Investment | Madeira Corporate Services

Madeira Island, Portugal, is affirming itself as a tech hub for European and American entrepreneurs. The main reasons? Low taxation, good weather, fast internet connections (above European and American mainland averages) and a steady supply of high-skilled work force in the IT sector.

Taxation is one of the main reasons that hinder economic growth of a startup and finding the correct jurisdiction for your rising business can be troublesome. That is why Portugal has come up with a taxation business that is startup-friendly.

Madeira Island, is located 1h 30min by plane from Lisbon, as offers a 5% corporate rate on all income derived from profit with non-Portuguese companies, full exemption from withholding tax on dividend remittances from the Madeira, among other tax benefits.

The MIBC is a tax benefit scheme granted under the Portuguese Tax Benefits Statute and duly approved by the European Commission.

Since the MIBC is governed by Portuguese and European Law, it offers the required legal certainty to its investors. All companies duly licensed to operate within the MIBC comply with all legal requirements to operate in Portugal, and therefore in the EU.

Given the above, all e-commerce directives have been duly transposed into Portuguese law, including those relating to electronic billing, digital signatures and data protection.

Such facts make it clear that, in addition to being a completely transparent tax incentive, the MIBC also allows a for an effective tax saving that can be used in the internationalization of the licensed company.

In addition to all the above-mentioned benefits, companies that are duly licensed in the MIBC may cumulatively apply for European funding and other financial instruments available to companies based in the Autonomous Region of Madeira.

Apart from the above, employees of startup companies and other technological companies might also be entitled to a 20% flat rate on their salary for a period of 10-years and a 0% tax rate on the foreign income they earn. These incentives not only allow you easily bring your team to live in on the world’s most beautiful islands, but also to attract the best of the best worldwide.

Startups looking into expand their international business, have access to a skilled workforce (namely IT engineers), good and speedy internet connections should be looking into locating their business in Madeira Island, Portugal.

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.

Apart from the above mentioned unique characteristics, the Regional Government is keen in supporting tech companies in moving to Madeira, mainly through its Start Up Madeira and the Brava Valley project, where incubation facilities are available to start ups looking for island life and low taxation.

We know that bureaucracy and costs can slow down your vision and hinder your will to relocate to another jurisdiction, but we at MCS believe that Madeira Island, Portugal, holds the key to its growth.

Criptomoedas reguladas pelo Banco de Portugal

O Banco de Portugal passa a assumir competências de supervisão das entidades que exercem serviços de troca, transferência ou guarda de ativos virtuais, no que diz respeito ao cumprimento das regras preventivas de branqueamento de capitais e financiamento do terrorismo, com a entrada em vigor da Lei que transpõe a mais recente Diretiva europeia sobre esta matéria.

Foi publicada em Diário da República a Lei n.º 58/2020, de 31 de agosto, que transpõe a Diretiva (UE) 2018/843 do Parlamento Europeu e do Conselho, de 30 de maio de 2018, que altera a Diretiva (UE) 2015/849 relativa à prevenção da utilização do sistema financeiro para efeitos de branqueamento de capitais ou de financiamento do terrorismo e a Diretiva (UE) 2018/1673 do Parlamento Europeu e do Conselho, de 23 de outubro de 2018, relativa ao combate ao branqueamento de capitais através do direito penal, alterando diversas leis, incluindo a Lei n.º 83/2017, de 18 de agosto, que estabelece medidas de natureza preventiva e repressiva de combate ao branqueamento de capitais e ao financiamento do terrorismo (BC/FT).

Por via de tais alterações, a Lei n.º 83/2017, de 18 de agosto, passa a incluir no elenco de entidades obrigadas ao cumprimento das regras preventivas do BC/FT, as entidades que exercem alguma das seguintes atividades com ativos virtuais:

Em conformidade com o novo regime, o Banco de Portugal será a autoridade responsável quer pelo registo das entidades que exerçam aquelas atividades com ativos virtuais, quer pela verificação do cumprimento, por estas entidades, das disposições legais e regulamentares aplicáveis em matéria de prevenção do BC/FT. Esclarece-se, no entanto, que relativamente a tais entidades, a competência do Banco de Portugal se circunscreve à prevenção do BC/FT, não se alargando a outros domínios, de natureza prudencial, comportamental ou outra.

Banco de Portugal to regulate crypto

Banco de Portugal (the Portuguese Central Bank) will assume the powers of supervision of entities that exercise services for the exchange, transfer or custody of virtual assets, with respect to compliance with the preventive rules on money laundering and terrorism financing, with the entry into force of the Law transposing the most recent European Directive on this matter.

Law No. 58/2020, of 31 August, transposing Directive (EU) 2018/843 of the European Parliament and of the Council, of 30 May 2018, amending Directive (EU) was published in Diário da República) 2015/849 on the prevention of the use of the financial system for the purpose of money laundering or terrorist financing and Directive (EU) 2018/1673 of the European Parliament and of the Council of 23 October 2018 on combating money laundering through criminal law, amending several laws, including Law No. 83/2017, of 18 August, which establishes preventive and repressive measures to combat money laundering and terrorist financing (BC / FT ).

As a result of such changes, Law No. 83/2017, of 18 August, now includes in the list of entities required to comply with the preventive rules of BC / FT, entities that exercise any of the following activities with virtual assets:

In accordance with the new regime, Banco de Portugal will be the authority responsible either for registering the entities that carry out those activities with virtual assets, or for verifying the compliance, by these entities, with the legal and regulatory provisions applicable in terms of BC prevention. / FT. It is clarified, however, that in relation to such entities, the competence of Banco de Portugal is limited to the prevention of BC / FT, not extending to other domains, of a prudential, behavioral or other nature.

