Madeira – Further tax reductions for companies and individuals

Last month, we reported that the Regional Government of Madeira had presented its Budget proposal for 2024 and that the parliamentary discussions would follow.

We can now confirm that the proposal was approved, and some noteworthy amendments were introduced during the parliamentary discussions.

The two key additions are:

• Personal Income Tax ("PIT") – reduction of the PIT rates applicable to dividend and interest income obtained in Portugal and other flows of income specified in Article 71 of the Portuguese PIT Code. In practice, instead of the standard 28% applicable in the mainland, Madeira will apply a 19.6% rate.
• Corporate Income Tax – reduction of the withholding tax rates for most payments to non-residents by 30% (i.e. from the standard 25% in the mainland to 17.5%). This reduction does not apply to capital income paid to entities in blacklisted jurisdictions or to accounts with unidentified holders.

Apart from the above, the measures outlined in our previous report are also confirmed and include:

• Update of the PIT brackets, reinforcing the strategy of expanding the maximum 30% reduction (when compared to the rates of mainland Portugal) permitted by the Regional Finances Law;
• CIT rate of 8.75% over the first EUR 50,000 of the taxable amount of certified start-up companies established in Madeira. The standard 14.7% CIT rate will apply to the remaining.

For more details, please check our previous article. The 2024 Madeira Budget has been published in the Official Gazette and is now fully in force.

Our take

Although the unusual timeline led to uncertainty during the last few months, the renewed commitment to tax reductions reinforces Madeira's more competitive tax framework compared to mainland Portugal.

The new 19.6% PIT rate over dividend distributions will also benefit the Madeira International Business Center and its special tax regime, boasting a 5% CIT rate.

Although non-residents are exempt from withholding tax on dividend distributions, the 28% rate applied to tax residents of Portugal was seen as detrimental. As such, the new 19.6% rate will undoubtedly be welcomed.