The extension of the incentive stipulated in the Fiscal Benefits Statute (EBF) has received approval in the Assembly of the Republic, following a proposed amendment to the State Budget for 2026 (OE2026) by the three PSD-Madeira deputies, Pedro Coelho, Vânia Jesus, and Paulo Neves.
The initiative faced opposition votes from PCP, BE, and Livre.
With the extension of the rules, companies receiving official authorization to operate in this business center by the end of 2026 will benefit from a 5% corporate income tax (IRC) rate under this special tax regime through 2033.
Previously, the legislation guaranteed the application of the reduced rate only until 2028.
A similar proposal from PS was rejected in a subsequent vote.
The ZFM is a tax regime that allows licensed companies to benefit from reductions in certain taxes, including IRC on profits generated through activities in Madeira.
To qualify for the reduced 5% rate, companies must meet specific conditions, such as creating and maintaining jobs in the region, and they can only apply the IRC reductions to profits related to activities conducted in the archipelago.
The 5% rate applies up to a certain taxable amount, varying based on the number of jobs created (for example, up to 3.55 million euros for creating three to five jobs, up to 21.87 million euros for six to 30 jobs, or up to 205.50 million euros of taxable income for more than 100 jobs).
The Zona Franca is divided into three areas: international services, the industrial free zone, and the international ship registry (known as “MAR”).
To operate in the ZFM and benefit from the incentives, a company must obtain authorization from the Sociedade de Desenvolvimento da Madeira (SDM), a regional public company responsible for maintaining an updated register of licensed entities.
Madeira can apply a notably lower IRC rate compared to the general rate (5% compared to the current 20%) because the Treaty on the Functioning of the European Union (TFEU) allows outermost regions – like Madeira, the Azores, the Canary Islands, or French Guiana – to benefit from regional development aid schemes.
In Madeira, this mechanism exists through a business support scheme via taxation, resulting in the ZFM, compensating economic players present there for the structural disadvantages of operating in an isolated region.
As companies authorized to operate in this business center benefit from the special aid conditions, they must fulfil certain conditions to not jeopardize competition rules in the EU.
In 2020, following an investigation launched in 2018, the European Commission concluded that Portugal had applied the aid regime illegally, without complying with the Commission’s 2007 and 2013 state aid decisions. Some companies benefited from reduced IRC without creating the required jobs.
As a result of this decision, later upheld by the EU Court of Justice, the Portuguese State was obligated to recover the portion of the illegal tax incentive from companies, notifying entities to pay the outstanding IRC.
