Madeira 5% Tax 2026: IBC Licence Window Closing

Status as of 16 October 2026: based on Article 36.º-A of the Portuguese Tax Benefits Statute (Estatuto dos Benefícios Fiscais), as consolidated by the Autoridade Tributária and amended by Law no. 73-A/2025 of 30 December; on the Autonomous Region of Madeira's Resolution 17/2025/M of 22 October 2025 (proposal that led to the 2033 extension); and on the earlier State Budget Law no. 45-A/2024, which had already moved the licensing window to 31 December 2026. Official fees are stated as of October 2026 where published; check the current SDM and regional schedules before you apply. This is general information, not legal or tax advice.

If you search "madeira 5% tax 2026", you will find two stories. One says Madeira is a permanent 5% corporate island for anyone who files a form. The other says the regime is already dead. Both are wrong.

What still exists is a licensed International Business Centre (also called the Madeira Free Zone or Zona Franca da Madeira) under Article 36.º-A of the Tax Benefits Statute. New entities can still be licensed until 31 December 2026. Licensed companies that meet the substance rules can pay 5% corporate income tax (IRC) on qualifying income until 31 December 2033. The price of that rate is real employment in Madeira, investment thresholds, taxable-income ceilings, and a ring-fence: for most service companies, Portuguese-client income sits outside the 5% rate.

This guide walks through the statute as it stands in October 2026, the dates that matter, the job and investment tests, the caps, who the regime fits, and an honest comparison with Cyprus. At the end we also point you to today's sister piece on the Cyprus international trust, which answers a different question (asset protection around a move year) rather than company tax rates.

The short version

Licence window: obtain an SDM licence by 31 December 2026. After that date this entry route into the current regime closes.
Rate and horizon: 5% IRC on qualifying income until 31 December 2033, for entities licensed from 1 January 2015 through 31 December 2026 (Art. 36.º-A n.º 1, as amended by Law 73-A/2025).
Jobs are a condition, not a slogan. Either create one to five jobs in the first six months and invest at least EUR 75,000 in fixed assets within two years, or create six or more jobs in the first six months.
Income is ring-fenced. For typical international services, the 5% rate applies to operations with non-residents of Portugal or with other Madeira IBC entities. Business with ordinary Portuguese clients is taxed at the ordinary Madeira corporate rate.
Ceilings bite. The reduced rate only applies up to a taxable base that scales with the number of jobs you actually keep each year, and the benefit itself is capped against local GVA, labour costs or turnover.
It is not personal tax residence. A Madeira company does not make you Portuguese tax resident, does not replace a Cyprus Non-Dom plan, and does not solve German exit tax or CFC if you stay in Germany and run the company from your kitchen table.

What the Madeira IBC actually is

Portugal treats Madeira as an autonomous region with its own legislative assembly and a long-running Free Zone. The International Business Centre of Madeira (IBCM / CINM) is the institutional frame for licensed industrial, shipping and services activities inside that zone. The tax engine for entities licensed from 2015 onward is Article 36.º-A of the Estatuto dos Benefícios Fiscais (EBF), originally annexed to Decree-Law no. 215/89.

Three practical points follow from that framing.

First, this is Portuguese and EU law, not a Caribbean brochure. The regime sits inside EU regional state-aid rules. Earlier Free Zone regimes (notably Regime III) were the subject of Commission recovery decisions. The current Article 36.º-A package is a later regime with its own conditions. Do not mix Regime III recovery headlines with today's licensing calendar.

Second, licensing is not incorporation. You form a Portuguese company (or other eligible vehicle) and you apply to Sociedade de Desenvolvimento da Madeira (SDM) for a Free Zone licence covering the activities you will actually run. Without the licence, you are an ordinary Madeira or mainland Portuguese taxpayer.

Third, "Madeira 5%" is a company regime. It does not rewrite your personal residence, your home-country CFC rules, or the place of effective management of the company. Those three questions decide whether the 5% rate survives contact with German, Romanian or other tax administrations.

