Mainland Portugal is on the doorstep of the wider European Union trade markets, making it easier for companies formed in the country to do business across borders. But what about the autonomous region of Madeira?
It might be located some distance from the continent, but the Madeira company formation process is as easy as if you were on the mainland. In this article, we’ll look at how to create a company in Madeira and what is required.
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Why Choose Madeira for forming a company?
Madeira is much smaller than mainland Portugal, but that doesn’t mean there aren’t numerous benefits to starting a company on the island.
- Tax benefits: One of the most lucrative advantages is through the International Business Centre (IBC), which provides a set of tax benefits at one of the lowest corporate taxation rates in Europe.
- Low corporate tax: Companies established in Madeira’s IBC benefit from a corporate tax rate as low as 5 percent when the profits of the company stem from non-resident entities or when dealing with other companies operating within the IBC.
- No withholding tax: There is also a zero percent withholding tax on dividend remittances, capital gains payments to shareholders, and royalties payments, while there is an 80 percent tax exemption on stamp duties, municipal property tax, and property transfer tax.
- Global connections: Other benefits of starting a company in Madeira include reliable communication networks, port facilities, and transportation links.
Madeira Company Types
Similar to the mainland, there are four distinct types of companies that you can form in Madeira.
Limited Liability Company
A Limited Liability Company (Lda), known as “Sociedade por Quotas” in Portuguese, is the most common business structure for small to medium-sized enterprises in Madeira. This type of company provides shareholders’ liabilities limited to their contributions to the company’s capital, protecting personal assets.
It requires a minimum of two shareholders, although a single shareholder (Lda.) is also permitted. The required minimum share capital is modest, typically €1 per share, making it accessible for entrepreneurs.
Branches
Branches are extensions of a parent company incorporated outside Madeira, allowing foreign businesses to establish a local presence without forming a separate legal entity. The branch operates as part of the parent company, which retains liability for its operations.
Establishing a branch is simpler and faster than incorporating a new entity, as it relies on the existing structure of the parent company and can benefit from the same tax incentives as local companies if they are registered under the IBC.
However, branches must comply with Portuguese accounting and reporting standards but have fewer administrative requirements than standalone companies.
SGPS Company
A “Sociedade Gestora de Participações Sociais” (SGPS) is a holding company designed to manage shares in other companies. This structure is particularly advantageous for larger corporations and investment groups.
SGPS companies in Madeira were primarily established to oversee and manage subsidiaries and investments rather than engage in active trade or services. They also benefit from favorable tax treaties and exemptions on dividends and capital gains.
While this setup provides a framework for consolidating ownership and streamlining decision-making, they must adhere to Portuguese corporate law, including maintaining proper governance and financial records.
Share Company
A joint-stock company (S.A.) can be established with a single shareholder and a minimum capital of €50,000. The management of such companies must be overseen by a board of directors, the size of which is specified in the company’s bylaws. If the share capital is less than or equal to €200,000, only one director is required.
Read our Portugal Citizenship by Investment Guide
How to Form a Company in Madeira
You must follow several steps to successfully start and operate a company in Madeira, which is similar to how it’s done in mainland Portugal.
Approve the name of your company
You are free to use any name you wish for your company, but the authorities must approve it. A name approval certificate and a provisional identification card are requested through the National Company Registrar (RNPC).
The certificate will be valid for 180 days for registration purposes and for one year following the company’s incorporation. Companies must notify the RNPC of their intention to incorporate and operate within the legal framework of the International Business Company (IBC) of Madeira.
Apply for a license
The next step in forming a company is to apply for a license through Sociedade de Desenvolvimento da Madeira (SDM), the IBC’s official concessionaire.
Two applications must be completed, both of which go to the Regional Government of Madeira. The information on the application must include:
- Approved company name and address
- Activity to be undertaken and the respective European Nomenclature of the Economic Activity (NACE) code
- Total value of the investment
- Indication of the number of jobs to be created
If the application is successful, the license is granted to the company as soon as the applicant provides proof of the company’s formation and registration. All supporting documents for the license application must be translated into Portuguese and legalized.
Incorporate your company
Portuguese companies, including licensed IBC companies, can be formed and registered by public deed requested at the Private Deeds Registry Office or, more commonly, through a private document prepared by a private lawyer.
The documentation submitted to the notarial office must include:
- Company name approval certificate
- Provisional company identification card
- Copy of the identification documents of the applicants
- Report from the Official Account Auditor for capital shares entrances in goods
- License and Authorization from the Regional Secretary for Finance and Public Administration
Business registration and publication at the Official Journal
It might seem like an endless bureaucratic loop, but you are only a few steps away from trading in Madeira. Next in the paperwork process is having the business registration published in the JORAM, the Official Journal of the Autonomous Region of Madeira.
