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26 April 2021

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Portugal Amends Madeira Free Zone Legislation Including December 2021 Deadline to Apply

Portugal published Law No. 21/2021 in the Official Gazette on 20 April 2021, which introduces amendments regarding the Madeira Free Zone (Zona Franca da Madeira). This includes that companies may apply for a license to operate in the Free Zone until 31 December 2021, with companies granted a license allowed to benefit from the Free Zone tax benefits until 31 December 2027. The amendments also provide updated requirements regarding the creation of jobs and minimum investment in fixed assets to qualify for the tax benefits in order to comply with EU State aid rules.

One of the main tax benefits for licensed companies in the Free Zone is a 5% reduced corporate tax rate for income deriving from industrial activities or international shipping and air transport activities, as well as for income derived from other activities carried out with foreign entities without a permanent establishment in Portugal or with other companies based in the Free Zone. Other benefits include an exemption from withholding tax on dividend, interest, and royalty payments to foreign entities and on payments for services provided by foreign entities, as long as the foreign entity is not resident in a black-listed jurisdiction. An 80% exemption is also provided from stamp duty, municipal property tax, real estate sale tax, surplus taxes, and other municipal and regional taxes.

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