Two dates: 31 December 2026 and 31 December 2033

Article 36.º-A n.º 1 is blunt. Income of entities licensed to operate in the Madeira Free Zone from 1 January 2015 until 31 December 2026 is taxed in IRC until 31 December 2033 at the rate of 5%, on the terms of that article.

How we got here matters for reading older blog posts:

State Budget Law no. 45-A/2024 extended new admissions to 31 December 2026 but kept the production of effects of the regime to 31 December 2028. That is the version many advisers still quote from early 2025.
Madeira's Legislative Assembly, in Resolution 17/2025/M of 22 October 2025, proposed to the Portuguese Parliament an extension of effects to 31 December 2033, arguing that a 2026 licence with a 2028 cliff was too short for real investment.
Law no. 73-A/2025 of 30 December amended Article 36.º-A. The Autoridade Tributária consolidated text now shows the 5% rate running to 31 December 2033. Shareholder exemptions in n.º 10 were aligned to the same date.

So the planning sentence in October 2026 is: licence by 31 December 2026; 5% on qualifying income through 31 December 2033, if you keep meeting the conditions. If a later budget law changes the horizon again, the AT page and the statute will move first. Re-check both before you commit capital. Confirm the regime with your Madeira adviser at licensing; State aid rules can still change the conditions.

Licensing is the last step of a process, not a same-day form. Bank onboarding, activity start deadlines (six months, or one year for industrial and transport activities) and the first hiring round all sit inside that window. Starting the file in November 2026 is late.

What income actually gets the 5% rate

Article 36.º-A n.º 1 splits qualifying income into three buckets.

Industrial Free Zone activities. Licensed industrial entities get the 5% rate on income from the industrial activities listed in the Free Zone regulations, plus accessory and complementary activities. For those industrial profiles, the statute also opens a path to a further 50% IRC deduction if at least two of five regional-development conditions are met (modernisation, diversification, highly qualified hiring, environmental improvement, or at least fifteen jobs kept for five years).

Shipping and air transport. Licensed maritime and air transport entities get the 5% rate on income from the licensed activity, except passenger or cargo transport between Portuguese national ports. The Madeira International Ship Register (MAR) sits beside this tax rule as a separate shipping tool; crew personal-tax and social-security details are their own chapter and are not the subject of this guide.

Other IBC activities (the typical services case). For everyone else licensed inside the institutional Free Zone, and for industrial entities on non-industrial Free Zone activities, the 5% rate applies only to operations carried out with entities installed in the Free Zone or with non-residents of Portuguese territory, excluding Portuguese permanent establishments situated outside the Free Zone. In plain words: sell services to foreign clients or to other IBC companies, and the reduced rate can apply. Sell the same services to ordinary Portuguese clients, and that slice is taxed at the ordinary Madeira corporate rate.

That ring-fence is the detail brochure writers bury. A "5% Madeira company" that invoices Portuguese residents for consulting will not see 5% on that Portuguese slice. Plan the client mix before you plan the rate.

Jobs and investment: the real price of entry

Article 36.º-A n.º 2 is the substance gate. To benefit from the regime you must start activity within six months of licensing (one year for industrial or maritime/air activities) and meet one of the following:

Card A : small team plus investment. Create one to five jobs in the first six months of activity, and make a minimum investment of EUR 75,000 in tangible or intangible fixed assets within the first two years of activity.
Card B : larger team. Create six or more jobs in the first six months of activity. The EUR 75,000 investment test does not apply on this branch.

Jobs are defined tightly in n.º 5. Count people who receive employment income paid by the licensed entity and who are tax resident in the Autonomous Region of Madeira, or who, without being resident there, exercise their activity in Madeira, or who are crew of vessels or pleasure craft registered in MAR. Part-time and intermittent contracts count in proportion to full-time annual work units. The statute expressly excludes temporary-agency workers (for the user company), workers on occasional assignment (for the assignee), and multi-employer arrangements where the representing employer is not itself Free Zone licensed.

So "one remote contractor in Lisbon and a virtual office in Funchal" is not a job for this article. The people have to be on the licensed company's payroll in the way the statute describes, and the activity has to sit in Madeira in substance.

