Lisbon, Oct. 21, 2025 (Lusa) - The Legislative Assembly of the Autonomous Region of Madeira presented a bill to parliament to extend the Madeira Free Trade Zone (MFTZ) rules until 2033, maintaining the 5% corporate income tax (IRC) until that date.
The initiative entered parliament on Monday, having been approved by the regional legislative assembly's plenary session on 16 October.
Members of parliament are being asked to decide whether companies licensed in the MFZ between 1 January 2015 and 31 December 2026 will continue to be taxed at the 5% IRC rate ‘until 31 December 2033’ on profits generated from activities in the autonomous region.
If the proposed amendment to the Tax Benefits Statute is approved, the tax incentive will be extended for another five years, since the legislation currently stipulates that entities licensed between 2015 and 2026 can only benefit from the 5% corporate income tax rate until 31 December 2028.
The Madeiran legislative assembly also proposes that the partners or shareholders of the companies ‘enjoy an exemption from personal income tax (IRS) or company income tax (IRC), until 31 December 2033’, as is currently the case, on the profits made available to them by these companies, except for those resulting from operations carried out with entities resident or domiciled in tax havens.
The MFZ is a special tax regime that allows companies licensed there to benefit from tax reductions on certain taxes, including corporate income tax on profits generated from activities carried out in Madeira. To do so, they must fulfil certain conditions, including creating and maintaining regional jobs.
The 5% rate applies up to a certain amount of taxable income, which varies according to the number of jobs created (for example, it applies up to €3.55 million for the creation of three to five jobs, up to €21.87 million for the creation of six to 30 jobs, or up to €205.50 million of taxable income for the creation of more than 100 jobs).
For a company to operate in the MFZ and benefit from the incentives, it must obtain authorisation from the Madeira Development Company (SDM), a regional public company responsible for keeping the register of licensed entities up to date.
The Free Trade Zone is divided into three areas: international services, the industrial free trade zone and the international ship registry (known as ‘MAR’).
Madeira can offer companies a particularly lower corporate income tax rate than the general rate (5% compared to the current rate of 20%) and other incentives because the Treaty on the Functioning of the European Union (TFEU) allows the outermost regions—such as Madeira, the Azores, the Canary Islands, or French Guiana—to benefit from a regional development aid scheme.
In Madeira, this mechanism exists through a scheme to help companies operate through taxation, which is reflected in the existence of the MFZ, to compensate economic agents there for the structural disadvantages they have faced due to operating in an isolated region.
As companies authorised to operate in this business centre benefit from special aid conditions, they must comply with certain conditions to avoid undermining EU competition rules.
In 2020, following an investigation that began in 2018, the European Commission concluded that Portugal had applied the aid scheme illegally, without complying with the EU executive's state aid decisions of 2007 and 2013. Some companies benefited from the reduced corporate income tax without creating the required jobs.
Following this decision, which the EU Court of Justice has since upheld, the Portuguese state was obliged to recover from the companies the portions of the tax incentive deemed illegal, and notified the entities to pay the unpaid corporate income tax.
PCT/ADB // ADB.
Lusa
