Companies in Portugal: Mainland and the Madeira IBC
How you can pay just 5% corporate tax with a European Union company
This is the last post of Globe’s Guide to Portugal. If you want to read all Portugal paid and free posts in one 95 page guide, get the e-book here.
Introduction
From the previous posts, you may be interested in residency in Portugal already. But did you know Portugal also is one of the best jurisdictions for doing business in the EU?
Today, we’ll cover everything you need to know about companies in Portugal. We’ll go over:
Mainland Companies
Madeira and Azores Companies
Madeira IBC Companies
Benefits and Requirements
Expiry Date for Madeira Companies
Setup Costs and Process
Starting by the mainland.
Mainland Portuguese Companies
This may sound exactly like the last Globe’s Guide, but: Just like Brazil, Portugal doesn’t exactly look like a good place to set up a company at first glance.
The Corporate Income tax is 21% in the mainland.
A reduced CIT rate of 17% applies to SMEs on the first EUR 25,000 of taxable income. The reduced CIT rate on the first 25,000 is 12.5% if they are located in the inland regions of Portugal.
In both of the reduced rates, the definition of micro, small, and medium-sized companies is as foreseen in the EU Commission Recommendation 2003/361.
There are also local and regional surtaxes:
A local surtax (Derrama) of up to 1.5% of taxable income is levied in certain municipalities.
A state surtax (Derrama Estadual) applies at the following rates:
3% on the taxable profit exceeding EUR 1.5 million and up to EUR 7.5 million.
5% on the taxable profit exceeding EUR 7.5 million and up to EUR 35 million.
9% on the taxable profit exceeding EUR 35 million.
With the surtax in mind, the real CIT rate in Portugal ranges from 21% to 31,5%, depending on your turnover.
Companies in the Azores and Madeira
The situation in Madeira and the Azores is slightly better. These autonomous regions offer more advantageous tax regimes than mainland Portugal.
In the Azores, the CIT rate is 16.8% and in Madeira, it is 14.7%.
The reduced CIT rate on the first €25,000 of turnover for SMEs is 11.9% in both Madeira and the Azores.
The state surtax is also replaced by lower regional surtaxes. These are:
Autonomous Region of Madeira
2.1% applicable to the taxable profit exceeding EUR 1.5 million and up to EUR 7.5 million.
3.5% applicable to the taxable profit exceeding EUR 7.5 million up to EUR 35 million.
6.3% applicable to the taxable profit exceeding EUR 35 million.
Autonomous Region of the Azores
2.4% applicable to the taxable profit exceeding EUR 1.5 million and up to EUR 7.5 million.
4% applicable to the taxable profit exceeding EUR 7.5 million up to EUR 35 million.
7.2% applicable to the taxable profit exceeding EUR 35 million.
This means that the effective tax rate for the Azores ranges from 16,8 to 25.5%, whereas in Madeira it ranges from 14.7 to 22.5%.
In addition to benefiting from a lower corporate tax, Portugal's autonomous regions also pay less VAT: While on the mainland the standard rate is 23%, in Madeira it is 22% and in the Azores 18%.
Sadly, if you think you can just register a company in Madeira and have all your employees and offices in mainland Portugal and still pay the lower rates, I will have to disappoint you. Activities carried out in mainland Portugal are subject to the usual rates.
The withholding taxes for all of Portugal, including the autonomous regions, is 25% for dividends, royalties, interest, and most kinds of income.
The costs of opening a Portuguese company are on average €610 plus fees and any applicable extra costs. The monthly maintenance costs start at around €150 per month for a service provider with around 2-3 invoices a month and scale up depending on the number of invoices and expenses.
Even considering the reduced rates in the Autonomous regions, what we have discussed so far does not seem too attractive, right?
That is true. Portugal, however, hides a secret…
5% CIT in the Madeira International Business Center
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