Changes to the Golden Visa and the NHR scheme

Following the approval of the Portuguese State Budget for the FY2020 the following changes have been introduced regarding the Golden Visa and the Non-Habitual Resident (NHR) scheme:

Golden Visa

Before the Approval of the State Budget: real estate investment, for the purposes of obtaining a residency permit, was allowed to be carried out in entire Portuguese territory.

After the Approval of the State Budget: the Portuguese Government has been authorized by the Assembly of the Republic, for a period of one year, to legislate on changes to the Golden Visa regime.

Under such authorization the Government is allowed to limit real estate investment, for the purposes of obtaining a residency permit, to the Portuguese mainland’s interior and the Autonomous Regions of Madeira and Azores.

Furthermore, under such legislative authorization, the Portuguese Government is expected to increase the minimum amount of the investment required to obtain the residency permit.

Last, but not least, these changes will not affect the Golden Visas already issued under the old rules.

NHR scheme

Before the Approval of the State Budget: those under the NHR scheme would have their:

  • Pensions exempted from personal income taxation in Portugal, provided that: pensions are taxed in the jurisdiction of origin according to the Double Tax Treaty entered into between Portugal and that jurisdiction; or provided the income cannot be considered as obtained in Portugal according to Portuguese domestic law.
  • Professional income (“free-lancer” income) derived from high added value activities in only be exempt in Portugal, provided that: the income may be taxed in the jurisdiction of origin according to the Double Tax Treaty entered into between Portugal and the jurisdiction concerned ; or in case Portugal has not entered into between a Double Tax Treaty with the jurisdiction of origin, the income may be taxed in conformity with the OECD Model Tax Convention (in this case, this exemption shall only apply if the jurisdiction of origin is not considered a black listed jurisdictions and as long as the income cannot be considered as obtained in Portugal according to domestic law).

After the Approval of the State Budget:

  • NHR status holders are taxed at the rate of 10% relative to net pension income. This measure can be offset through a tax credit in order to avoid any potential double taxation.
  • Professional income derived from high added value activities from foreign sources can only be exempt in Portugal, provided that effective withholding tax is applied by the source jurisdiction.

The above rules are in force since April 1, 2020.

For more information on these matters, please do not hesitate to contact us.

 

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Before relocating to Madeira

There might be a bucket full of reasons as to why you wish to relocate to Madeira, but all experts and consultants on the matter will tell two things: access/re-arrange your income before relocating and always engage Madeiran and your home jurisdiction’s tax experts when doing so before actually transferring residency, for migration and tax purposes.

Although the Non-Habitual Resident (NHR) status, which generally speaking grants you a 10-year tax holiday on your foreign sourced income, is fairly easy to obtain it is important to make sure that prior to your effective relocation our worldwide income structure does comply with Portuguese tax law. Failure to do so can certainly imply loss of said exemptions.

Did you know that Portugal, and therefore Madeira, blacklists and penalizes, through taxation, income deriving from more than 80 different jurisdictions including all British Overseas Territories and British Crown Dependencies? Did you know that the Portuguese fiscal year matches the calendar year?

The above-mentioned small details can become a headache if your income structure and relocation dates are not analyzed and adjusted, if needed, on a timely manner in order to comply with the NHR scheme rules.

When thinking about relocating to Portugal, having a tax consultant that fully understands the nuances and variables surrounding the NHR scheme and the implications arising from such relocation, including those deriving from migration rules.

In a ideal world one who relocate to Madeira, then obtain a Portuguese Taxpayer Identification Number, apply for Residency as EU-Citizen (for migration purposes), file application for the NHR status and start enjoying a 10-year tax free life, but that cannot be further from the truth. The first step must always be engaging a Madeiran tax consultant in order to analyze one’s particular tax position prior to relocation.

Madeira Corporate Services has been advising private and corporate clients who wish to invest in Madeira for more than 20 years, operating as one-stop shop in terms of the services and expertise provided. Prior to your relocation do not hesitate to engage our assistance.

