Economic substance within the MIBC: tax authority requirements for the choice of premises

Filipe Ferreira Correia
2 hours ago
5 min read

The year 2026 constitutes an undeniable milestone for tax and corporate planning in the Autonomous Region of Madeira. The extension of the Madeira International Business Centre (MIBC) regime secures the maintenance of the reduced Corporate Income Tax (IRC) rate of 5% until December 31, 2033; however, the deadline for granting new licenses definitively closes on December 31, 2026.

This timeframe coincides with a substantial increase in investigative scrutiny by the Tax and Customs Authority (AT). As reported by the regional press, the Tax Authority's Special Unit maintains active surveillance over approximately 40 companies in the Region, which are integrated into a universe of large taxpayers whose tax registry in Madeira has recorded a 31% growth since 2022.

In this context of heightened tax audits, the legitimacy of access to the benefits of the regime depends strictly on compliance with real economic substance requirements. Physical infrastructure and the organization of resources have become primary audit targets: the era of nominal head offices is definitively over.

As we analyzed in the article Holding Company Structures in Madeira: Asset Protection, Tax Efficiency, and Business Continuity, governance and asset protection require a preventive legal architecture. The operational aspect of economic substance is no different: premises must verifiably reflect the actual activity and size of the company.

We will outline a few key notes on this subject in today's article.

Paisagem da Ilha da Madeira, com ilustrações gráficas que representam o crescimento do Centro Internacional de Negócios na Madeira. Imagem utilizada num blog jurídico sobre o tema da substância económica de empresas no CINM.

The "Adequate Premises" criterion under article 36-A of the EBF

The fulfillment of economic substance requirements within the scope of the MIBC is regulated under article 36-A of the Tax Benefits Statute (Estatuto dos Benefícios Fiscais — EBF). To benefit from the reduced IRC rate, licensed entities must commence their activity within the legal deadline and satisfy, alternatively, one of two conditions: the creation of a minimum number of jobs - which varies depending on the applicable taxable profit bracket - or a minimum investment of €75,000 in the acquisition of tangible or intangible fixed assets.

For tax purposes, the requirement of adequate premises is considered fulfilled when the company disposes of a physical space - owned, leased, or assigned - equipped with the logistical, technical, and material resources necessary for the autonomous and effective development of the activity described in its corporate purpose.

The AT (Tax Authority) has repeatedly reiterated the legal insufficiency of merely formal arrangements. The following scenarios configure a high risk of tax non-compliance:

Static virtual offices, lacking any verifiable physical presence of employees or means of production;
Subleases of manifestly exiguous spaces, disproportionate to the declared administrative structure or the number of registered jobs;
Shared premises lacking contractual or value-based justification, particularly when there is no documentation to support the arm's length market conditions of the assignment.

The guiding principle remains unvaried: the space must be real, functional, and proportional to the declared operation.

The delimitation of "Effective Management" under article 2 of the CIRC

The existence of adequate physical premises is directly connected to the concept of tax residence and the determination of the place of effective management, pursuant to article 2, paragraph 3 of the Corporate Income Tax Code (Código do IRC — CIRC). According to the AT's Binding Information Request no. 26078, effective management corresponds to the place «where the company's administration is situated and where current management decisions are taken» — and not to the location where the company is formally registered or where it holds title to a property.

In the context of audit actions in Funchal, the material evidence required to demonstrate that the effective management is located in the Autonomous Region of Madeira comprises, notably:

Corporate Minutes and Resolutions. Documentary evidence that management or board of directors' meetings physically take place at the Madeira head office premises, recording the date, attendance, and location;
Acts of Current Management. Operational proof that commercial correspondence, relations with suppliers, bank payment orders, and invoicing emanate from the local office — and not from another jurisdiction where the group maintains a presence;
Custody and Document Archive. Centralized maintenance of original minute books, supporting accounting documentation and digital archives (local servers or dedicated network access) within the property allocated to the activity;
Adequacy of the Space-to-Worker Ratio: Correspondence between the layout and office furniture and the number of declared jobs registered with Social Security, ensuring the physical viability of the employees' performance of their duties.

This body of evidence constitutes the factual substratum that the AT mobilizes during audits to assess whether Madeira is genuinely the locus from which the company is managed, or if it represents a merely formal structure for the undue capture of tax benefits.

Contractual requirements for commercial leases in Funchal

Securing the physical space that materializes economic substance requires a preventive approach by management. Commercial (non-residential) lease agreements or space assignment agreements executed in Funchal must safeguard specific clauses that withstand the scrutiny of a tax audit.

Contractual Clause	Legal Purpose	Impact on the MIBC / EBF
Permitted Use and Licensing	Ensures compliance between the property's contractually permitted use, the municipal utilization license, and the licensed company's corporate purpose.	Prevents contract nullity due to urban planning non-compliance and eliminates the risk of administrative injunctions during an audit.
Leasehold Improvements Regime	Governs ownership, prior authorization, and the right to compensation regarding structural and technological adaptation works.	Allows for the eligibility and proper accounting of costs incurred from works towards the €75,000 minimum mandatory investment.
Sharing of Space and Transfer Pricing	Regulates the conditions for the physical sharing of premises with other entities within the same economic group, establishing an arm's length consideration.	Mitigates the risk of tax adjustments due to artificial cost allocation and the lack of arm's length documentation required under the transfer pricing regime.

The omission of any of these clauses - common in agreements executed hastily or without specialized legal assistance - exposes the company to irregularities detectable during audits, with consequences that may include the retroactive revocation of tax benefits and the corresponding additional tax assessment, plus compensatory interest.

Final Remarks

The tax savings provided by the MIBC are a legitimate instrument of high strategic value for corporate structures of both national and international scale. The legal certainty of this regime, however, is not achieved reactively.

The real estate decisions of a licensed company - from the careful selection of the space to the drafting of the lease agreement clauses - form the factual basis upon which the right to the tax benefit rests. In the same manner that, as we analyzed regarding Local Lodging (AL) in Funchal, compliance with local regulations determines the permanence of property investment, within the MIBC, the physical infrastructure is the element that validates economic substance before the Tax Authority.

In 2026, any structure intending to obtain a license under the regime - or to reinforce the solidity of its position face to a potential audit - must submit its substance assumptions to a prior and systematic legal verification. Prevention, in this field, is the only rational strategy.