The International Business Center of Madeira (IBCM) or Madeira International Business Centre (MIBC), formally known as the Madeira Free Trade Zone, is a set of tax benefits authorised by Decree-Law 500/80 in 1980, legislated in 1986, and amended throughout the years by the Portuguese government to favor the Autonomous Region of Madeira. Its objectives are to attract foreign investment to the region and internationalise Portuguese companies by allowing them to benefit one of the lowest corporate taxation rates in Europe and in the OECD member countries.
Since 1987, the MIBC has been managed and promoted by a private company, Sociedade de Desenvolvimento da Madeira S.A. (SDM), in which the Regional Government of Madeira currently holds of 48,86% the shares. The other main shareholder is Pestana Group, holding 51,14% of the shares. As of January 2020, the Vice-Presidency of the Madeira Regional Government announced its intention of acquiring 51% of the shares of SDM.
The International Shipping Registry of Madeira (locally known as MAR or RIN-MAR), created by the Portuguese government to develop its blue economy, is associated strongly with the MIBC. As one of Europe's largest ship and yacht registries, MAR accepts the registration of all types of commercial vehicles. In 2016, MAR had a total of 516 registered vessels. The registry offers benefits to shipping companies and ships, oil rigs and yachts, including a mortgage system and access to European continental and island cabotage.
European Union approval
The MIBC was created the year that Portugal became a member state of the European Union. The tax benefits approved for Madeira would be considered state aid under EU law, and subject to approval by the European Commission.
Approval of such tax benefits by the European Commission is covered by Article 349 of the Treaty on the Functioning of the European Union, which states that specific measures are to be implemented in the EU's outermost regions to offset structural, social and economic situations compounded by "remoteness, insularity, small size, difficult topography and climate, economic dependence on a few products, the permanence and combination of which severely restrain their development". Among the measures foreseen in the treaty is the creation of free-trade zones.
The MIBC is regulated and supervised by Portuguese (the Regional Government of Madeira, the Portuguese Tax and Customs Authority, and the Portuguese Social Security System) and EU authorities (primarily the Directorate-General for Competition). Through the MIBC, Madeira became the only jurisdiction in Portugal to allow the incorporation of trusts (a common law fiduciary relationship which is non-existent in Portuguese law). In a Madeiran trust, the settlor designates the law regulating the trust.
Tax benefits
Since the 1980s, MIBC tax benefits have evolved. Their core principle is the reduction of the corporate tax rates in the Portuguese tax code.
Under the current set of tax benefits applicable to the MIBC tax benefits, the applicable corporate income tax rate—known in Portugal as IRC—for licensed companies is 5% of taxable income. However, if the company conducts business activities with other Portuguese companies which are not licensed to operate in the MIBC, the tax rate on profits is the normal 20%.
Since companies licensed in the MIBC are Portuguese companies for all legal purposes, they may qualify (under certain conditions) for the Portuguese-European participation exemption regime applicable to dividends and capital gains.
Trusts
Apart from the unique rules applicable to trust within the MIBC, trusts are fully exempt from taxation on dividends received from shares, royalties or interest received on the deposits and all (non-financial) income distributed from the trustee to the trust's beneficiaries is fully exempt of taxation provided these beneficiaries are corporate entities licensed to operate within the MIBC or non-Portuguese resident entities/individuals.
Substance Requirements
The above-mentioned tax benefits, namely the reduced corporate tax rates, are only granted if the following substance requirements are met:
Although the European Commission does not state anywhere in its regime approval, local stakeholders are of the understanding that the employees to be hire need to be on a full-time basis and resident, for tax purposes, on the Autonomous Region of Madeira.
The minimum investment, in tangible or intangible assets, of €75,000 must occur, within two years after incorporation, if the licensed company is to hire less than six employees.