A 5% company is worth nothing if the dividend is taxed at 35%
Madeira’s corporate rate is quoted everywhere and is genuinely 5%. What almost nothing quotes is the sentence that decides whether the money reaches you: the shareholder exemption is proportional to where the profit came from, and it switches off completely for two kinds of owner. We read the article rather than the brochure, and built the model around what it actually says.
The exemption is real, and it is proportional
Article 36.º-A(10)(a) of the Estatuto dos Benefícios Fiscais, as amended by Lei 73-A/2025, exempts shareholders from IRS or IRC until 31 December 2033 on profits made available to them — but only in a defined proportion, and with an explicit carve-out.
Profit that actually got the 5%, within the headcount ceiling. This is the part everyone is thinking of when they describe the regime, and for a company whose income is genuinely foreign-source it is most of the profit.
The intended caseLess well known and genuinely useful. Profit beyond your plafond is taxed at the ordinary corporate rate rather than 5%, but article 36.º-A(10)(a) still exempts it in the shareholder’s hands, because it covers the part that does not benefit from the reduced rate yet derives from income obtained outside Portugal.
The ceiling costs you company tax, not withholdingIncome from Portuguese clients that never qualified for the reduced rate is taxed at the ordinary rate at company level and is outside the shareholder exemption. It is taxed twice, in the ordinary way. A Madeira licence does nothing for a domestic Portuguese revenue stream.
The slider that moves the result mostThe closing words of 36.º-A(10)(a) carve out results from operations with entities resident or domiciled in a jurisdiction on the Portuguese list of privileged tax regimes. Note what this catches: not the shareholder, but your counterparties. Invoice an offshore group company and that slice of the profit loses the exemption.
Caught by who you invoiceFrom company profit to what reaches you
Every rate here is statutory. Move the two sliders to see how fast the headline stops describing your situation.
Try it in this order. Leave everything clean and the effective rate from profit to pocket is 5.0% — the regime doing exactly what it promises. Now set the Portuguese-source slider to 30% and watch it reach 16%. Then switch the recipient to a listed jurisdiction and watch it pass 38%, which is worse than owning an ordinary mainland company. Same licence, same profit, same 5% headline.
Three jurisdictions came off the list, and the window is closing
Portaria 292/2025/1 of 5 September removed all three, with effect from 1 January 2026. A holding company in any of them was excluded from this exemption through 2025 and is not excluded now. If a structure was ruled out on that basis a year ago, the reason has gone.
Lei 73-A/2025 extended both the corporate rate and the shareholder exemption in 36.º-A(10) to 31 December 2033. Material written before 2026 says 2027 or 2028, and quite a lot of it is still online.
Article 36.º-A(1) admits entities licensed up to 31 December 2026. The rate runs to 2033, the door closes this year. Everything else on this page is a tax question; this one is a calendar question.
A jurisdiction qualifies as listed partly by having a rate below 60% of Portugal’s general IRC rate — so as Portugal cuts its own rate to 17% by 2028, that threshold falls with it. The government proposed revising the criteria in June 2026. Nothing has changed yet.
The conditions, which are not optional
The exemption at shareholder level exists only because the company qualifies at company level. Lose the regime and the dividend analysis collapses with it.
- Begin operating within six months of licensing; one year for industrial, maritime and air transport
- One to five jobs in the first six months plus €75,000 invested in fixed assets within two years, or six or more jobs in the first six months
- An adequate business structure actually located in Madeira
- Operations with entities in the free zone or with non-residents of Portugal
- Stay inside the benefit cap: 20.1% of gross value added, 30.1% of labour costs, or 15.1% of turnover in Madeira
- Intragroup activity whose main business is NACE 70.10 head offices or 70.22 management consultancy
- Anything in NACE section K, financial and insurance activities
- Steel, synthetic fibres, coal and shipbuilding
- Agriculture, forestry, fishing, aquaculture and extractive industry
- Undertakings in difficulty, and anyone under an outstanding EU recovery order
Read the first exclusion twice if the plan was a group holding or management company. Non-financial holding companies are allowed and are taxed under the ordinary paragraph 1 terms, which is what paragraph 9 confirms. A head-office or management-consultancy entity serving your own group is not. The distinction is narrow and it is where a lot of proposed structures quietly fail.
What this page cannot tell you
Portugal declining to tax a payment says nothing about whether your country of residence taxes it on arrival. For many owners the Portuguese exemption is real and the money is taxed in full at home. That is not a flaw in the regime; it is the regime doing its half and no more.
The half that decides your actual outcomeControlled foreign company rules in the owner’s country can attribute the company’s profits to the owner whether or not anything is distributed, and a 5% rate is precisely the kind of rate those rules are written to catch. If this applies to you, the entire waterfall above is irrelevant.
Check this first, not lastPortugal’s Pillar Two regime (Lei 41/2024) applies to groups with consolidated revenue of at least €750 million in two of the four preceding years, and tops low effective rates up to 15%. Below that threshold it does not touch you, which covers almost everyone reading this. Above it, assume the 5% does not survive.
