The Madeira Free Trade Zone (MFTZ) had been a success story since the late 1980s, until the uncertainties as to whether the European Union (EU) would allow the MFTZ to retain its investor-friendly legal and tax framework beyond 2011 prompted a decline in Madeira’s business centre. However, the business climate has now improved, due to the tax regime, approved by the European Commission (EC) and enacted by the Portuguese Government, that extends MFTZ tax benefits until 2020.
Madeira’s recent revival will not mean a return to an offshore-type jurisdiction or a haven of zero taxation. Instead, the regime approved for the MFTZ allows for the application of varied Portuguese corporate income tax (IRC) reduced rates of taxation of companies up to a maximum of 5%. Moreover, such reduced rates are applicable only up to certain given thresholds of taxable income on IRC, and under certain stricter local presence or local substance conditions, notably attached to a newly-introduced job creation requirement.
