Madeira Offshore Company: Can Your Business Really Pay 5% Corporate Tax in Portugal?

Many American entrepreneurs know Delaware and Wyoming, while those looking internationally often compare Ireland, Estonia or the UAE. Far fewer realise that Portugal has a corporate tax regime allowing qualifying companies to pay 5% corporate income tax on eligible profits.

The regime operates through the Madeira International Business Centre, or IBCM. It is sometimes described as Portugal's offshore regime, although that expression can be misleading. A company licensed there is a Portuguese company, subject to Portuguese and European Union law, with access to a preferential tax regime designed to attract genuine international business to Madeira.

For a company serving clients in the United States or other foreign markets, this can be particularly interesting.

What is the Madeira International Business Centre?

The Madeira International Business Centre is a Portuguese tax incentive operating within the EU legal framework. Companies remain subject to Portuguese corporate law, accounting and reporting requirements, while qualifying businesses can access a reduced corporate tax rate.

This makes Madeira very different from the traditional idea of an offshore tax haven. The company is Portuguese, operates within the EU and must meet real substance requirements.

Is the corporate tax really 5%?

Yes, provided the company qualifies.

Under the regime currently in force, companies licensed within the Madeira International Business Centre by 31 December 2026 can benefit from a 5% corporate income tax rate until 31 December 2033 on eligible income. For most international service businesses, this principally concerns qualifying transactions with non-residents or other entities licensed within the IBCM.

The amount of taxable income that can benefit from the 5% rate depends on the number of qualifying jobs maintained:

Qualifying jobs	Maximum taxable income at 5%
1 to 2	€2.73 million
3 to 5	€3.55 million
6 to 30	€21.87 million
31 to 50	€35.54 million
51 to 100	€54.68 million
More than 100	€205.5 million

For many small international businesses, the first thresholds are already substantial.

Can a Madeira company operate in mainland Portugal?

Yes, but this is an important distinction.

A Madeira company can do business with customers or companies located in mainland Portugal. What it cannot assume is that every euro of Portuguese domestic revenue will automatically benefit from the 5% rate.

For a typical service business, income generated from Portuguese resident customers generally falls outside the core preferential rule. The 5% regime is principally directed at qualifying international activity, and the company must also maintain genuine economic substance connected with Madeira.

Income that does not qualify may instead fall under the ordinary corporate tax rules applicable in Madeira. The current general Madeira corporate tax rate is 13.3%, compared with 19% on mainland Portugal in 2026, subject to the circumstances of the company.

So the answer is yes, the company may operate on the mainland, but the 5% rate does not simply follow every transaction because the company was incorporated in Madeira.

What substance does a Madeira company need?

The current regime requires more than a registered address.

A company creating between one and five jobs must create those positions within the first six months and invest at least €75,000 in qualifying fixed assets during the first two years. A company creating six or more jobs can qualify through the employment route without that minimum investment requirement.

The employment must also have a genuine connection with Madeira. The law looks at workers who are tax resident in Madeira or who genuinely perform their activity there.

This is why the regime works much better for real operating businesses than for empty corporate shells.

What about dividends?

This is one of the more interesting aspects of the regime and receives much less attention than the 5% corporate tax rate.

Qualifying shareholders of IBCM companies may benefit from a Portuguese exemption on certain profit distributions and other shareholder income, provided the statutory conditions are met. The exemption generally does not apply to Portuguese resident shareholders and is restricted for shareholders located in jurisdictions on Portugal's tax blacklist.

For an American shareholder, Portuguese exemption does not mean that the distribution is automatically tax free in the United States. US tax consequences still need to be considered separately.

Can any foreign entrepreneur use it?

No.

The activity must be eligible, the company needs the appropriate licence and the economic substance must make sense in Madeira. Certain activities are excluded, including some financial activities and particular intragroup management or consultancy activities.

The regime is therefore particularly worth analysing for international service businesses, technology companies and other operating businesses with substantial foreign revenue, but the structure should be reviewed before incorporation rather than chosen simply because the headline rate is attractive.

Why 2026 matters

The current licensing deadline is 31 December 2026.

Companies entering the present regime by that date may continue benefiting from the 5% rate on qualifying income until the end of 2033.

For entrepreneurs already considering a European corporate structure, this creates a genuine reason to assess Madeira now rather than after the current licensing window has closed.

Madeira or mainland Portugal?

The answer depends on the business.

A company serving mainly US and other international clients may have a strong reason to consider the Madeira International Business Centre. A company whose operations, customers and staff will be predominantly on mainland Portugal may reach a different conclusion.

The relevant question is not simply whether Portugal offers a 5% corporate tax rate, but whether your business can genuinely qualify for it and maintain the structure over time.

Considering Portugal for your international business structure?

Before incorporating, Alttavia assesses whether the Madeira International Business Centre is appropriate for your activity, ownership structure and commercial plans, or whether a standard Portuguese company would provide a better solution.

This article provides general information and does not constitute individual legal or tax advice.