Benefit ceilings: the rate is not unlimited

Two layers of caps sit on top of the 5% rate.

Taxable-base ceilings by job count (n.º 4). The reduced rate applies only up to a maximum taxable base that depends on how many jobs you keep in the year:

1 to 2 jobs: EUR 2.73 million
3 to 5 jobs: EUR 3.55 million
6 to 30 jobs: EUR 21.87 million
31 to 50 jobs: EUR 35.54 million
51 to 100 jobs: EUR 54.68 million
More than 100 jobs: EUR 205.50 million

Above the ceiling, the ordinary rate applies to the excess. The ceiling tracks the jobs you maintain each year, not a one-off hiring announcement.

Annual benefit caps (n.º 3). Separately, the fiscal benefit cannot exceed one of: 20.1% of annual gross value added generated in Madeira; or 30.1% of annual labour costs incurred in Madeira; or 15.1% of annual turnover realised in Madeira. These percentages come from Law no. 21/2021 and remain in the consolidated article.

Together, the ceilings mean a two-person consulting shop cannot park unlimited group profit in Madeira at 5%. The statute was written to scale the privilege with local employment and local economic footprint.

Shareholders: dividends, interest and who is shut out

Article 36.º-A n.º 10 gives shareholders of licensed companies that benefit from the regime an exemption from IRS or IRC, until 31 December 2033, on:

profits placed at their disposal by those companies (including amortisation of shares without capital reduction), in the proportion that corresponds to Free Zone-benefiting results; and
interest and other remuneration of shareholders' loans, advances or capital left at the company's disposal.

N.º 11 then cuts the exemption back. Portuguese-resident shareholders generally do not enjoy it, subject to limited exceptions in the statute. Shareholders resident in jurisdictions on Portugal's blacklist are also excluded. Older reserves are treated as distributed first when mixed distributions are made.

There is also an 80% limitation (n.º 12) on stamp duty, municipal property tax, property transfer tax, regional and municipal surtaxes and similar local charges, for each tax and each act or period.

None of this is a personal Non-Dom. A Romanian or German founder who stays tax resident at home will still face home-country tax on dividends and CFC or similar rules on undistributed profits. The Madeira exemption removes Portuguese withholding in the cases the article covers; it does not erase the shareholder's residence state.

Who this regime fits, and who it does not

It fits operators who can put real people and a real office in Madeira, whose clients are mostly outside Portugal, and who want a time-bounded EU corporate rate of 5% on that international slice through 2033. Shipping groups using MAR, industrial projects in the Free Zone, and service companies that can hire locally are the profiles the statute was built for.

It does not fit the solo founder who wants a letterbox rate with no Madeira payroll; the group that hopes to pool one receptionist across five licensed shells (each entity needs its own licence and its own jobs); the business whose revenue is mostly Portuguese; or anyone who thinks a company licence replaces a personal residence plan.

It also does not fit as a silent substitute for Cyprus when your real goal is personal tax residence in the EU, access to Non-Dom treatment on foreign dividends and interest, or a long-run base with EU banking. Those are residence and personal-tax questions. Madeira answers a company-tax question under strict local employment conditions.

Three concrete cases (illustrative, not clients)

Case 1 : SaaS team that can move three people to Funchal. A non-Portuguese software company invoices EU and US clients, not Portuguese residents. It incorporates in Madeira, obtains an SDM licence in Q1 2026, hires three developers who become Madeira tax residents within six months, and invests EUR 80,000 in equipment and capitalised software in year one and two. Qualifying international profits sit under the 5% rate up to the three-to-five job ceiling (EUR 3.55 million of taxable base). Portuguese pilot customers, if any, are booked at the ordinary rate. This is the textbook fit.

Case 2 : Holding with no staff. A founder wants a Madeira "holding" at 5% with a nominee director and zero local employees. Card A and Card B both fail. Without jobs (and, on the small-team branch, without the EUR 75,000 investment), the regime does not open. A Portuguese participation-exemption holding outside the Free Zone is a different tool with different rules. Do not force this profile into Article 36.º-A.

