Labour Laws, Salary, and Tax in Madeira’s International Business Centre

When starting a company within the MIBC, there are several obligations that you as an employer must observe. In this article, we’ll be looking at Portugal and Madeira’s labour laws, contracts, and tax obligations.

MIBC Labour Law Overview

Law 7/2009 of February 12 – Portugal’s Labour Code is applicable to all labour contracts undertaken by companies within the Madeira International Business Centre, (MIBC).

Labour Contracts / Trial Periods

A labour contract is an agreement between an individual and a company, where the individual commits to provide an organisation with activity in return for remuneration. The contract allows the employer power and direction over the worker and is expected to receive a duty of obedience.

There are three types of work contracts in Portugal:

  • Permanent
  • Short-term
  • Uncertain term
  • Without Term

Permanent labour or work contracts do not have to contain any special requirements to be considered valid unless they are defined as short-term or uncertain-term contracts. Short and Uncertain work contracts are required to be in written form.

The law allows for labour contracts to be valid for an indefinite period. Contracts under a short or uncertain term should provide a minimum of six months of employment unless the law enables a shorter duration of the contract.

Short-term contracts can be renewed three times, for the following maximum periods.

  • 18 months – if the employee is taking on their first job
  • 2 Years – In cases where the business activity is being launched, or if the company have less than 750 employees
  • 3 Years – in other cases, except for contracts with uncertain terms

*When short or uncertain term contract validity requirements are not met, such as written form, justification and duration, the contract becomes permanent and therefore the worker is employed without term.  

Trial Periods

Trail periods for permanent contracts are as follows:

  • 90 days for most workers
  • 180 days for highly skilled workers
  • 240 days for managers, executives, and senior managers

Short-term and uncertain term trial periods:

  • 30 days if the contract is expected to last six months
  • 15 days in other cases
Working Hours & Overtime

A working week, either daytime or nighttime, may not exceed 8 working hours daily and 40 working hours weekly. These limits can be increased, either by agreement by the employee and the employer or by a collective labour regulation or union.

Working Hours 09:00 – 13:00
Lunch/Break Hours 13:00 – 15:00
Working Hours 15:00 – 19:00
Total Working Week Hours 40 hours
Annual Leave 22 days
Mandatory Public Holidays 12 days
Optional Public Holidays 3 days
Maternity Leave 12 days



Any provision of work outside normal working hours is considered overtime. Any overtime is required to be remunerated or compensated with a day of rest. Overtime rates are as follows:

  • If provided in a workday, 125% for the first hour of overtime, or part thereof, and 137% for any subsequent hours.
  • If provided on a weekly rest day or mandatory public holiday, 150% of the hourly rate.
Compulsory Rest Days

The law stipulates that an employee is entitled to at least one rest day per week. Usually, Sunday is considered the standard day of rest, however certain working circumstances may allow for it to be a different day of the week.

Public Holidays

In addition to mandatory days of rest, national public holidays are observed.

National Mandatory Public Holidays Madeira’s Mandatory Public Holidays
1st January 1st January
Good Friday Good Friday
Easter Sunday Easter Sunday
25th April 25th April
1st May 1st May
10th June 10th June
15th August 15th August
8th & 25th December 8th & 25th December
————————- 1st July – Madeira Day
————————- 26th December


Madeira’s Municipal Holiday Dates

In addition to national holidays, there are also the following local Municipality holidays observed in Madeira:

Municipality Municipal Holiday Day
Calheta 24th June
Camara de Lobos 16th October
Funchal 21st August
Machico 8th May
Santana 25th May
Sao Vincente 22nd January
Santa Cruz 15th January
Ribeira Brava 29th June
Ponta do Sol 8th September
Porto Moniz 22nd July
Porto Santo 24th June


Maternity and Parental Leave

Parental leave entitles a parent to 120 or 150 days of leave, which can be shared by either parent after birth. Without prejudice, the mother can take six weeks of paid leave, while the father can take 10 days, within 30 days of the birth of the child, either consecutively or not.

In cases of consecutive births, the period of leave can be increased by thirty consecutive days or two periods of 15 days for each twin, other than the first.

The adoption of a child younger than 15 years entitles the parent to 120 or 150 days of parental leave.

Parents of children younger than six years are also entitled to take extended parental leave for three months or work part-time for twelve months.