The required documents that need to be submitted to the commercial registry within 90 days of the public deed include:
- Company’s incorporation public deed
- Company name approval certificate
- Beginning of activity declaration
Additionally, companies can publish their business registration in local newspapers.
Declaration of beginning of activity
When the company is successfully established, it must declare its beginning of activity to the local tax office. This is done by submitting the correct documentation that includes:
- The specific form, available at the tax office, in triplicate and duly certified, with information
- Regarding the official accountant responsible for the company’s books of accounts
- Provisional company identification card
- Copy of the public deed;
- Copy of identification and fiscal cards of the shareholders and official accountants
- Companies must submit the declaration within 15 days of the Commercial and RNPC registration
Social Security registration
Within 30 days of beginning activity, the last step in the process is to register with the Regional Social Security Center. The following documents must be presented:
- Tax payer’s identification card
- Company’s incorporation public deed
- Company’s identification card
- Record of proceedings of the election of the members of the board and forms of income
- Copy of the fiscal card of the members of the board
- Fiscal document of the beginning of activity
Cost of Setting Up a Company in Madeira
There are several fees associated with setting up a company in Madeira. For example, service-oriented companies must pay an application fee of €1,000 and a guarantee of 15 percent of the annual fee, which is set at €1,800.
For SGPS companies, there is also a €1,000 application fee and a 15 percent guarantee of the annual fee. However, the annual operating fee of €1,800 is for the first year only. Every year after that, the annual fee is €1,800 plus 0.5 percent of the previous year’s profit. The first €1 million are exempt and capped at a maximum of €30,000.
Company Requirements by Law
Forming a company in Madeira is only one step in running a successful business on the island. Every company must adhere to several legal requirements to continue operating.
Legal reserve
The legislation requires companies to allocate 5 percent of the annual profits to establishing a legal reserve, which must be at least 20 percent of the share capital. The legal reserve for Lda. companies are required to have a minimum amount of €2,500.
Auditing requirements
Under Portuguese law, all companies operating under the legal framework of Madeira’s IBC are required to maintain proper accounting records. These records must be made available for inspection by the relevant authorities upon request. The official books of accounts must be kept in Portuguese and denominated in euros. However, auxiliary records may be maintained in any currency.
Corporate tax returns
Periodical tax returns must be submitted to the Portuguese authorities, through the Portuguese
Fiscal Authorities website, and periodical income declarations must be submitted by the last working day of May.
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Frequently Asked Questions About Madeira Company Formation
Why should I form a company in Madeira?
Madeira offers significant tax incentives through its International Business Centre (IBC), including reduced corporate tax rates (as low as 5%), strategic location between Europe and Africa, access to the EU market, and a stable political and economic environment.
What are the main types of companies I can establish in Madeira?
The primary company types are:
- Limited Liability Company (LLC): Ideal for small to medium enterprises.
- Branch: For foreign companies wanting a local presence.
- SGPS (Holding Company): For managing investments and subsidiaries.
What is the minimum share capital required?
For an LLC: The minimum share capital is €1 per share.
For a holding company (SGPS): The capital requirement varies depending on specific operational needs.
Are there residency requirements for directors or shareholders?
No. Directors and shareholders do not need to reside in Madeira or Portugal, which allows international entrepreneurs flexibility.
Can foreign investors fully own a company in Madeira?
Yes, Madeira permits 100% foreign ownership of companies, making it attractive for international businesses.
How long does it take to register a company in Madeira?
The process typically takes 1-2 weeks if all documentation is in order. The timeline may vary based on the company’s complexity and the need for special permits.
What documents are required to set up a company?
Key documents include:
- Identification of shareholders and directors (passport and proof of address).
- Company name and articles of incorporation.
- Business plan (especially for IBC registration).
- Proof of address for the registered office in Madeira.
What are the ongoing compliance requirements?
- Tax Reporting: Annual corporate tax filings.
- Accounting: Must adhere to Portuguese accounting standards.
- Social Security Contributions: For employees, if any.
- Renewal: IBC-registered companies must meet specific activity criteria to maintain benefits.
Can I benefit from Madeira’s tax incentives through the IBC?
Yes, if your business is eligible and operates within the IBC framework, you can benefit from:
- Reduced corporate tax rates.
- Exemptions from withholding tax on dividends, royalties, and interest paid to non-residents.
- No capital gains tax in specific cases.
What industries are best suited for Madeira?
Industries like international trade, shipping, IT, financial services, and investment holding companies thrive in Madeira due to its fiscal benefits, skilled workforce, and strategic location.
