The Tax and Price Advantages of Picking Madeira For Portuguese Residence by InvestmentSeptember 9, 2019
Most investment migration professionals recognize that, for now, Portugal is home to the best residency by investment program in Europe. What may surprise some, however, is that Madeira, a Portuguese Autonomous Region, just 900 km off the coast of Portugal (an hour and a half away by plane from Lisbon), may be one of the best places in Portugal for its Golden Visa.
Madeira is a year-round tourist destination with a unique history, culture, and a mild climate. As a consequence, the island has a vibrant real estate market (where prices are more contained than on the Portuguese mainland) and a unique system of corporate tax benefits duly approved by the European Union.
Picking Madeira for a residence by investment application offers two distinct benefits you won’t find on the mainland; real estate has a bigger potential upside and taxes on companies, if structured properly, are lower.
Want to know more about Portugal’s residence by investment program? To see recent articles, statistics, official links, and more, visit its Program Page.
Reduce corporate tax by 76% by setting up shop in Madeira
Investors who opt to set up a company to conduct their international business through Madeira can qualify for the Golden Visa by incorporating with a share capital of a million euros or by employing at least ten people. Under this option, significant tax benefits apply.
When incorporating in Madeira, applying for a license to operate within the Madeira International Business Centre (MIBC) is the smartest thing to do. An MIBC license will grant the company the following tax benefits (among others):
- a reduced corporate tax rate of 5%, applicable on the taxable income derived from operations exclusively carried out with non-resident entities or with other companies operating within the framework of the MIBC;
- full exemption from withholding tax on dividend remittances from the Madeira companies to non-resident single and corporate shareholders;
- and no withholding tax on the worldwide payment of interest, royalties, and services.
By comparison, the corporate tax rate on the mainland is 21%.
Note that the abovementioned tax benefits only apply if the company creates at least one full-time local job (the visa applicant can qualify if he/she opts to live permanently in Madeira) in the first six months of operation and undertake a minimum investment of €75.000 in the acquisition of fixed assets, tangible or intangible, in the first two years of operation or create six or more full-time local jobs in the first six months of operation.
The observant reader may notice that the MIBC requirements match those of the Portuguese Golden Visa when it comes to company incorporation and employing local workers.
Getting the best of both worlds by investing in real estate through a company
While house prices in the popular regions of Lisbon and Algarve have surpassed their 2010 peak, real estate in Madeira are still 7.3% lower than nine years ago. The average square meter price for an apartment in the center of Lisbon – according to Numbeo – is 4,351 euros, while in the center of Funchal, Madeira’s main city, it’s less than half of that.
Those who wish to take advantage of both lower taxes and bargains on real estate can opt to invest in real estate through a company (as a sole shareholder of said company) and use that investment to fulfil the requirements of both the Portuguese Golden Visa and the MIBC, therefore getting “the best of both worlds” in terms of business and real estate investment.
Hundreds of companies can assist with applications to Portugal’s golden visa. To see which ones, visit the Residence and Citizenship by Investment Company Directory.
Madeira also processes Portuguese Golden Visa applications faster than any other region in Portuga, thanks to the current low level of applications compared to the mainland.
Last but not least, it’s also perfectly possible to combine both the Golden Visa and the MIBC programs with the Non-Habitual Resident tax scheme which allows for a 10-year personal tax holiday, on foreign-source income, for those meeting the physical presence requirements in Portuguese territory and non-residency in the five years before arrival.
Right now, Madeira is Portugal’s little secret. That won’t last for long.
Image via Ввласенко [CC BY-SA 3.0 (https://creativecommons.org/licenses/by-sa/3.0)]
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