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15 Reasons to live in Madeira when this is over

With the prospective opening of borders and travel one destination remains eternal, the “Pearl of the Atlantic”, Madeira. This Portuguese autonomous region is not only a beautiful place to live, but also an even more beautiful place to live, find out why:

  1. Efficient healthcare system – during the COVID-19 pandemic the Regional Government of Madeira and the Regional Health Authority took quick and decisive actions to contain and curb down the pandemic. Thanks to these herculean efforts, the number of COVID-19 cases on the Autonomous Region of among the lowest in the country. Free healthcare is available to all legal residents on the island.

 

  1. Always been open for business and investors – after Covid-19, a “new era” with some economic uncertainty, requires a wise decision to invest in certain frameworks that could alleviate the tax burden, and therefore your personal and/or corporate operational costs. Madeira offers all investors a 5% corporate tax rate for those incorporating international services/consultancy companies in the Madeira International Business Center.

 

  1. We welcome expats – Madeira has been receiving international attention since European royalty discovered the wonders of its year-round, spring like climate and the associated health benefits. Empress Sisi of Austria, Emperor Maximilian of Mexico, and, later, Sir Winston Churchill stayed for extended periods, bringing this Portuguese island international status and notoriety. Today expats are welcomed and greeted not only with the amazing climate but also with a 10-year tax holiday, thanks to the Non-Habitual Resident scheme.

 

  1. Easy residency for non-EU/EEA citizens – The Golden Visa, a residency (and citizenship) by investment scheme designed to attract high-net worth and ultra-high-net worth individuals and their families to live in Madeira can be linked to real estate investment or company incorporation. In Madeira applications are usually processed faster than in the Portuguese mainland.

 

  1. Stress free life – Day-to-day life in Madeira is stress-free for locals, expats, and tourists alike, and the cultural offerings are immensely diverse for an island. Museums with Flemish and religious art, churches hosting organ music festivals, monthly symphonic orchestra and chamber music concerts, gastronomical and traditional folk festivals throughout the year, and recurring art exhibitions are just some examples of Madeira’s active cultural scene.

 

  1. International connections – Unlike many island paradises, Madeira’s Cristiano Ronaldo Airport connects you directly not only to Lisbon, Portugal’s capital, but also to every other major European capital—including Paris, Brussels, London, Berlin, and Zürich… one reason Madeira is a favorite holiday destination among British, German, French, and Scandinavians.

 

  1. Solid real estate market – even with the COVID-19 pandemic, Madeira housing prices are on the rise in the first quarter of 2020, confirming the Island’s position as an investment destination. Funchal’s civil parishes of Sé and São Martinho apartment rents can yield, accordingly to the latest statistics available, a monthly rental income (long-term rental) between EUR 1,800 to EUR 2,000 for a EUR 270,000 investment in 196 m2 apartment. Should you opt for short-term rentals, in the likeness of AirBnB, the same well-located apartment can yield between EUR 500 and EUR 1,000 per week.

 

  1. Pristine nature – Despite its proximity to Morocco, the island’s nearest continental neighbor, Madeira’s climate is humid (around 75% humidity year-round), thanks to its UNESCO World Heritage-protected, prehistoric Laurissilva Forest, which covers 20% of the island’s 741 square kms. This forest has more than 1,600 kms of irrigation channels accompanied by footpaths that once connected the entire island’s countryside.

 

  1. Easy communication – Thanks to the strong British presence on the island, most Madeirans speak English, and Madeira was the first territory in Portugal to implement compulsory English education starting with primary school. English, alongside French and German to a lesser extent, is the main second language spoken by locals.

 

  1. Low cost – Madeira is one of the most affordable places to spend time in this part of the world. Utility costs are lower here, too—electricity is as much as 21.8% lower than in the Algarve, internet 11.2% less costly. And VAT is one percentage point lower than on the Portuguese mainland.

 

  1. Existing expat community – There are many expats in Madeira and most of them are from the UK, Germany, Austria, France and to a smaller extent Scandinavia, Canada and the US. Moreover, there are a lot of people who are interested in moving to the island, especially from these mentioned countries.

 

  1. Laws and Rights – 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.

 

  1. LGBTQ+ safe – Portugal is among ILGA-Europe’s Rainbow Index Top 10 European countries in respect to LGBTQI equality, surpassing countries like, The Netherlands, Denmark, Sweden and Germany.