€750m, or it does not applyWhich is what the model above turns on, and which you already know. If the honest answer is that your customers are Portuguese, this regime is not for you and no amount of structuring changes that.
Start from your invoices- EBF, artigo 36.º-A — the regime for entities licensed in the Madeira Free Zone from 1 January 2015. Paragraph 1 (5% rate, licensing to 31.12.2026, rate to 31.12.2033, as amended by Lei 73-A/2025); paragraph 2 (jobs and €75,000 investment); paragraphs 3 and 4 (benefit caps and taxable-income ceilings); paragraph 8 (exclusions); paragraph 10 (shareholder exemption); paragraph 11 (who is excluded, and the oldest-reserves-first rule); paragraph 17 (adequate structure in Madeira).
- CIRC, artigo 87.º — general rate 17%, with 19% for periods beginning in 2026 and 18% in 2027 under the transitional rule in Lei 64/2025; 25% for non-resident entities without a permanent establishment; 35% for capital income of entities domiciled in listed jurisdictions.
- CIRS, artigo 71.º — 28% withholding on capital income, 35% where the recipient is domiciled in a listed jurisdiction.
- Portaria n.º 150/2004, as amended by Portaria n.º 292/2025/1 de 5 de setembro — the list of privileged tax regimes; Hong Kong, Liechtenstein and Uruguay removed with effect from 1 January 2026.
- Lei n.º 41/2024 — the global minimum tax regime, from €750 million of consolidated revenue.
What owners ask once the brochure runs out
Can a non-EU owner receive Madeira dividends without Portuguese withholding tax?
Yes, and this is the part of the regime that genuinely has no mainland equivalent. Article 36.º-A(10)(a) of the EBF exempts profits made available to shareholders of a licensed Madeira company until 31 December 2033, and it does not require the shareholder to be in the EU or in a treaty country. The ordinary Portuguese participation exemption does require that. So a US, UK, Brazilian, Emirati or Singaporean owner can be exempt here where they would not be on the mainland.
Is the exemption total?
No, and this is the single most misreported point. It applies in proportion to the part of the company result that was taxed at the reduced rate, plus the part that did not get the reduced rate but derives from income obtained outside Portuguese territory. Portuguese-source profit that never qualified is not covered. If half your profit came from Portuguese clients, roughly half the dividend is exposed to withholding.
Who is excluded from the exemption?
Two groups, under article 36.º-A(11)(b): shareholders resident in Portugal, except shareholders of the industrial and shipping companies described in paragraphs 1(a) and 1(b); and shareholders resident or domiciled in a jurisdiction on the Portuguese list of privileged tax regimes. The second exclusion is the expensive one, because the withholding rate for those shareholders is 35%.
What is the Portuguese blacklist, and did it change?
It is the list approved by Portaria 150/2004, currently around 77 jurisdictions. It changed recently and in the taxpayer’s favour: Portaria 292/2025/1 of 5 September removed Hong Kong, Liechtenstein and Uruguay, with effect from 1 January 2026. A Hong Kong holding company that was blocked from this exemption through 2025 is not blocked now. The criteria themselves are under review following a government proposal in June 2026.
What happens to profit above the ceiling?
It is taxed at the ordinary rate rather than 5%, but — and this is a detail worth knowing — it can still be exempt in the shareholder’s hands, because article 36.º-A(10)(a) covers the part that does not benefit from the reduced rate yet derives from foreign income. The ceiling is set by headcount: €2.73m for one or two jobs, €3.55m for three to five, €21.87m for six to thirty, and upward from there.
What does the company have to actually do in Madeira?
Start operating within six months of licensing, one year for industrial and shipping activity, and then either create one to five jobs in the first six months plus invest €75,000 in fixed assets within two years, or create six or more jobs in the first six months. The benefit is separately capped at 20.1% of gross value added, 30.1% of labour costs or 15.1% of turnover generated in Madeira, and the law requires an adequate business structure located there.
Can I license a new company now?
Until 31 December 2026. The licensing window in article 36.º-A(1) closes then, while the 5% rate itself runs to 31 December 2033 for companies already licensed. That asymmetry is the whole decision: a licence obtained this year carries seven more years of the regime, and one obtained in January 2027 does not exist.
Will my own country tax the dividend anyway?
Very probably, and this page cannot tell you how much. Portugal exempting a payment says nothing about whether your country of residence taxes it on receipt, or attributes the company’s profits to you before any dividend through controlled foreign company rules. For a great many owners the Portuguese saving is real at the company and recaptured at home. Check that before you build anything.
Send us the mix, we will tell you if it survives
Where your customers are, where the shareholder sits, what the group looks like above it. We will tell you what proportion of a distribution would actually be exempt, whether the activity falls inside the permitted list, and whether your own country gives the saving back. Sometimes the answer is that a mainland company is the better structure, and we would rather say that before the licence than after.