Area of the holding | Annual fee

up to 2,500 m2 | EUR 12.50 per m2

between 2,501 m2 and 5.000 m2 | EUR 11,00 per m2

between 5.001 m2 and 10.000 m2 | EUR 9.50 per m2

between 10.001 m2 and 20.000 m2 | EUR 8.00 per m2

over 20,000 m2 | EUR 7.00 per m2

The Madeira Special Economic Zone offers many tax incentives. In particular, the low corporate tax has already attracted many entrepreneurs. But the simple and quick establishment of corporations on Madeira are also advantages that speak for this special economic zone. At the same time, the Special Economic Zone Madeira is also automatically EU territory due to its membership of Portugal. Therefore, the Special Economic Zone Madeira is under its protection despite its tax privileges. In any case, it is not a tax regime that appears on the EU blacklist. Similar to the Canary Islands, with the ZEC Special Economic Zone there, the EU also grants Madeira tax privileges in order to develop economically due to the isolated situation and the associated low economic prosperity. For the Special Economic Zone Madeira, this applies at least until the end of 2027. An extension of the time limit is quite likely.

1st Special Economic Zone Madeira – Introduction

Madeira is an island in the Atlantic Ocean and lies some distance off the west coast of Morocco. Portuguese and other seafarers discovered them on their sea expeditions. The history books say this happened in 1419. But very likely the knowledge about the island and its neighboring islands goes back far into antiquity. In any case, it was Portuguese who gave the island its name. It means wood, because forests line the slopes of the extinct volcanoes, which proudly and defiantly rose from the waves of the ocean to reach for the clouds.

Apart from its spectacular landscape and year-round mild climate, Madeira is famous for another special feature, namely its often but not exclusively sweet wine. Furthermore, it is the laurel forests (Laurisilva), now recognized as UNESCO World Heritage Sites, through which you can hike over numerous Levadas, artfully cut into the mountain irrigation trenches. This is due to the numerous waterfalls in the mountains as well as the decorative buildings and the banana plantations near the coast, among many other attractions. They predestine Madeira as an exquisite holiday destination. And it has been for a long time. For example, Empress Sissi cured for half a year in Madeira. Even Winston Churchill was very much appreciated. He even painted some pictures with motifs of the island.

Nevertheless, Madeira remained economically underdeveloped for a long time. The autonomy that the archipelago received after the Carnation Revolution also brought no noticeable improvement. Since Portugal joined the EU in 1986, however, it has been possible to set some new accents. Thus, with the blessing of the EU, a special economic zone was maintained on Madeira in 1980. Until 2012, all income of corporations remained tax-free. For this reason, we would now like to examine whether the Special Economic Zone Madeira is still a tax haven today.

2. Economic development in Madeira

Let us now turn to the economic development of Madeira. As already mentioned, the Madeira Special Economic Zone has existed for some time. Nevertheless, the need for economic promotion continues into our days.

Tourism is a particularly important industry on the remote island. In fact, the number of tourists who spend their holidays in Madeira has grown significantly over time.

This is also due to investments in infrastructure. In addition to many new and, above all, safer roads, which should meet the increasing mobilization of the islanders, the airport of the island was formerly considered notoriously dangerous due to its short runway. They drove hundreds of concrete piers into the coastal hem, many more than a hundred meters high, with a large part under water. As a result, the track has significantly increased in length, more than 1,000 meters. Nevertheless, the approach is still a challenge that is entrusted only to particularly experienced and specially trained flight captains. But this connection to the outside world is enormously important for Madeira, because most tourists come to the island by air.

In the Corona pandemic, Madeira has attracted many entrepreneurs to work remotely, especially from Germany. Also numerous are employees who worked here in the home office. No wonder that now more and more famous German-speaking influencers discovered the island jewel for themselves. The most prominent of them touting the beauty of the island and the pleasant life on the Internet is Unge. But this represents only a small part of the successes that Madeira tried to achieve by settling digital nomads.

3. What exactly is the Madeira Special Economic Zone?

First of all, regarding the question mentioned in the title, it should be said that the Special Economic Zone Madeira officially bears the name Centro Internacional de Negócios da Madeira (abbreviated CINM). You can also translate this with International Business Centre Madeira. This is a construct that a company manages for the purpose of settling international investors on the island (therefore, there are also fees for setting up a company in the Special Economic Zone Madeira, but more on this later). This company, Sociedade de Desenvolvimento da Madeira S.A., belongs mainly to the island administration (regional government) and the Portuguese hotel group Pestana.

4th Special Economic Zone Madeira tax incentives

It is now time to explain to you in detail the tax lures of the Special Economic Zone Madeira.

