Structuring Your Taxes for the Lowest Bill Possible – Starting a Business in Madeira
As the trend of working remotely grows, many places in the world take the advantage of making it easier and cheaper for people to start up companies and work abroad. In this article we’ll take a closer look at structuring your taxes in Madeira for the lowest tax-bill possible.
Madeira is part of Portugal’s archipelago, located in the Atlantic Ocean 978 km southwest of Lisbon, the capital. The island of Madeira offers a mild climate, high safety, quality of life and beautiful nature to explore.
Portugal has taken many steps towards enhancing its attractiveness for international business, starting already from 2009 with the non-habitual residents tax programme and the Golden Visa residency programme introduced in 2012. These programmes have led to many foreigners investing in properties and businesses in the country. Additionally, Madeira has advantages through the ‘Madeira International Business Centre’ (MIBC) which was established as Portugal formally entered the EU in 1986.
What is also great about Madeira is that they have made it comfortable and easy for digital nomads, like us, to live and work. Within the digital nomad communities you can find great ways to meet like-minded people and many of them offer for example free working spaces with high speed internet, accommodation, and exclusive digital nomad events.
If you are thinking about forming a business, you might want to consider doing so in Madeira. Tim Haldorsson, the owner of a digital marketing agency called Lunar Holding LDA based in Madeira, reports below from his experience.
Tax-friendly Economic Program in Madeira
Madeira forms part of an economic program that offers a wide range of incentives, primarily when it comes to taxes, that have been approved by the European Union until at least the end of 2027. The legal aspects continue to be firmly efficient and clearly structured in regards to transparency, compliance and economics.
Madeira Tax Regime
If your businesses is registered in Madeira it can benefit from the following tax benefits:
Corporate income tax rate is reduced at 5% and is applicable to active income, for instance, income resulting from trading activities or provision of services, etc.).
Madeira companies are exempt from withholding tax on the distribution of dividends, if certain conditions are met.
The participation exemption is also apt to:
Capital gains obtained (with a minimum of 10% ownership, held for 12 months, is required).
Sale of its subsidiaries.
Payment of capital gains to the shareholders, by the sale of the company.
Discharge from withholding tax on interest, service fees and royalties paid to non-residents.
Exemption from property transfer tax, property tax, stamp duty, and regional and municipal surcharges (dependent on an 80% limitation per tax, transaction, or period).
Application of the double taxation and investment protection treaties signed by Portugal.
Why Should You Pick Madeira for Your Business?
Since Madeira is part of Portugal it also benefits from being part of the European Union and the Organisation for Economic Co-operation and Development (OECD).
Madeira is not considered a tax haven, and therefore it is not under constant examination or included in any black lists. It is operated under a credible regime supported by all the EU member states. It might be the closest to a tax haven without underlying the risks of being a tax haven, and you do not have to worry about getting fined or being subject to any other sorts of penalties that could possibly occur in tax havens.
Companies that are established in Madeira are automatically given a VAT tax number, which allows them to access the EU intra-community market. All the EU directives are applicable to the island and are guaranteeing a disciplined legal system which protects the interests of the investors.
If you are looking to hire people that live in Madeira or Portugal, you can be assured to be able to pick from highly educated and skilled people that would require a lower salary compared to many other countries in the EU, especially the northern parts of the EU. You can also expect lower costs for operating and maintaining your company.
The Basic Conditions to setup a company in Madeira
In order to establish your company in the Madeira there are some requirements that must to be met, like the following:
- The company needs to apply for a Government Licence.
- The reduced corporate income tax rate on income (5%) applies when the income is derived from an international activity, for example outside Portugal, or, when in Portugal, the business relation is with another Madeira-registered company.
- The capital gains tax exemption, which applies to the sale of shares in the company, does not apply to shareholders who are considered tax residents in Portugal or within a ‘tax haven’ (defined by Portugal).
- Exemption from Real Estate Transfer Tax (IMT) and Municipal Property Tax (IMI) for properties is exclusively applied for the company’s business.
The International Topic of Substance
Organizations with workplaces in various purviews are progressively being approached to meet substance prerequisites.
A significant component of the Madeira business system is that the law obviously characterizes suitable substance necessities that should be met for the organization to get the pertinent tax reductions. These substance necessities basically identify with the production of occupations.
Substance Requirements
Organizations that are registered in Madeira need to consent to the defined substance prerequisites that are present in one of only a handful of nations on the planet with this exact methodology. Clients can accordingly be sure that they have fitting degrees of substance set up, to coordinate with the movement of the organization enrolled in Madeira.
This is checked in two distinct manners, at various occasions:
1. After the fuse of the organization (one-off necessity):
Inside the initial a half year of movement, the organization should recruit at any rate 6 specialists, OR;
During the initial 2 years of movement, the organization should put €75,000 in the procurement of substantial or elusive fixed assets.
2. On a continuous premise, the organization should have in any event one worker on its finance, paying Portuguese individual income tax and social security. This worker can be the Director or a Board Member of the organization.
The corporate tax rate of 5% applies to an organization’s taxable income. There is a maximum limit of pay that can benefit from this positive expense rate, in light of the quantity of occupations that have been created in Madeira by the organization.
Below you find a few detailed figures of total benefits granted to companies that are licensed to operate in Madeira. They are covered at one of the following numbers:
- 15.1% of the annual turnover; OR
- 20.1% of the annual earnings before interest, tax and amortisation; OR
- 30.1% of the annual labor costs.
Tim Haldorsson
Tim Haldorsson is a business owner originally from Sweden, living and working in Madeira since March of this year. After a long time of researcing for a place to open a digital marketing agency, he came to the conclusion that Madeira was the absolute best option for him.
Lunar Holding LDA
Based in Madeira, the agency offers their employees better pay and give better deals to their clients, which are mainly Nordic SaaS and tech companies.