 

  1. Quality of Life – Madeira’s capital, Funchal, is the city with the best quality of life, and where you can enjoy a cosmopolitan and yet calm island life. The Portuguese consumer association has ranked Funchal as the second-best city to live in Portugal.

 

  1. The ever spring climate – Madeira is characterized by an all year-round spring-like weather which make it so famous among its residents and visitors. During Summer, Spring and Fall, temperatures vary between 17ºC (62.6ºF) and 24.ºC (75.2ºF). As for the Winter months temperatures will vary between 14.ºC (57.2ºF) and 20.ºC (68ºF). It is easy to understand why Madeira is famously known as the “Pearl of the Atlantic”. Also 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.

MCS and its team have more than 20 years of experience in assisting those wishing to relocate or incorporate in Madeira island. Do not hesitate to contact us should you have any questions!

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Living in Madeira: EU Citizens

EU citizens living in Madeira (or in any Portuguese territory) for longer than 3 months have to formalize their right of residence by registering.

After 3 months in Madeira (or in any Portuguese territory), EU citizens have 30 days to register, after which they receive a registration certificate.

They must apply at the local city/town hall (Câmara Municipal) with jurisdiction over their residential address and provide the following documents:

  • Workers
    • a valid identity document
    • a declaration on oath that they are employed or self-employed in Madeira (or in any Portuguese territory); or
    • a declaration on oath that they have sufficient financial resources for themselves and their family members, and a health insurance policy, if the country of which they are citizens has the same requirement for Portuguese citizens.
  • Pensioners
    • a valid identity document
    • a declaration on oath that they have sufficient financial resources for themselves and their family members, and a health insurance policy, if the country of which they are citizens has the same requirement for Portuguese citizens.
  • Students
    • a valid identity document
    • a declaration on oath that they are registered with an officially accredited public or private educational establishment
    • a declaration or other means of proof that they have sufficient financial resources and a health insurance policy, if the country of which they are citizens has the same requirement for Portuguese citizens.

Notwithstanding the above documentation legally required by city/town halls, additional documentation might be requested by the municipal governments, usually differing from municipal government to municipal government and even from administration from administration. This is where we can help not only navigate the bureaucracy but also the compliance of the documents to be provided.

Failure to register is an offense punishable by a fine of between EUR 400 and 1500.

Registering or remaining registered without meeting the necessary conditions is an offense punishable by a fine of between EUR 500 and 2500.

In the event of an abuse of the law, fraud, or false marriage or partnership of convenience, residence rights will be refused and withdrawn.

For further information please and assistance in complying with immigration requirements in Madeira, please do not hesitate to contact us. Our team has more than 20 years of experience in assisting expats relocating to Madeira.

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Applying for NHR

Applying for NHR in Madeira (or Portugal for that matter) is a straightforward process that nevertheless requires experienced assistance, given that tax residency relocation does require a careful analysis of one’s income structure and jurisdictions involved.

Generally speaking the Non-Habitual Resident (NHR) scheme is a 10-year tax exemption granted by the Portugal to all those wishing to relocate to Portuguese territory, regardless of their nationality, and who have not qualified as resident, for tax purposes, in the last 5 years prior to application.

Under the NHR regime, qualifying taxpayers are granted the following the benefits on their foreign income:

  • Taxation exemption on employment and freelancer (self-employment) income if it is subject to tax in the source country, in accordance with the applicable Double Taxation Agreement, or are considered not to be derived from a Portuguese source.
  • Pensions are subject to a flat tax rate of 10%. In case they are subject to tax in the source country, in accordance with the applicable Double Taxation Agreement, a tax credit under applies.
  • Freelancer income derived from high value-added service activities, with a scientific, artistic or technical character, are also exempt if effectively in the country of source, with which Portugal has Double Taxation Agreement or, in the absence of such agreement, when the income is not to be considered obtained in Portuguese territory.
  • Taxation exemption on other types of foreign sourced income (interests, dividends, capital gains, income from immovable property (rents), royalties, intellectual property income and business income) if: these can be taxed in the country of origin under a Double Taxation Agreement concluded between Portugal and the respective State or; if these types income may be taxed in the State of origin in accordance with the OECD model of tax convention (excluding tax havens) in cases where there is no Double Taxation Agreement.

