Starting Up in Madeira

The Autonomous Region of Madeira has since the 80s, a low tax system known as the Madeira’s International Business Center, or MIBC.

Since Portugal’s accession to the EU, the MIBC has been subject to several revisions and approvals from the European Commission. The regime is a State Aid under EU Law and jurisprudence. Madeira’s unique jurisdiction makes the MIBC fully compliant under EU and Portuguese law.

THE TAX ADVANTAGE

Investor activities’ income, whether the investor is foreign or national, is subject to the normal tax rate if income derives from activities with residents in Portuguese territory and reduced tax rate (5%) applies if income derives from activities with non-residents. 

In addition Companies get automatically a VAT number. This allows access to the intra-European market transactions with no restrictions

Given the above MIBC fiscal regime is not, legally, technically and conceptually, an offshore tax system, but an “onshore” tax system.

As mentioned before, all principles of the Treaty on European Union apply to Madeira companies and their investors, namely the principle of freedom of establishment and to provide services.

In addition, application of norms arising from the Treaties signed by Portugal or by international organisations to which Portugal is member, especially OECD, FATF7, ILO and IMO apply to the regime.

Besides the above, Madeira has no restrictions on the import of non-resident labour, Madeira has both skilled and unskilled labour, speaking multiple languages (mainly, but not only English, Spanish, French and German) and available at relatively low cost (the minimum wage is, as of 2019, €615 per month).

THE IT ADVANTAGE

Last, but not least, Madeira enjoys the existence of a modern dedicated building designed to host telecommunications and data equipment, such as Data Centres and Internet Service Providers, among others. The Data Centre offers: uninterrupted power supply; An intrusion and a fire detection systems; A specialised air conditioning system; Computerised access control system; redundant telecommunications network; And technical support by dedicated personnel.

Madeira is also a hub for several international optical submarine cables, operated by the Submarine Cable Station also hosted in the Data Centre. Such allows inter-connectivity with national and international SDH networks and providing significant advantages in terms of quality, cost, bandwidth and scalability.

The Internet Gateway provided by Marconi Internet Direct (MID), offers international Internet access with no kind of contention and using diversity in the access to international backbones. The IP platform has its international connectivity distributed by: 3 PoPs (London, Amsterdam and Paris); Peering connections with hundreds of major international ISPs; and IP transits to Europe and the USA.

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Why live in Madeira?

Climate

In terms of climate, Madeira is characterized by an all year-round spring-like weather, is the typical weather in the Autonomous Region of Madeira.Note that the number of hours of sunshine per year reaches values as high as 3300, a 70% larger value than the ones found in northern Europe.

Geographical Location

Madeira island’s unique geographical location is what help Portugal turn into the first global empire in the 15th century. It is the meeting point between three continents – Europe, Africa and America. There Cristiano Ronaldo International Airport serves the island with international flight connections all year round.Distance, in hours, of Funchal from major cities (direct flights):Paris 3h 30min | Frankfurt 4h 3min | Helsinki 5h 52min | Zürich 3h 51min | Madrid 2h 19min | Luxembourg 3h 51min | Stockholm 5h 23min | London 3h 36min | Amsterdam 3h 59min | Brussels 3h 49min | Lisboa 1h 43minMadeira have a modern highway system, allowing other municipalities to be reached in within 30 mins to 1 hour from Funchal.

Education

Portugal has a vast network of prestigious private schools and state-run Universities scattered across the country. If you are considering moving with your family to Madeira Island you will find International Baccalaureate® accredited schools on the island.Students living on the island can access Universities in Portugal that rank among the Top 500 in the international Shanghai Ranking and have European renowned colleges in the following fields:Engineering:

  • Instituto Superior Técnico and Aveiro University;
  • Audited courses by the European Network for Accreditation of Engineering Education (EUR-ACE Accreditation Program)

EconomicsNova School of Business and Economics (Nova SBE) and Católica Lisbon School of Business and Economics are “Triple Crown” holders, being certified by:

  • Association to Advance Collegiate Schools of Business International Accreditation;
  • EQUIS – EFMD Quality Improvement System Accreditation;
  • Association of MBAs (AMBA) Accreditation;

Nova SBE is Member of CEMS Global Alliance in Management Education

History, Culture & Science

Portugal is one of the oldest countries in Europe, having the same defined continental borders since 1249, when King Afonso III captured the city of Faro and the Kingdom of Portugal and the Algarves was effectively established.Nevertheless, its rich history dates to back to 27 BC and to the Roman Imperial Province of Lusitania. Roman ruins and cromlechs (prehistoric megalithic structures) can be found a few kilometers away from each other.It is with no surprise that you can find 15 UNESCO Heritage Sites, plus 11 sites on UNESCO’s tentative list, across the country and its Autonomous Regions.

