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 Company Formation Madeira

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Company Formation Madeira: 5% Corporation Tax

Incorporation Madeira: tax haven in the EU

Next to the Canary Islands Special Zone (ZEC) Madeira is also an EU Special Zone that is promoted especially. Capital companies are only taxed with 5% in Madeira. However a few requirements have to be met in order to enjoy the low tax rate.

Quick Facts for Madeira Incorporation Advantages

  • EU-corporation, therefore positive effect of EU freedom of establishment and judgments of the European Court of Justice on freedom of establishment, applying the EC parent subsidiary directive and/or EU consolidation directive, no negative effect of national rules on taxation of foreign sourced income (in Germany §8 Foreign Transaction Tax Act) provided sufficient substance-escape on Madeira 

  • Madeira belongs to the turnover tax community territory (for instance the Canary Islands respectively the Canary Islands Special Zone does not)

  • Madeira maintains a double taxation Agreement (DTA) with many countries

  • The corporate tax only amounts to 5%

  • No tax deducted at source for distribution payouts to foreign countries

Madeira is supported by the EU as the island has a locational disadvantage due to its outskirts location in Europe. This is meant to be counterbalanced with the help of the free trade zone. The law for the free trade zone on which the companies are based, is well-thought-out and is in accordance with the European commissions’ guidelines. All companies are registered in the Portuguese Commercial Registry have a regular tax number and are supervised by the Bank of Portugal as well as the government. They are regular companies which only differ from other companies because of the tax advantage. Therefore Madeira is not considered a cheap tax haven.

Company Formation Madeira and requirements, procedure

Except financial services and insurances all business activities are currently accepted. In order to receive a license for 5% taxation the general rule is:

  • Up to 2,6 million Euro profit: Creation of one job and investment of 75.000 Euro within the first two years. The investment does not necessarily have to be realized in Madeira.

  • Afterwards creation of jobs according to table below. With 6 or more employees the investment of 75.000 Euro is no longer required.  

Company Formation Madeira: Requirements for Jobs

Over a specific period the following jobs have to be created in correspondence with the profits:

Profit in Million EUR

Number of Jobs

< 2,6

1

< 16

6 -30

< 26

31 - 50

< 40

51 - 100

Company Formation Madeira: Overview Lda. and SA

Company legal form

Limitada

SA

Number of shareholders

2*

5*

Number of directors minimum

1*

1 od. 3*

Bearer shares allowed

No

Yes

Company secretary required

No

No

Share capital

€ 1 per shareholder

€ 50.000

Local Requirements:

Registered office/Agent

Yes

Yes

Local Director mandatory

No

No

Registration of the directors

Yes

Yes

Annual Requirements:

Balancing of Accounts/Financial Statements

Yes

Yes

Company Formation Madeira and Fees

The fees depend on the services, we are happy to send you a fee schedule.

Company Formation Madeira: According to tax law, when is the permanent establishment of the company recognized in Madeira?

The avoidance of an unlawful intermediate company in Madeira is crucial. Such an unlawful intermediate company exists in case of a mere letter box company, without substance-escape and/or if it can be assumed that the corporation is “remotely managed” from abroad (e.g. from Germany), as long as the fiscal permanent establishment in Madeira is defined through the “place of management” (Article 5 Double Taxation Agreement).  

In case the place in Madeira is a production facility, a site for mineral extraction, an agricultural or forestry business, a construction site that lasts longer than 9-12 months or a fixed place of business in which the business activities take place (e.g. a hotel): Then the permanent establishment is always in Madeira, regardless of the place of management.  

Otherwise the existence of the fiscal permanent establishment is defined through the “place of management”:

  • Our law office in Madeira provides a local resident as director of the corporation OR

  • The client - or a representative relocates his residency and domicile to Madeira and becomes director of the Madeira Lda OR

  • The e.g. German director proves that within the scope of the required management tasks he generally stays in Madeira assuming these tasks at the Madeira permanent establishment  (of course this doesn’t work for needed “daily decisions”)  OR  

  • The client employs a local Madeira resident as director of the company

Permanent Establishment in Madeira:    

A mere registered office is not a permanent establishment (suspicion of a “letter box company.  In many cases a virtual office at a business center is sufficient (company name plate, individual phone number, personal call reception with name of the company, fax, deliverable mail also for registered mail, mail forwarding, the possibility to rent fully equipped offices/conference rooms for periods of time or permanently). Formally the needed organizational structure of the permanent establishment in Madeira depends on the “arm’s length principle”.   

Services Madeira Incorporation

  • Company Formation Madeira, Entry in Portuguese Commercial Registry, Registration documents, Apostil

  • License for 5% taxation

  • Ongoing Accountancy and annual statement, payroll account

  • On request: Provision of local resident as director of the Madeira Lda. or SA. (Article 5 Double Taxation Agreement: Place of management as place of permanent establishment)

  • On request for corporations up to 2,6 million Euro of profit: Provision of required employee

  • On request: Provision of nominee shareholder

  • Opening of bank account for the corporation incl. credit card and online banking

  • Official business location, not a mere letter box company

  • On request: Storage space, manufacturing facilities, logistic companies, Apartment and tax registration for natural person  

Company formation Madeira: DTAs

At the time of writing, the following countries have double-tax treaties with Portugal (an * indicates that the treaty is under negotiation or awaiting ratification):

  • Austria
  • Belgium
  • Brazil
  • Bulgaria
  • Canada
  • Cape Verde
  • China
  • Cuba
  • Czech Republic
  • Denmark
  • Estonia
  • Finland
  • France
  • Germany
  • Greece
  • Hungary
  • India
  • Ireland
  • Iceland
  • Italy
  • Latvia
  • Lithuania
  • Luxembourg
  • Macao
  • Malta
  • Mauritius*
  • Mexico
  • Morocco
  • Mozambique
  • Netherlands
  • Norway
  • Pakistan
  • Poland
  • Romania
  • Russia
  • Singapore
  • Slovakia
  • Slovenia
  • South Africa*
  • South Korea
  • Sweden
  • Spain
  • Switzerland
  • Tunisia
  • Ukraine
  • United Kingdom
  • USA
  • Venezuela

 

 

 

 

 
 
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