Category Archives: Corporate Income Tax

A Global Hub for Business: Madeira

At a time that it is increasingly important for companies to have internationalization tools at their disposal, the Autonomous Region of Madeira enables companies to significantly reduce their internationalization costs.

Given the above, the set of tax benefits available within the Madeira International Business Center (MIBC) make it possible for international companies to reduce their internationalization/context costs.

Thus, companies wishing to internationalize and that have their core business in international trade activities, e-business and telecommunications, consultancy and marketing services, as well as the management of intellectual property, the development of real estate projects or management of investments can license themselves in the MIBC / ZFM and get the following benefits:

Available Tax Benefits within the MIBC

  • 5% Corporate Tax Rate, provided some legal requirements are met;
  • Access to the Portuguese system of participation exemption ;
  • No withholding tax on:
  • Payment of dividends, to non-resident entities
  • Payment of services, to non-resident entities;
  • Payment of interest, to non-resident entities;
  • Payment of royalties, to non-resident entities;
  • Exemption from 80% in stamp duty on documents, contracts and other acts carried out requiring public register since performed with non-resident entities in Portugal or licensed in the MIBC;
  • Companies licensed in the MIBC also benefit from 80% of municipal property tax and property transfer tax exemption due to the acquisition of immovable property for the installation, as well as other fees and local taxes;
  • Access to the network of double taxation treaties signed by Portugal.

It is important to note that the MIBC / ZFM is covered by all tax and social security Portuguese laws and is licensed under European Union law. Such legislative provisions allow the MIBC / ZFM to fully comply with national and international standards.

The benefits above mentioned can be combined with the highly attractive Portuguese Golden Residence Permit Programme (also known as Golden Visa) and the Non-Habitual Resident (NHR) Tax Regime, which grants a 10 year tax exemption on new residents.

Having said, it is clear that all companies can alleviate the costs associated with the internationalization of its activities in an efficient way by using Madeira as its HQ.

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Madeira’s your Brexit opportunity

Low Taxes

Today more than 10% of Madeira’s International Business Centre (MIBC) are of British origin, operating in one of Europe’s most tax efficient and tax compliant jurisdictions.
Approved the tax benefits were approved by the European Commission and allow the licensing and installation of new companies, which benefit from a reduced corporate tax rate of 5% and exemption from withholding of payment of dividends, among other fiscal benefits.
The change of the VAT regime in the transactions and other tax regulations caused by the Brexit make Madeira one of the best places for companies who want to relocate to the EU.
MIBC currently has 2,000 companies operating in three economic sectors, International Services, the Industrial Free Trade Zone and the International Ship Registry of Madeira (MAR).
When compared with Malta or Cyprus, which also offer reduced corporate tax rate regimes, Madeira’s main advantage is that its regime has been approved by the EU, while other territories will have to harmonize their legislation by 2020.

Expat Paradise

The Portuguese special personal income tax regime, the NHR scheme (Non-Habitual Resident), is specifically designed for individuals wishing to transfer their residency to Portugal and currently presents and excellent opportunity to all the British wishing to relocate before or after Brexit is conclude.
Provided that all requirements are fulfilled the main characteristics of the regime are:
  • Foreign sourced income such as dividends, interest, capital gains (duly structured), rental income, occupational pensions, together with self-employment income and professional income can be exempt from personal income tax;
  •  Portuguese sourced employment and self-employment income are liable to a special flat rate of 20%.
If you have not been a resident, for tax purposes, in the previous five years prior to taking up residence in Portugal you are able to benefit from the potential advantages of the NHR Regime, which can be combined with the Portuguese Golden Visa.
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A land of (tax) opportunities

A leading destination for all ages, Portugal is asserting itself as a major start-up destination in Europe, and with that hundreds of techies are willing to relocate to Europe’s oldest country. But it is not just the Web Summit’s new capital, Lisbon, who’s attracting new residents, Madeira is also getting its share. The Portuguese archipelago, one of most richest regions in Portugal, has an agreement with Saint Peter (all-year-round good weather) and therefore is attracting freshly retired residents from Central and Northern Europe every year.

