According to recent reports in the national press, the Government of Portugal will extend the IV Regime of the Madeira Free Zone ("MFZ") for one year (until 31 December 2021).
In this context, it should be noted that the MFZ regime currently in force allows companies established in the region until 31/12/2020 to apply a reduced Corporate Income Tax ("CIT") rate of 5% until 31 December 2027.
It should also be noted that the European Commission (“EC”) launched in 2018 an investigation into the state aid scheme granted to the MFZ and concluded on 4 December that the attribution of tax benefits under this scheme violates the European rules on job creation, as determined in EC state aid decisions of 2007 and 2013.
Specifically, this will involve companies which received state aid of more than Euro 200,000 and that are not contributing to the development of the Madeira region by way of job creation.
Taken the above into consideration, the Portuguese Executive was encouraged to recover from companies which did not meet the requirements (i.e., that did not carry out an economic activity or created jobs in the MFZ) the aid granted added of interest.
Finally, it should be noted that in addition to the one-year extension, the Government of Portugal also intends to introduce changes to the MFZ regime foreseen in the Tax Benefits Statute to reflect the recommendations issued by the EC and, therefore, making the MFZ regime compatible with EU law.
António Vicente Marques – Sociedade de Advogados, RL
Lisbon 10 December 2020