Time off is allowed throughout the pregnancy for any prenatal appointment that cannot be scheduled outside of their normal working hours.

Holidays, Holiday Pay and Annual Leave

Employees are entitled to 22 days of annual leave per year. In the year of recruitment, the employee is entitled to 2 days of annual leave per month of contract length, up to 20 days, which can be taken after six months of completion of the contract. If a new calendar year begins within the first six months, the employee cannot take more than thirty days of annual leave in a calendar year.

In addition to their normal salary, the employee is entitled to receive a vacation bonus equal to the salary, in addition to the normal salary. This can be paid proportionally if the employee chooses to take their vacation days over more than one period.

In the event of the labour contract being terminated, the employee is entitled to receive compensation for any accrued days of annual leave that have not previously been used in the calendar year of termination.

Christmas Bonuses

Employees are entitled to a Christmas Bonus of an equal amount of their salary, to be paid no later than the 15th of December. In the first year of employment, or in the year of termination of the contract, the bonus will be paid proportionally.

Remuneration and Withholding of Payment

Employees are remunerated monthly, in cash, either on a contractually settled date or on the previous working day. The minimum wage in Portugal is based on a monthly figure, as opposed to an hourly rate. This is updated annually to reflect different factors such as cost of living, income policy and national productivity. The minimum monthly salary in Madeira, as of January 2022, is €723.00 per month.

It’s important to note that there are three minimum wages, depending on the region of operation, in Portuguese Territory:

  • National Minimum Wage
  • Minimum Wage for the Region of Azores
  • Minimum Wage for RAM (Região Autónoma da Madeira)

Employers are required to withhold income tax and social security contributions from contracted employees, or a variable rate depending on the amount of their salary.

The rates for withholding Income Tax and Social Security are as follows:

Income Tax (IRS)
Taxable Income Tax on this Income
Up to €7,112.00 10.15%
€7,112.00 to €10,732.00 16.10%
€10,732.00 to €20,322.00 22.80%
€20,322.00 to €25,075.00 29.75%
€25,075.00 to €36,967.00 33.67%
€36,967.00 to €80,882.00 43.65%
Over €80,882.00 47.52%


Social Security
Type of Employee For the Employer For the Employee Total
Most Employees 23.75% 11% 34.75%


Salary earned by non-resident directors and managing partners of companies operating within the Madeira International Business Zone is considered income obtained within Portuguese Territory. As a result, this income is subject to Income Tax and Social Security contributions.

Labour Contract Termination

Labour contracts in Portugal can be terminated in several ways:

  • Termination at the end of a short-term or uncertain contract
  • Termination by mutual agreement
  • Dismissal by just cause due to the employee
  • Collective dismissal
  • Dismissal by the extinction of the job role
  • Dismissal due to inadequacy
  • Resolution by the employee
  • Termination by the employee

In all cases of contract termination, the employer is required to provide the employee with the following documents:

  • Certificate of Employment – Indicating the dates of employment and termination of the contract
  • Other documents required for official purposes, including those required by the employee to register for unemployment benefits.
Additional Information for Employers
  1. An employee’s right to strike is guaranteed under the Portuguese Constitution and cannot be prevented by an employer. Employees cannot be coerced, intimidated, discriminated against, or harmed during, or after their right to strike.
  2. Lock Out is strictly forbidden. In times of total or partial halt of a companies operations, the prohibition of access to some or all employees to their workplace is considered a criminal offence and can be punishable with a prison penalty of up to two years, or a fine penalty of up to 240 days.
  3. Employee affiliation to a union and Employers affiliation to an Association can evolve into a collective labour agreement, where clauses over salaries, working hours and other matters can be negotiated and set by a collective agreement, unless contrary to Portuguese Labour Law or less favourable than any existing contractual clauses.
I’m considering forming my company in Madeira’s IBC, can you help?

Madeira Company Contabilidade is a team of qualified and professional Tax and Business Consultants and Accounting Firm. Located in Funchal, Madeira’s capital city, we’re well placed to help you with the formation of your company within the MIBC. Read more about Zona Franca da Madeira, or the MIBC as it is commonly referred to in our dedicated blog.

Contact a member of the Madeira Company team today, and find out how we can help you make the most of Madeira’s low tax regime, Zona Franca.

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