For one to apply for the NHR regime, one must first be deemed as resident, for tax purposes, in Portuguese territory. This means acquiring Portuguese tax residence. Either by having lived for more than 183 days (consecutive or not) in Portugal in any period of 12 months starting or ending in the relevant year; or having a house, at any time throughout the 12-month period, in such conditions that allow to presume the intention to hold and occupy it as the habitual place of  residence.

Applying for NHR: Step by step

The first step regarding NHR application is to obtain a Portuguese Taxpayer Identification Numbers (NIF) as non-resident in Portuguese territory. In order to do this, applicants need to provide proof of residency abroad through a government issued document. Non-EU-Citizens must also appoint a tax representative when applying for a NIF.

Only once you have obtained residency can you apply for a NIF as resident in Portuguese territory. Change of residency status with the Portuguese Tax and Customs Authority can only be done by presenting proof of said residency, i.e. by presenting a residency permit card issued by the Portuguese Borders and Aliens Service (SEF) or a EU/EEA-Citizen Residency Certificate issued by the City or Town Hall with jurisdiction over the applicant’s residential address. Furthermore, proof of real estate purchased or rental agreement (short-term tourist rentals are not accepted) may also be requested.

Upon change of residency status, from non-resident to resident, for tax purposes you will be able to apply for the NHR status until March 31st of the following year. Please note that if you have appointed a tax representative you now ought to dismiss such representative.

In order to apply for NHR status one must firstly apply for a password to access the Portuguese Tax and Customs Authority website, through which the application is to be submitted by your tax consultant. Any random audits carried to the said application are notified on the tax authority’s website and ought to be replied there too.

Why is a tax consultant needed?

Did you know that Portugal, and therefore Madeira, blacklists and penalizes, through taxation, income deriving from more than 80 different jurisdictions including all British Overseas Territories and British Crown Dependencies? Did you know that the Portuguese fiscal year matches the calendar year? Did you know that not all types of pensions maybe exempt from taxation? Did you know that even though you are an NHR you are still obliged to file tax returns in Portugal?

The above-mentioned small details can become a headache if your income structure and relocation dates are not analyzed and adjusted, if needed, on a timely manner in order to comply with the NHR scheme rules.

Therefore, when thinking about relocating to Madeira, having a tax consultant that fully understands the nuances and variables surrounding the NHR scheme and the implications arising from such relocation, including those deriving from migration rules and double taxation treaties.

For more information on these matters please do not hesitate to contact us. MCS’s team has been assisting expats relocating to Madeira for over 20 years.

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Opening a bank account in Portugal

Opening a bank account in Portugal (including in the Autonomous Region of Madeira and the Autonomous Region of the Azores), for companies, has become a somewhat bureaucratic and lengthy process due to European Union laws and regulations, especially for those wishing to open a bank account remotely.

Notwithstanding the above, the remote opening of a corporate bank account is without a doubt a process that investors and entrepreneurs must be fully aware before deciding to open a bank account.

Apart from the standard documents requested (i.e.: ID documents from each nationality held, utility bill, proof of taxpayer identification number in the jurisdiction of current residency, proof of relationship to the company applying for the opening of the bank account, relationship to the company’s ultimate beneficial owners (UBOs), etc…), Portuguese banks are known for their scrutiny and may request additional information concerning the UBOs such us:

  • Signed curriculum vitæ.
  • Proof of job position held by the UBO (i.e.: pay slip mentioning the job position, statement from the employer, professional association membership card, etc…).
  • Marital status
  • Bank reference letter.
  • Latest tax return filed in the jurisdiction of residency.
  • Other proofs of source of wealth.

The above list is not extensive and other types of documentation may be requested by the bank’s compliance department depending on several (non-)related factors such as: the UBO’s jurisdiction of origin; the UBO’s nationality; the corporate group structure and/or location of other related entities; the company’s economic activity (cryptocurrency related activities are presently not accepted for the purposes of opening a bank account) among others.

Given the fact the official language in Portugal is Portuguese, the bank might request certified (and apostilled) translation of some or all documents. Depending on the bank’s compliance department documents issued in English and/or Spanish may not need translation.

However, one thing is certain, the company wishing to open a bank account in Portugal must have economic ties (and prove such ties) to the country, such as Portuguese clients or incorporation of the applicant company in Portuguese territory.