Case 3 : German resident who keeps managing from Munich. A GmbH-owner relocates the legal seat to Madeira, licences the company, hires two local staff, but continues to take all strategic decisions from Munich. Portuguese 5% may appear on the Madeira return for qualifying income, yet German rules on place of management and CFC can pull the profits back into Germany. The Madeira licence does not override German taxation of a company effectively managed in Germany. Exit tax under § 6 AStG and extended limited tax liability under § 2 AStG are separate questions if the individual also tries to leave Germany. For the German exit path toward Cyprus, see our guide on leaving a high-tax country for Cyprus.

Common mistakes founders make with this regime

Reading only the rate. 5% without jobs, without the ring-fence and without the home-country overlay is incomplete.
Selling a nominee director as substance. Article 36.º-A n.º 5 wants employment relationships of the kind it describes, not a formal director on paper.
Keeping the decision centre at home. Place of effective management can pull the company back into your residence state.
Planning dividends only on the Portuguese exemption. Your residence state still taxes you.
Forgetting 2033. An exit or refinance after the horizon needs a plan for the ordinary corporate rate.
Underestimating the licence calendar. SDM, the bank and hiring need weeks. Starting the file in November 2026 is late for a clean dossier.

Steps if you want a licence before the window closes

Treat the following as a practical sequence, not a substitute for Portuguese counsel and your home-country adviser.

Decide whether Madeira is the right tool. If your real need is personal EU residence and Non-Dom treatment, start with relocating to Cyprus and the Non-Dom rules. If you need a Cyprus operating company without a Madeira payroll, read Cyprus company formation.
Map clients and activities to Article 36.º-A n.º 1. Confirm that your NACE activity is inside the Free Zone list and that enough revenue will be with non-residents or other IBC entities.
Build a hiring and investment plan that hits Card A or Card B. Name roles, Madeira payroll cost, start dates inside six months, and the EUR 75,000 asset list if you are on Card A.
Incorporate and apply for the SDM licence with enough calendar margin for bank KYC and questions from the concessionaire. Official fees as of October 2026 are published by SDM and the region; we do not quote provider packages here.
Start activity inside the statutory deadline and keep contemporaneous evidence of jobs, tax residence of staff, and fixed-asset investment.
Keep the annual ceilings in the finance model. Model taxable base against the job band you will actually maintain, and apply the GVA / labour / turnover benefit caps.
Align the shareholder side. Check whether your shareholders are Portuguese residents or blacklist residents before you promise yourself a Portuguese exemption on dividends.
Run the home-country overlay. CFC, exit tax, transfer pricing and management location decide whether the Madeira rate is the end of the story or only the Portuguese chapter.

When Madeira is not a good fit

Walk away, or at least pause, if any of these are true:

You cannot or will not employ people who count under Art. 36.º-A n.º 5 in Madeira.
Most of your revenue will come from Portuguese residents outside the Free Zone.
You need a permanent rate with no 2033 horizon and no state-aid history to explain to a bank or a buyer.
Your real problem is personal tax residence, not corporate IRC on international services.
You are a German (or other high-tax) resident who will keep managing the company from home without a genuine Madeira management seat.
You are already past the point where a 2026 licence file can be completed with clean substance.

In those cases Cyprus, a mainland Portuguese ordinary company, or a non-EU operating base will usually be the clearer conversation. Our English blog collects the residence and company pieces side by side.

How Portugal and the Commission frame the aid

Article 36.º-A is domestic Portuguese law, but it lives inside EU regional aid. Madeira is an outermost region under the Treaty on the Functioning of the European Union. The Autonomous Region's Resolution 17/2025/M expressly places the current Free Zone benefits under the General Block Exemption Regulation (Commission Regulation (EU) No 651/2014) for regional aid, rather than under a fresh, case-by-case Commission approval of the kind that older regimes required.

That GBER framing matters for two practical reasons. First, Portugal still has to keep the scheme inside the Regulation's conditions; it is not a blank cheque to invent new tax gifts. Second, Commission history on earlier Madeira Free Zone regimes (Regime III and Decision (EU) 2022/1414) shows that substance language is enforced after the fact. Job counts, local activity and the ring-fence are not marketing decorations. Banks, auditors and future buyers of your company will ask for the same evidence the statute demands.