Given the above, Madeira Island is also known for its a rich traditional folklore, with great regional varieties, it’s unique gothic architecture (Manueline style), literature and last, but not least, its food and wines are among the best regarding price-quality ratio.In the field of scientific research, Portugal is one of the Top 30 countries contributing to the top 1% of the world’s highly cited publications. It ranks above Spain, Ireland and Greece, with research being mainly carried out within a network of public universities.The country’s globally acclaimed research institutions are the Calouste Gulbenkian Foundation, with an endowment of € 2.8 billion, and the Champalimaud Foundation(biomedichal research), with an endowment of € 500 million.

Political Stability

Portugal has a strong tradition of political stability, with power alternating between the two main center parties since 1974. Given its constitutional system, premier-presidentialism, it is not unusual for these center parties to form coalition with other minor parties in recent years. Madeira Island possesses its own political and administrative statute and has its own government. The branches of Government are the regional executive (Governo Regional) and the legislative assembly (known as the Assembleia Regional). The assembly is elected by universal suffrage. Power in Madeira Island has been exercised by the same party since 1976.

Law and Rights

The Portuguese Law system is part of the civil law legal systems, based on Roman Law. Since the 20th century there has been a major influence from German civil law, a shift from the French influence of the previous century. Since 1986 European Union Law became the major driving force on corporate law, administrative law and civil procedure.Portuguese Law has influenced the legal systems of Angola, Brazil, Cape Verde, Guinea-Bissau, Mozambique, São Tomé and Príncipe, Timor-Leste, the State of Goa (India) and the Special Administrative Region of Macau (China).

Portugal is the only country in Top 5 Most Powerful Passport Index (Visa-Free Score of 155 countries) to have a Golden Residence Permit Regime, that after a given period allows residents to acquire Portuguese nationality.According to the Cato Institute’s Human Freedom Index, Portugal ranked among the Top 20 Countries, surpassing France, Spain and Greece pertaining economic and personal freedoms.As for religious, bioethical, family and gender freedoms, Portugal ranks in the world Top 3 in the World Index of Moral Freedom, surpassing all the G20 countries in these fields.Portugal is among ILGA-Europe’s Rainbow Index Top 4 European countries in respect to full equality, surpassing Scandinavian countries, Spain, France, Greece and Germany.

Safety and Quality of Life

In the latest Global Peace Index, published by the Institute for Economics and Peace, Portugal ranks on the Top 3 Peaceful Countries in the World. In this index, Portugal ranks above Switzerland, Canada and Switzerland. Investopedia ranks Portugal in the Top 10 Best Countries to Retire in the world and ranks it 2nd best country to retire in Europe. Unlike Spain, Portugal has never suffered any terrorist attack to date.If you are looking for the city with the best quality of life, and where you can enjoy a cosmopolitan and yet calm island life, then Funchal (in Madeira Island) is the place to be. The Portuguese consumer association has ranked Funchal as the second-best city to live in Portugal.

Cost of Living

Portugal and therefore Madeira, ranks in the Top 20 Cheapest Countries in Europe (Numbeo), surpassing Spain, Malta, Greece, and France. Add this to the special tax regime available to new residents and businesses and your savings will increase even more.If you are aiming to do business with the rest of the world, while being based in Portugal, the Autonomous Region of Madeira will be your ultimate investment destination.

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Madeira, Portugal’s Little Secret

It is no secret that Portugal offers, right now, the best program of residency by investment in Europe. Nevertheless, what might surprise some is that Madeira, a Portuguese Autonomous Region, just 900 km of the coast of Portugal (just one and half hour away by plane form Lisbon), might be one of the best places in Portugal for its Golden Visa.

Due to being an all year round tourist destination, due to its unique history, culture and mild climate, Madeira Island has a vibrant real estate market (where prices are more contained than in the Portuguese mainland) and a unique system of corporate tax benefits duly approved by the European Union.

The above means that one can access the Portuguese Golden Visa either by investing in the Madeiran real estate market where demand from locals tourists (mainly from Western, Central and Northern Europe) and expats can provide an interesting return on investment through rental income or opt to incorporate a company to conduct their international business through Madeira. Under the later a Golden Visa will be granted if the company is incorporated with a share capital of 1 million euro or if one employs at least 10 people.

Should one opt to go down the route to incorporate a company, then applying for a license to operate within the Madeira International Business Centre (MIBC) is the smartest thing to do. An MIBC license will grant the company the following tax benefits (among others): a reduced corporate tax rate of 5%, applicable on the taxable income derived from operations exclusively carried out with non-resident entities or with other companies operating within the framework of the MIBC; full exemption from withholding tax on dividend remittances from the Madeira companies to non-resident single and corporate shareholders; and no withholding tax on the worldwide payment of interest, royalties and services.

It is important to mention that the abovementioned tax benefits will only be granted if the company creates at least 1 full-time local job (the visa applicant can qualify if he/she opts to live permanently in Madeira) in the first 6 months of operation and undertake a minimum investment of €75.000 in the acquisition of fixed assets, tangible or intangible, in the first two years of operation; or create 6 or more full-time local jobs in the first 6 months of operation.