In the case non-EU/EEA companies, or complex corporate group structures involving, so called, offshore jurisdictions, any lack of economic ties may lead to the bank refusing the application for opening a bank account altogether (this is especially true for non-EU/EEA companies). This will, once again, depend on the bank’s risk appetite/policy.

Last, but certainly not least, most banks will accept initiating the remote opening of the bank account but the finalization of the entire process, namely signature of all bank forms and related bank documentation must occur in person in one of the bank’s branches/offices.

Should you comply with the abovementioned rules or have any further question, do not hesitate to contact our team. MCS has more than 20 years of experience in assisting its clients in opening a bank account in Portugal.

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Rising after Covid-19

Rising after Covid-19, a “new era” with some economic uncertainty, requires a wise decision to invest in certain frameworks that could alleviate the tax burden, and therefore your personal and/or corporate operational costs.

Madeira has the right tools to help you and your international business to have a head start after the coronavirus outbreak. These tools take the shape of extremely competitive tax benefits targeting personal income and corporate income.

High-mobility workers, entrepreneurs, and digital nomads alike, whose job does not depend on being in an office or a specific geographical location over a long period of time will find solace in the Non-Habitual Tax Resident (NHR) regime.

Created in the late 2000s the NHR regime comprises of a 10-year tax holiday on all foreign-sourced income for those effectively transferring their tax residency, i.e. spending more than 183 non-consecutive days a year in Madeira; or having a house that can be deemed as a permanent abode during the same time frame.

Under such a taxation exemption scheme, NHR status holders are able to benefit from a 0% tax on foreign salaries/free-lancer income; 0% tax on foreign interests/royalties/dividends; a flat tax of 20% on local salaries/free-lancer income for high-added value jobs; and even a flat tax of 10% on pensions (should it be the case). NHR status is granted to everyone, regardless of their nationality, and assuming that one was not tax resident in Madeira in the 5 years prior to the  application.

The above personal income tax benefits combined with a high-standard quality of life in Madeira has been attracting expats.

Digital nomads will be please to know about the high internet speed connections available on the island thanks to its geographical location (the island’s international connectivity is distributed by: 3 PoPs (London, Amsterdam and Paris), peering connections with hundreds of major international ISPs and IP transits to Europe and the USA). While others might be pleasantly surprised by the its culture, nature, history, gastronomy, and stress-free city buzz.

From a corporate income standpoint, the same high-mobility entrepreneurs and digital nomads can, together or separately from the NHR scheme, benefit from the lowest corporate income tax rate in Europe, just 5%, by incorporating a company within the Madeira International Business Centre (MIBC).

The MIBC, is a type of a EU approved state aid available to all duly licensed company operating in Madeira and whose main source of profit are non-resident entities or other MIBC companies.

All of the above mentioned benefits can be coordinated through and with the Golden Visa scheme, a residency by investment scheme created by the Portuguese Government in order to attract non-EU/EEA citizens and their respective families to Madeira.

Should you be interested in any of these programs MCS’s multi-disciplinary team has more than 20 years of experience in assisting expats and international companies wishing to relocate or operate in Madeira. Do not hesitate to contact us for more information.

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Golden Visa Portugal: Choosing Madeira Island

The Golden Visa, in Portugal, is a residency (and citizenship) by investment scheme designed to attract high-net worth and ultra-high-net worth individuals and their families to live in the country. Legally known as Residency Permits for Investment Activities (“ARI”), the scheme allows for non-European/European Economic Area to be granted the following rights:

  • Live in Portugal;
  • Work in Portugal;
  • A permit for Family Reunification
  • Access to the Portuguese National Health Service (or the Regional Health Services of Madeira or Azores);
  • Travel freely through the Schengen Area (plus Andorra, San Marino, Monaco and the Vatican City state);
  • Apply for Portuguese citizenship after 6 years.

A Portuguese Golden Visa holder is only required to stay in the country for 7 days during the first year, but is legally entitled to stay 365 days, as a resident, per visa.

