The entitlement to the tax benefits awarded to entities licensed to operate within the Madeira Free Trade Zone (‘MFTZ’) has been extended by way of Law No. 21/2021, of 20 April 2021 (‘Law 21/2021’).
 
Among the tax benefits currently applicable within the MFTZ (which are subject to certain conditions), we would highlight the following:
 

• 5% reduced Corporate Income Tax rate for income deriving from industrial activities or international shipping and air transport activities, as well as for income deriving from other activities carried out with foreign entities without a permanent establishment in Portugal or with entities based in the MFTZ (income not covered by the reduced rate would benefit from the general 14.7% tax rate applicable in Madeira);
• 80% exemption from Stamp Duty, Municipal Property Tax, Real Estate Sale Tax, municipal and regional taxes and surplus taxes;
• Exemption from withholding tax in the payment of dividends, interest and royalties to foreign entities not qualifying as residents in black-listed jurisdictions;
• Exemption from withholding tax on payment of services provided by foreign entities.

 
These benefits apply to all types of business activities, excluding some specific sectors such as financing and insurance and certain intra-group activities.
 
The extension now enacted by means of Law 21/2021 is two-fold:
 

• Companies wishing to benefit from the available tax advantages now have until 31 December 2021 to obtain their license to operate within the MFTZ;
• The tax advantages applying to registered entities are available until 31 December 2027.

 
Law 21/2021 also sought to revise the substance requirements applicable to entities operating within the MFTZ, notably with the respect to the creation of jobs and/or minimum investment in fixed assets, either tangible or intangible, to comply with the European Union State aid rules.
 
As a Portuguese  region placed within the European Union, Madeira benefits from the tax advantages set out in the European Union Directives, as well as from the Portuguese Double Tax Treaty Network (covering over 90 jurisdictions, including Angola, Côte d’Ivoire, Cape Verde, Guinea-Bissau, Mozambique, São Tomé and Príncipe and Senegal). The Madeira legal framework thus combines the legal certainty and stability inherent to European jurisdictions with an attractive tax regime compliant with international taxation principles and standards. It is therefore an alternative worth considering for entities engaging in cross-border activities.

For more information on this Tax Alert please contact:
[email protected]