Having the above in consideration one can see how the MIBC requirements match those of the Portuguese Golden Visa when it comes to company incorporation and employing local workers. One can also opt to invest in real estate through a company (as a sole shareholder of said company) and use that investment to fulfil the requirements of both the Portuguese Golden Visa and the MIBC, therefore getting “the best of both worlds” in terms of business and real estate investment.

Further to the above, Portuguese Golden Visa application in Madeira Island is the fastest in Portugal, especially when compared to the Portuguese mainland immigration offices. This is due to the current low level of applications, which in turn allow government officials not to be overworked and comply with deadlines foreseen in the law.

Last but not least, all be above programs can also be combined with the Non-Habitual Resident tax scheme which allows for a 10-year tax holiday, on foreign income, for those meeting the staying requirements in Portuguese territory and non-residency in the previous 5 years before arrival.

One can say, right now, that Madeira is Portugal’s little secret when it comes to residency by investment.

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European Permanent Residence

Acquiring the right of permanent residence

As an EU national, you automatically acquire the right of permanent residence in another EU country if you have lived there legally for a continuous period of 5 years. If you fulfill this requirement, you can apply for a permanent residence document, which confirms your right to live in the country where you now live permanently, without any conditions.This is different from the registration certificate which is compulsory in many countries. The permanent residence document is not compulsory.But it can be useful when dealing with the authorities or for administrative formalities. The authorities may no longer require you to prove that you have a job, sufficient resources, health insurance, and so on.

Applying for a permanent residence document

To get a document certifying your right of permanent residence, you must submit proof that you have been living legally in the country for 5 years.You need to send different supporting documents with your application, depending on your situation (employed, self-employed, job-seeker, pensioner, student). This could include:

  • a valid registration certificate issued when you arrived in the host country
  • evidence that you’ve been living in the country, such as utility bills and rental contracts
  • evidence such as payslips, bank statements, tax returns that you’ve been working, studying, self-employed, self-sufficient or looking for work

The authorities must issue the permanent residence document as soon as possible and cannot charge you more than nationals pay for their identity cards. If they do not, you can call on our assistance services.The document is automatically renewable without any condition or requirement. However, its validity may differ depending on the issuing country.

Losing the right of permanent residence

You can lose your right to permanent residence if you live outside the country for more than 2 consecutive years.

Permanent residence for your EU family members

The same rights apply to your EU family members. They are also entitled to a permanent residence document in the country where they have resided with you legally for a continuous period of 5 years. Should you request our assistance in applying for permanent residency in Portugal as an EU-Citizen please do not hesitate to contact us at management@mcs.pt requesting a fee quote.

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Trusts in Madeira

Trusts in Madeira are regulated through omission. Decree Law 352/88 & Decree Law 149/94 deal with the registration and management of offshore trusts whereas Decree Law 264/90 concerns authorization by government of trust corporations and branches.

Portuguese residents cannot use Madeiran offshore trusts. The law forbids a trust to hold immovable property situated in Portugal and to have either a settlor or a beneficiary who is a Portuguese resident.

All trust property must be based outside Portugal and all trust income must be derived from non-Portuguese sources if the favorable taxation regime governing entities licensed to operate under the Free Trade Zone Legislation of Madeira is to apply.

Where trust income arises in Portugal, it is taxable in the hands of the trustees as if the trustees were both legally and beneficially entitled to the income. The reasoning behind this principle is that Portuguese law does not recognize the concept of a trust and so does not recognize the distinction between legal and beneficial ownership for the purposes of taxation.

By way of exception income arising through investments made through companies licensed to operate under the Free Trade Zone Legislation of Madeira is not considered to have arisen within Portugal for tax purposes.

For a Madeira trust to be valid it must satisfy the following criteria:

  • The trust must pass the three tests of certainty of intention, certainty of objects and certainty and identification of the beneficiaries;
  • The settlor, the trustees, the beneficiaries and the assets settled by the trust must all be identified in the trust deed;
  • The trust period must be specified.
  • A power to accumulate income must be specified in the deed;
  • The trust deed must stipulate a foreign proper law governing the validity, interpretation and administration of the settlement;
  • The trust deed must set out the trustees powers of investment, the rights and obligations of trustees and the relationships between trustees and beneficiaries including any personal liability arising.

Re-domiciliation

Trusts that are created in or transferred to Madeira may emigrate without prior authorization by exchanging the law governing the trust with the law of the foreign jurisdiction to which the trust is going to migrate.

Change of Proper Law

The settlor must expressly designate the law (other than Portuguese) that will regulate the Trust at the time of incorporation. Furthermore the trust deed can reserve the right to change the proper law governing the validity, interpretation & administration of the trust at any future point in time.

Creation of a Madeira Trust

A Madeira offshore trust is brought into existence by the execution of a notarial trust deed in front of a public notary. Provisions protecting

Confidentiality

Pursuant to European Directive 2015/849, all beneficial owners of the trust must be reported to the control-accessed Central Registry of Beneficial Owners. Under this EU Directive the trust’s beneficial owners are: the settlor(s), the trustee(s), the curator (if applicable), the beneficiaries of the trust and any other individual that controls (in)directly the trust.

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