In order to access the Portuguese Golden Visa applicants must perform only one type of investment, of which we highlight the following as being the more advantageous:

  • Real Estate Purchase in Madeira

    • Real estate with a value of 500 000 Euros or more (this value can be reduced to 400 000 Euros if the property is located in areas of low population density); or
    • Construction of at least 30 years or real estate acquired in an area of urban rehabilitation and rehabilitation of real estate acquired in the total amount equal to or greater than 350 000 Euros (acquisition + works) – (this value may be Reduced to 280 000 Euros if the property is located in areas of low population density).
  • Company Incorporation in Madeira
    • Hiring 10 employees; or
    • Having a share capital of 1 million euros.

Why Madeira for the Golden Visa in Portugal?

Real Estate Investment in Madeira
  • The median value of rents for new leases of family accommodation in Madeira was EUR 5.15 / m2, which is higher than the value registered for Portugal (EUR 4.39 / m2).
  • Madeira is the second region in Portugal with the highest median of rental income, behind the Lisbon Metropolitan Area (EUR 6.06 / m2)
  • The Autonomous Region of Madeira is the solely year-round tourism destination in Portugal.
  • In some civil parishes can yield a monthly rental income (long-term rental) between EUR 1,800 to EUR 2,000 for a EUR 270,000 investment in 196 m2 apartment.
  • Should you opt for short-term rentals, in the likeness of AirBnB, the same well located apartment can yield between EUR 500 and EUR 1,000 per week.
  • Once in a lifetime investment opportunities that can turn into great short-term rental income sources: bespoke modern villas and traditional Madeiran manorial houses known locally as Madeiran quintas.
Corporate Taxation Advanges

If the route of investment chosen by the main Golden Visa applicant is the company incorporation, the Autonomous Region of Madeira offers a unique corporate income taxation regime known as the International Business Center of Madeira. Companies incorporated under this taxation regime can benefit from the following benefits:

  • 5% corporate income tax rate;
  • 0% withholding tax on dividends remittances;
  • 0% withholding tax on dividends on payment of interest, royalties and services;
  • 0% tax on capital gains payments to shareholders;
  • 0% exemption on stamp (capital) duty;
  • Full access to the participation exemption regime.

Taking into account the above and adding to the the fact that:

  • Golden visa applications are processed, on average, faster, when compared to the Portuguese mainland; and that
  • Applicants can still NHR tax regime, along with other unique perks exclusive to the island

Madeira Island is definitely the place where your investment should be made if your are looking to benefit from the Portuguese residency and citizenship by investment scheme.

Our team at MCS, with more than 20 years of experience in the sector, is qualified to support its clients in the application for the Golden Visa scheme. For more information click here.

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Economic Substance

Economic Substance Requirements in Madeira

Economic substance describes the economic (operational) reality of a corporate structure which has been put in place because of international tax optimization reasons.

In an ever more globalized economy, and especially taking into account the European Union context, it is not the the freedom of the establishment, guaranteed under EU law and Treaties, that is being questioned nowadays by Tax Authorities. What is being put into question is whether such structures do reflect the economic/operational reality of day-to-day business.

Taking into account the above-mentioned and, in line with international and European best practices and orientations, the Madeira International Business Center (MIBC or IBCM) was the leading jurisdiction to set up enhanced economic substance requirements for the international services, trading and shipping companies operating within its scope.

In fact, the International Business Center of Madeira, always a subject of Portuguese and European law, paved the way for the European Union Code of Conduct Group assessment of non-EU jurisdictions.

Companies benefiting from the 5% tax, made available to those operating within the Madeira International Business Center, must begin their activities in a period of six months in the case of international services and one year in the case of industrial activities or shippingg, counting from the date of licensing and they must observe one of the following enhanced economic substance requirements:

  • Create 1 to 5 jobs, within the first 6 months of activity, and make a minimum investment of €75,000 in the acquisition of tangible or intangible fixed assets within the 2 first years of activity;
  • Create 6 or more jobs, withing the first 6 months of economic activity.

Furthermore, the jobs to be created need to be on a full-time basis and to be performed by a residents, for tax purposes, in the Autonomous Region of Madeira, regardless of their nationality. Company directors can obviously count as jobs posts, but need to fulfill the requirements above-mentioned.

In relation to the “investment”, this economic substance requirement foreseen within the rules applicable to the MIBC must involve control of a resource and generate future economic benefits for the company (financial investments/portfolios are excluded from the investment definition). In the case of  real estate and IT servers the investment must occur within the Autonomous Region of Madeira.