Smart Tax Incentives for New Residents

The Portuguese Government is not relying on the country’s “good looks” to attract investment, in fact, it has resorted to an interesting tax policy aimed at luring and securing foreign investment in the long term. The tax policy? Portugal’s Non-Habitual Resident (NHR) Regime.The NHR Regime is a special tax residency status, applicable to all those who fall under the following conditions, regardless of nationality or age:

  • Be a tax resident under Portuguese domestic legislation; and
  • Not have been taxed as a Portuguese resident in the five years prior to taking up residence in Portugal.

Provided you check the previous requirements, you can benefit from a total tax exemption on foreign source employment, professional, pension, dividends, interest, capital gains and rental incomes. All you need to do is to make sure that those incomes are either taxed at source, in accordance with the applicable tax treaty or that are not deemed as derived from Portugal nor from a tax haven (in the case of dividends, interests, capital gains and rents).In case you work in Portugal and earn either employment or professional income from a Portuguese source, then those incomes will only be liable to a 20% flat tax rate, provided the job performed is deemed as a high-added value profession by law.

Investing in Portugal, from a tax standpoint, has never been easier!

Reduced Tax Costs for Start-Ups and Investors

Apart from the NHR Regime applicable to any Start-up employee that complies with the regime’s conditions, start-up founders can reduce their tax-related operational costs through the International Business Center of Madeira. This preferential and highly efficient tax regime grants significant advantages to companies structured in Madeira Island, of which I highlight the following:

  • 5% corporate tax (against mainland’s 21%), in all international operations;
  • Total exemption from withholding tax on dividend remittances from the Madeira companies, for non-resident shareholders;
  • Exemption on capital gains payments, for non-resident shareholders.

Professional tax consultancy is required

Regardless of the tax benefits that someone may benefit from in Portugal, one thing is for sure: applying correctly for them is not a straightforward thing. Despite all the advantages there is a somewhat considerable amount of red tape and formalities that require an experience professional in order to swiftly apply and benefit from the existing tax incentives.Nevertheless, the next time you think Portugal as a paradise, just remember that the country is much more than good weather and good food.

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Madeira Onshore Tax System

Madeira, being a political autonomous territory of Portugal, has been granted, since the 80s, a low tax system (Madeira’s International Business Center, or MIBC) in order to promote its island economy. And, contrary to popular belief not all low tax systems are synonymous of offshore or tax havens.

In fact, since Portugal’s accession to the EU, the MIBC system has been subject to several revisions and approvals from the European Commission, as such regime is considered State Aid in accordance to EU Law and jurisprudence and is thus subject to the Regional Aid Guidelines issued by the European Commission itself.

As such ,the MIBC fiscal regime is fully integrated and regulated under EU and Portuguese law, and such regulation means that:

  • There is full implementation of EU law regarding business activities admitted to the MIBC;
  • Full application of norms arising from the Treaties signed by Portugal or by international organizations to which Portugal is member, especially OECD, FATF7, ILO and IMO apply to the regime;
  • All business activities within MIBC are subject to the same rules and proceedings regarding customs, tax and financial activities in terms of control, inspection and supervision. Consequently the regime has “onshore” characteristics, since terms and conditions are identical to those of Madeira and the Portuguese mainland;
  • Additional measures exist regarding the improvement of the rules applied to the MIBC;
  • Complete access to double taxation agreements signed by Portugal; and
  • Relationship with resident entities without fiscal benefits is allowed.
    In fact Portuguese investors can take full advantage of MIBC if they aim to internationalize their activities or develop activities. Investor activities’ income, whether the investor is foreign or national, will be taxed at normal rate if income derives from activities with residents in Portuguese territory and reduced tax rate (5%) will be applied if income derives from activities with non-residents.

Because of the reasons mentioned above, the MIBC fiscal regime cannot be considered, legally, technically and conceptually, an offshore tax system, but rather an onshore tax system.

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