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EC Agrees To Tax Reduction For Madeira's Free Zone

by Ulrika Lomas, Tax-News.com, Brussels

29 June 2007


The European Commission announced on Wednesday that under EC Treaty state aid rules, it has approved a scheme providing tax reductions worth EUR300 million until 2020 to companies setting up in the free zone of Madeira (ZFM) between 2007 and 2013.

The granting of the aid is subject to requirements to create jobs and to strict safeguards with regard to the implementation of the aid. The Commission was satisfied that the aid was intended to promote regional development in Madeira, by enabling companies established in this outermost region to overcome their structural handicaps.

Competition Commissioner Neelie Kroes stated that:

“The aid will contribute to attract investment and economic activity to Madeira, supporting cohesion in the EU and regional development in this outermost region.”

The ZFM comprises an industrial free zone, an international services centre and an international shipping register. New companies licensed to carry on business there between 1 January 2007 and 31 December 2013 will benefit from a reduced tax rate of 3% in 2007-2009, 4% in 2010-2012 and 5% in 2013-2020.

Access to the scheme will be restricted to companies which meet specific eligibility criteria, based on the number of permanent jobs created. The tax benefits will be limited by a ceiling placed on the taxable base per company which ranges from EUR2 million (where less than three new jobs are created) to EUR150 million (where more than 100 new jobs are created).

The companies involved will have to start business within a fixed time limit (six months in the case of international services, and one year in the case of industrial or shipping activities), beyond which they will lose their licences.

Admission to the ZFM is also restricted to the activities included in a list drawn up by the Portuguese authorities on the basis of the statistical classification of economic activities in the EU. As under the previous scheme, authorised by the Commission on 11th December 2002, financial and insurance intermediary activities, financial and insurance auxiliary activities and "intra-group services" (coordination, accounting and distribution centres) are explicitly excluded.

The Commission has assessed the aid in the light of the Regional Aid Guidelines for 2007-2013. Under the Guidelines, Madeira is fully eligible for regional aid until the end of 2013.


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