Do not cite Regime III recovery headlines as if they cancel Article 36.º-A. They are a warning about compliance culture, not a statement that the 2026 licence window is closed.

Substance monitoring after year one

Passing the six-month hiring test is not the end of the file. The taxable-base ceiling in n.º 4 is recalculated from the jobs you maintain in each year. If you hire six people in month four and keep only one by year three, your ceiling collapses to the one-to-two job band. The annual benefit caps in n.º 3 (GVA, labour costs, turnover) likewise look at Madeira figures for the year.

Keep a simple evidence pack from day one:

employment contracts and payroll filings for each counted job;
proof of Madeira tax residence or Madeira place of work for those employees;
invoices and fixed-asset register entries that support the EUR 75,000 investment if you used Card A;
a client split that shows which revenue sits inside n.º 1 (non-residents / IBC counterparties) and which sits outside;
board minutes that show decisions taken where you claim management sits.

If you later sell the company or raise capital, that pack is what due diligence will ask for. If you cannot produce it, the 5% rate on the Portuguese return may still be challenged, and your home-country CFC analysis will look worse.

Banking and practical set-up costs (no provider prices)

A licensed Madeira company still needs a bank account, accounting, payroll and, usually, a physical or serviced workplace that can host the people you hire. Portuguese and Madeira banks apply ordinary KYC. Expect questions about beneficial owners, source of funds, the Free Zone licence and the business plan behind the jobs. Official public fees for licensing are published by SDM and the regional authorities as of October 2026; private advisory packages vary and are outside the scope of this guide.

Cash-flow the first twelve months honestly: salaries and social contributions for the jobs you promised, rent or workplace cost, the EUR 75,000 investment if relevant, accounting and audit, and a buffer for slower client onboarding. A 5% headline rate on profits does not help if the company never reaches profit because the substance budget was fantasy.

FAQ

Is the Madeira 5% rate available forever once I am licensed?

No. For entities licensed between 1 January 2015 and 31 December 2026, Article 36.º-A currently applies the 5% IRC rate until 31 December 2033, and only while you meet the conditions. After that horizon, plan for the ordinary rate unless a later law says otherwise.

Do I need employees, or is a local director enough?

You need jobs as defined in the article: employment income paid by the licensed entity, with the residence or place-of-work links set out in n.º 5, in the numbers required by Card A or Card B. A lone non-executive director without qualifying employment relationships will not carry the regime.

Can a German or Romanian tax resident own a Madeira IBC company?

Yes, ownership is not barred. What changes is the shareholder tax result at home. Portuguese exemptions under n.º 10 do not cancel German or Romanian tax on dividends, nor CFC rules on retained profits. Management of the company from Germany or Romania can also create a local taxable presence.

Is Madeira a substitute for Cyprus Non-Dom?

No. Non-Dom is a personal Cyprus tax-residence regime on certain foreign income. Madeira IBC is a corporate licence with local jobs. Many planners use one or the other; some use both for different layers. They answer different questions.

What happens to Portuguese-client income?

For typical services companies under n.º 1(c), income from operations with Portuguese residents (outside the Free Zone / IBC circle) does not get the 5% rate. It is taxed at the ordinary Madeira corporate rate. Industrial Free Zone profiles have a broader 5% perimeter; check which bucket you are in.

Where do official fees appear?

SDM and the regional authorities publish licence and related fees. Figures move. As of October 2026, use the current official schedules rather than any blog or agent price list. We do not publish provider prices.