The above economic substance requirements needed to obtain the lowest corporate income tax rate in the EU, through the MIBC, make it comply with the OECD and EU guidelines economic substance. This is because:

  • It demonstrates that the core income generating activities have been undertaken in the jurisdiction (i.e.: coordinating group activities; managing stock and taking orders; providing consulting/administrative services; R&D activities; agreeing funding terms; monitoring and revising any agreements, managing risks; taking relevant management decisions, etc…)
  • It assures adequate expenditure in the MIBC proportionate to the level of activity and have adequate physical presence in the MIBC (e.g. office space, facilities and employees).
  • It can be use to show that the company is directed and managed in the jurisdiction with regards to the relevant activity (e.g. having board meetings with an adequate frequency, quorum of directors physically present at such meetings, the directors having the necessary knowledge and expertise to discharge their duties as directors, meeting minutes kept in the jurisdiction, etc.).

It goes without saying that investors looking into relocation or incorporation within the Madeira International Business Center are also capable of providing the economic motivation for the operation based on several factors, among which we highlight the following: profit motive, improvement of business position (market share); growth, risk reduction, better control over the operations, leverage and even in some cases the beneficial owner is also relocating to Madeira to live.

Taking into consideration the above, the Madeira International Business Center is one of the leading jurisdictions, within the European Union, to provide the best of both worlds: low corporate taxation and the characteristics needed to assure that internationally recognized substance requirements are met.

Substance levels for a company in the MIBC (or in Portugal) must always be set on a case by case basis. Our team at MCS, with more than 20 years of experience in the sector, is able to assist you in setting up and managing a company within the MIBC or Portugal. For more information click here.

 

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Funchal

Investing in Madeira Matters

Investing in Madeira matters, not only for the (international) growth of your business/company, but also because through it you can be part of a group of international investors re-shaping the archipelago’s economy.

The creation of the International Business Center of Madeira (also known as the Free Trade Zone of Madeira), resulted from a set of circumstances:

  • The ancestral aspirations of the Madeirans founded on the existence of a free port of consumption existing in the Canary Islands.
  • The movement that, under the auspices of the Commercial and Industrial Association of Funchal (ACIF), led, given the situation of the Madeira’s economy in the 70’s. XX; and
  • The reflection of the free zone model most appropriate and in line with the geographical, geological, morphological, economic and social characteristics of Madeira.

Thanks to the combined efforts of all the stakeholders involved in the process, the Autonomous Region of Madeira was able to fully implement the International Business Center of Madeira in 1986. Since that date international investors have taken the tax benefits granted by the Regional Government to not only grow economically but also to promote the archipelago’s development.

Today international investors operating within the advantageous tax regime of the International Business Center, with a corporate tax rate of 5% (the lowest in Europe), contribute actively to the diversification of the island’s tourism dominated economy.

Here is why investing in Madeira matters, from a corporate perspective:

  • 5% Corporate Income Tax Rate;
  • 0% Withholding on payment of dividends/profit distribution to non-resident shareholders;
  • 0% Withholding tax on the payment of interests, royalties and services;
  • 0% Taxation on capital gains payments to shareholders;
  • 80% exemption on stamp duty;
  • Access to a qualified labour force;
  • Access to European and international markets;
  • Excellent IT and Communications Infrastructures.

Here’s why investing in Madeira matters, from an economic perspective, apart from the economic substance requirements foreseen to benefit from the above tax benefits:

  • Your company will be among those in the International Business Center contributing for 21% of the archipelago’s GDP;
  • Your company will be among those in the International Business Center contributing for 43% of the total corporate income tax revenue of the archipelago;
  • Your company will be among those in the International Business Center contributing 14,1% of the total tax revenue of the archipelago.

All in all, your investment in Madeira matters not only for your business, which is granted the ideal conditions for international growth and competitiveness, but it also matters because your investment also helps to change the lives of the population of an Outermost Region of the European Union, through the small tax revenue you will be charged for.

Our team at MCS, with more than 20 years of experience in the sector, is able to assist you in setting up and managing a company within the MIBC or Portugal. For more information click here.

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