4.1. General tax incentives of the Special Economic Zone Madeira

Probably by far the most important tax relief concerns corporate tax. Here, the statutory regulation for limited liability companies and other corporations provides for a flat-rate tax rate of only 5 %. That is a third of what you pay in Germany in corporation tax. We even add to this the trade tax, which is often at least as high as the corporate tax.

Other tax incentives include property tax, property transfer tax, stamp duty and other municipal or regional taxes. A reduction of 80 % is provided for this purpose. However, with regard to the tax on capital transfers, this applies only in connection with transactions either with foreign companies or with those also operating in the Special Economic Zone Madeira.

For international investors, however, the exemption from withholding taxation is likely to be much more interesting. Because if you have a shareholding of 10% or more in a Madeira-based company for at least twelve months, there is no withholding tax on profit distributions abroad. The same applies to profits arising from the sale of shares in such a company.

Also tempting are the following tax reliefs that can be used with a company in the Special Economic Zone Madeira. Thus, there are no taxes on interest income as well as income from services or royalties. And since the EU's general tax rules apply in the Special Economic Zone Madeira, the EU's fundamental freedoms are guaranteed here, as is the application of the Parent-Subsidiary Directive, the Merger Directive and the jurisdiction of the European Court of Justice (ECJ). A further advantage of the Madeira Special Economic Zone is that the archipelago is part of the Community territory of the EU and is therefore subject to the general rules on VAT for intra-Community exchanges of services. Therefore, unlike the Canary Islands, for example, there is no import VAT in the Union territory.

4.2. Special Tax Benefits of the Special Economic Zone Madeira

In addition to these rather general tax incentives, there are some others that are very special. They concern trusts, yacht owners and shipping companies. The latter are offered a profit determination procedure, and thus a more favourable taxation, on the model of the German tonnage tax. In addition, special rules apply to depreciation, tax recognition of research and development costs and reinvestment of profits, which are also very advantageous.

5th Madeira Special Economic Zone: Conditions and costs

5.1. Conditions for using the tax regime in the Special Economic Zone Madeira

5.1.1. Investment and job creation

The outstanding tax advantages that can be enjoyed as an investor in the Special Economic Zone Madeira are, however, subject to certain conditions. On the one hand, you have to invest an amount of EUR 75,000 in Madeira in the first two years. These can be both tangible and intangible assets. Likewise, the acquisition of a property that can be used both operationally (for example for management) and for residential purposes is possible. As an alternative to investing, it is possible instead to create jobs in Madeira. However, there must be at least six full-time jobs within the first six months. Otherwise, at least one employee is required. This person can also be employed as managing director. The condition here is that the employment concerns a tax resident in Portugal and that he is on the company’s salary list.

5.1.2. Income thresholds

These are minimum requirements. It should be noted that taxation with the coveted corporate tax rate of 5% only applies up to an annual income of EUR 2,730,000. If you want to use these conditions beyond this income limit, you have to meet other conditions. If the income reaches the limit of EUR 3.550,000, at least three employees must already be employed in the company. With even higher incomes of up to EUR 21.870.000, at least six employees are already required to maintain the tax privilege. However, from this income level the possibility of investing EUR 75,000 as an alternative is eliminated. Further income levels and the specified jobs:

at least 31 jobs up to an annual income of EUR 35,540,000

at least 51 jobs up to an annual income of EUR 54,680,000

and at least 100 jobs up to an annual income of EUR 205.500.000.

But there is also another special feature. Thus, the tax deduction only applies up to one of three different limits. The thresholds are either an amount not exceeding 20,1 % of the annual gross value added or 30,1 % of the annual labour costs incurred in the Madeira Special Economic Zone or 15,1 % of the annual turnover generated there. Profits in excess are subject to general regional taxation with a tax rate of 14,7 % (on the mainland it would be 21 %).

5.2. What forms of enterprise are allowed in the Special Economic Zone Madeira?

Both the corporate forms Lda. (counterpart to the German GmbH) and the S.A., which in this country corresponds to the public limited company, are permitted. Restrictions also exist regarding the industries that are allowed to operate under this tax regime. Welcome in particular to manufacturing industries, trade and services as well as e-commerce. However, the financial and insurance sectors are excluded.

5.3 Initial and ongoing costs in the Special Economic Zone Madeira

Because the management of the Special Economic Zone Madeira has been entrusted to a company, certain fees are also associated with the establishment and management of a company in this tax regime. When entering the Special Economic Zone Madeira, there is a one-time charge of EUR 1,000. The annual membership fees are EUR 1,800 in the first year. This will add another 0.5% of the taxable income in the previous year. For manufacturing industries, on the other hand, there is a different fee calculation. The area of the holding is determined as a measure of the annual fee. One calculates: