posts has also been harshly criticized by stakeholders, namely the concessionary Sociededade de Desenvolvimento da Madeira who reported a mass exodus of companies to competitor jurisdictions, such Luxembourg and Malta, after the job creation was implemented and having it depend on the companies' taxable profit. Furthermore, the number employees per company was higher, before the employment requirement was established, since companies would hire on a need basis and not in accordance with law dictates.

Limits to the tax benefits

Licensed companies, operating within the MIBC framework are subject to one of the following annual maximum limits applicable to the tax benefits provided for in this regime:

20,1% of the gross added value obtained annually, or
30,1% of annual labor costs incurred, or
15,1% of annual turnover.

This means that the difference between the normal tax corporate rate in the Autonomous Region of Madeira and the 5% corporate tax rate on the taxable profit, granted to the companies, cannot exceed one of the amounts above mentioned.

Activities

The Portuguese Tax Benefits Statutes contain a list of economic activities which can benefit from tax benefits applicable to licensed companies in the MIBC:

International Shipping Register of Madeira

Linked to the MIBC is the International Shipping Register of Madeira which offers specific operational advantages, apart from the MIBC tax benefits which are applicable to both vessels, yachts, shipping and yachting companies incorporated in MIBC.

Specific benefits

Crew related benefits

Under the MIBC rules shipping companies with vessels registered in MAR and their respective non-Portuguese crew are exempt from contributing to the Portuguese social security, under the condition that some form of private insurance is guaranteed. Alternatively, crew members may opt for the Portuguese voluntary social security regime or any other type of protection scheme. In addition to the social security benefits, crew of commercial vessels and yachts registered in MAR are also exempt from personal income tax.
In the case of yachts there are no citizenship requirements imposed on the crew. However present regulations stipulate that 30% of the safe manning of all other types of vessels must be European, either EU and non-EU Member-States, or citizens of Portuguese-speaking countries. This requirement applicable to vessels can only be eliminated whenever if duly justified.

Yacht companies

Yacht owning companies duly registered in the MIBC have access of a discount of 20% on registration and annual fees due to MAR, apart from all the other MIBC benefits applicable to duly lincensed companies.

VAT exemption on yacht acquisitions

Provided that the importation occurs outside of Portugal, although made by a Portuguese company, there will be not Portuguese VAT liability as the yacht will not enter into Portuguese waters and shall not, assuredly, be subject to custom clearance in Portuguese territory. Nevertheless, the Portuguese tax authorities can, nevertheless, request an evidence of the VAT payment overseas in case of inspection.
On the other hand, should the acquisition of the yacht be made through a Portuguese company and the vessel be accounted as part of its fixed movable assets, the Regime of Intra-Community Supply of Goods should apply. In this case the Madeira Company should use the VAT reverse charge mechanism and the supplier's sale.

Mortgage law

A flexible mortgage system applies to vessels register under MAR, allowing the mortgagor and the mortgagee to choose, through written agreement, and the legal system of a particular country that shall govern the terms of the mortgage. Only in case of lack of an agreement shall the Portuguese mortgage law be applicable to vessel registered.
Surveys
Surveys of yachts registered within MAR can be delegated on classification societies, or on other recognized entities duly approved by the Portuguese Government. Under current register's rules only eight classification societies are recognized as competent to conduct surveys within MAR: American Bureau of Shipping, Bureau Veritas, Det Norske Veritas, Lloyd's Register, Registro Italiano Navale, Rinave Portuguesa, Germanischer Lloyd and ClassNK.