Companies operating in the Madeira Free Trade Zone (ZFM) cannot count the purchase of passenger cars as an eligible investment to access the regime’s reduced corporate tax rate, according to a binding ruling published by the Regional Tax and Customs Authority (AT-RAM).
The decision, signed by the Regional Director of AT-RAM on the 17th of July and published today on the Finance Portal, followed a request from a Madeira-based IT consultancy licensed to operate within the Free Trade Zone.
AT-RAM concluded that, as a general rule, the purchase of a passenger vehicle does not meet the legal requirements to qualify as an eligible investment for access to the ZFM’s reduced 5% corporate income tax (IRC) rate.
Companies licensed to operate in the Madeira Free Trade Zone benefit from a special tax regime approved under European Union rules for outermost regions. Instead of paying Madeira’s standard corporate tax rate of 13.3%, qualifying companies can pay just 5% on profits generated from eligible economic activities carried out in the archipelago.
The amount of income that qualifies for the reduced rate depends on the number of jobs the company creates and maintains in the autonomous region.
Businesses starting operations must also meet an investment requirement, making a minimum investment of €75,000 in tangible or intangible fixed assets during their first two years of activity, as set out in Portugal’s Statute of Tax Benefits.
The company seeking clarification argued that the purchase of a passenger vehicle, intended for business travel, meetings with clients, suppliers and local organisations, should qualify as part of that investment.
According to the ruling, the company explained that its two managing partners both live on Madeira and personally provide the consultancy services, making the vehicle essential for business travel.
However, AT-RAM rejected that argument, stating that eligible investments must consist of assets that are directly linked to the company’s economic activity and form a permanent part of the productive structure of its establishment in Madeira.
Although the Statute of Tax Benefits does not specifically list which assets qualify, the tax authority said the legislation must be interpreted alongside European Union block exemption rules governing regional investment aid, including the Madeira Free Trade Zone regime.
Those rules define an initial investment as expenditure on tangible or intangible assets connected with creating a new establishment, expanding an existing one, diversifying production or fundamentally changing the overall production process.
AT-RAM concluded that passenger cars do not meet those criteria because they are inherently mixed-use assets, capable of being used for both business and private purposes.
“Passenger vehicles are, by their nature, not assets exclusively dedicated to productive activity, nor do they, in themselves, guarantee the permanent connection to the regional investment that the regime is intended to promote,” the authority said.
The ruling means that companies operating within the Madeira Free Trade Zone cannot normally include the purchase of standard passenger vehicles when calculating the minimum investment required to benefit from the regime’s preferential corporate tax rate.
Samantha Gannon
info at madeira-weekly.com
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