How it compares with Cyprus, and when it beats Cyprus

An honest card-by-card comparison for an EU founder in 2026:

Corporate rate on international profits. Madeira can deliver 5% IRC on qualifying Free Zone income through 2033 if you keep the jobs and ceilings. A Cyprus company pays 15% CIT on its worldwide profits (house figure, current law). On raw rate alone, Madeira wins for the licensed international slice.
Substance price. Madeira demands Madeira payroll on a statutory timetable. Cyprus company formation also needs real management and substance, but it does not copy Article 36.º-A's six-month job cards or EUR 75,000 investment fork. If you will not hire in Madeira, Cyprus (or nothing) is the honest answer.
Personal tax. Cyprus Non-Dom can shelter foreign dividends and interest for a Cyprus tax resident who qualifies, until you have been Cyprus resident for 17 of the last 20 years, with GESY health contributions capped. Madeira IBC does not give you that personal result. If personal tax on investment income is the goal, start with Cyprus tax residency and Non-Dom and relocating to Cyprus, not with a Funchal licence.
Licence calendar. Madeira's current entry window closes on 31 December 2026. Cyprus company formation has no matching cliff date. Urgency favours Madeira only if Madeira is otherwise the right tool.
Asset protection around a move. That is not an IBC question. Today's sister guide on the Cyprus international trust in the move year covers settlor residence timing and creditor rules. For the day-count side of a Cyprus arrival, see the 60-day rule calendar.
Banking and EU life. Both are EU jurisdictions. Cyprus is often the simpler personal base for SEPA banking and daily life if you are actually relocating. Madeira is an Atlantic Portuguese region with a specific company regime; living there to support the jobs can be a feature or a cost, depending on your life.

Madeira beats Cyprus when you can staff a real Madeira operation, your clients are mostly non-Portuguese, you want the 5% corporate rate on that slice through 2033, and you already have (or do not need) a separate personal residence plan.

Cyprus beats Madeira when your priority is personal tax residence and Non-Dom treatment, when you cannot hire in Madeira, when your timeline runs past the 2026 licence window, or when a single coherent Cyprus base (residence plus company) is cleaner than a Madeira payroll bolted onto a life still lived elsewhere.

For the German exit overlay, keep leaving a high-tax country for Cyprus in the same reading list as this piece. For Plan B residence options outside a Cyprus-first path, the series on Georgia, the UAE and Paraguay remains on the blog: Georgia, UAE, Paraguay, plus the Cyprus EU base interleave. For the longer Cyprus arc see Cyprus for the long run and cost of living in Cyprus; for accounts after a move, offshore banking operations.

Sources

Autoridade Tributária, Estatuto dos Benefícios Fiscais, Artigo 36.º-A (consolidated, redação Lei n.º 73-A/2025, de 30/12): https://info.portaldasfinancas.gov.pt/pt/informacao_fiscal/codigos_tributarios/bf_rep/Pages/ebf-artigo-36-ordm-a.aspx
Decreto-Lei n.º 215/89, de 1 de julho (EBF framework): referenced via the AT consolidated EBF
Lei n.º 73-A/2025, de 30 de dezembro (amendment cited on the AT Art. 36.º-A page for the 2033 horizon)
Lei n.º 45-A/2024, de 31 de dezembro (State Budget 2025: licensing window to 31 Dec 2026; effects then to 31 Dec 2028)
Resolução da Assembleia Legislativa da Região Autónoma da Madeira n.º 17/2025/M, Diário da República 1.ª série N.º 204, 22-10-2025: https://files.diariodarepublica.pt/1s/2025/10/20400/0003400036.pdf
Lei n.º 21/2021, de 20 de abril (benefit-cap percentages in Art. 36.º-A n.º 3)
Commission Decision (EU) 2022/1414 (SA.21259, Madeira Free Zone Regime III recovery context): https://eur-lex.europa.eu/eli/dec/2022/1414/oj
SDM / International Business Centre of Madeira (concessionaire information, secondary): https://www.ibc-madeira.com/en/tax-benefits.html

If you want a second reading of whether Madeira or Cyprus fits your facts before the 2026 licence window closes, you can write to us.

General information for founders and advisers, not legal, tax or accounting advice. Portuguese statute, your home-country rules and your own facts decide the outcome. ENCC coordinates introductions; licensed local counsel and tax advisers must sign off before you file.

Cover photo: Dietmar Rabich, Wikimedia Commons, CC BY-SA 4.0, cropped.