Changes to the Madeira International Shipping Register

The changes to RIN-MAR’s legal regime are so relevant in reinforcing its attractiveness and competitiveness, that it will catapult the Registry to a top position in the context of similar maritime registries in Europe and the world.

Registry Digitalization

The digitalization of the registry was implemented, providing for the possibility of registration applications being submitted (i) in person, (ii) on line or even (iii) by mail (which was not permitted so far). The law also establishes the possibility of registrations being submitted to Portuguese consular representations or even, and in duly justified cases, registrations may be requested on weekends and holidays, provided that this intention is communicated to the commercial register 48 hours in advance.

A topic that always raised legal and practical hitches now sees its resolution enshrined: Should at the moment of definitive registration of a ship, the deletion certificate of the previous registry, in original form, is still not available , the final registration can now be carried out on the basis of a written declaration issued by the outgoing registration authority, sent to the Madeira Commercial Registry, provided that it attests to the cancellation of the previous registration, the name of the last registered owner and also the inexistence of charges on the vessel.

It should be noted that all documentation, original or certified copy, that certifies the facts subject to registration can be delivered to any post or consular section of Portugal abroad including honorary consulates, which are obliged to send the documentation to the said Registry within 15 days and also to notify it that it is in possession of these documents.

Maritime Mortgages

The most significant changes and improvements of the revised law are related to maritime mortgages

Responding to a longstanding claim of the financing community, the exceptional regime now enshrined allows, in case of non-compliance with the obligations guaranteed by the mortgage, the mortgagee’s right to dispose of the ship as long as no higher grade mortgage is levied on it and the express determination of the latter’s obligations in exercising the right of disposal over the ship.

The right of disposal gives the mortgagee the powers to apprehend, navigate and dispose of the ship. The sale, with the consequent transfer of ownership over the ship, can only take place once the ship has been evaluated according to the method and criteria established in the mortgage contract or, failing that, according to the criteria defined by an independent third party based on commercially reasonable criteria.

In the mortgage contract, the parties may agree, that the sale or encumbrance of the ship is dependent on the prior consent of the mortgagee, which is presumed to have been provided after the agreed term for such is expired.

The legislative change also clarified the amounts guaranteed by the mortgage in addition to the principal amount: credit accessories, ordinary and default interest, constitution and registration expenses, as well as penal clauses contractually agreed upon.

It should be noted that pleasure crafts registered or to be registered with MAR are excluded from this regime.

Registration Deadlines

In another context and regarding deadlines, the possibility of provisional registration is also safeguarded with an extended period (maximum period of 90 days) being given for the delivery of missing documents and promotion of the definitive registration, without which the registration expires. It is also given to the interested party the right to extend the term for an additional 60 days period, provided that proof is offered to MAR of the just impediment of the delivery of the missing documentation.

Bareboat Registration

As for the temporary registration of vessels in MAR (bareboat registration), the requirement for authorization by mortgagees, if any, is now expressly provided for, allowing for greater legal certainty to interested parties. In this context, it is determined that this registration modality will be titled through a Temporary Registration certificate containing important elements about said registry.

Ship Books

Finally, the rules on the models of the ships’ books and logbooks have been relaxed. The possibility of using other models of books and logbooks other than those indicated by Portuguese law is enshrined, provided that they include all the elements relevant to their purpose and comply with the applicable international requirements.

The international community of the sector will certainly be attentive to these changes and will see in RIN-MAR a first line maritime registry in the options to consider, taking into account the prestige, quality and security conferred by the Registry to the various stakeholders.

MCS participates in Madeira’s Recovery Plan

We welcome the initiative of the Regional Government to consult, within the scope of its economic diplomacy agency (Invest Madeira), those responsible for the overwhelming majority of foreign investment in the Autonomous Region of Madeira, the management companies operating within the scope of the International Business Center of Madeira (CINM), such is the case of Madeira Corporate Services (MCS).

We at MCS have accepted the challenge of the Regional Government to participate in the drafting Madeira’s Recovery Plan. This plan is to be presented by the Madeira’s Regional Government as a response to the Covid-19 pandemic economic shock, aiming at relaunching the Madeiran economy and improving its international competitiveness.

Having received input from our stakeholders, our Director for Strategic Development and economist, Mr. Miguel Pinto-Correia, has been entrusted to prepare a letter with suggestions to be taken into account by the Regional Department of Economy when drafting Madeira’s Recovery Plan.

Mr. Pinto-Correia is focusing MCS’s proposals for Madeira’s Recovery Plan on 3 main pillars: lower corporate and personal taxation for international investors and local business, reduction of bureaucracy and development of the Blue Economy and IT sectors.

MCS and its team are committed to promoting Madeira’s international economic competitiveness, and therefore its clients interests, by working closely with regional, national and European stakeholders.

Changes in Portugal’s Nationality Law

The Assembly of the Republic has approved on July 23, some amendments to Portugal’s Nationality Law. The approved amendments aim to ease the access to Portuguese nationality for grandchildren, spouses or non-married partners of Portuguese citizens.

Those who are Portuguese’s grandchildren, face now two major requirements: the ascendant, who must have Portuguese nationality in the original form; and proof of connection to the Portuguese community will now be proven, provided that the applicant proves to have sufficient knowledge of the Portuguese language.

In the case of acquisition of citizenship by marriage or non-marital partnership, the major change concerns the duration of the marriage or partnership. under the new law approved by the Portuguese parliament the requirement concerning the duration of the marriage or partnership – 3 years—does not apply if the couple has children with Portuguese citizenship.

In addition to the above legal recognition by a court of the partnership is also waived if the couple has a Portuguese child.

Regarding the acquisition of nationality by Sephardic Jews, the Parliament has authorized the Government to implement, within 90 days, objective requirements for proof of effective connection to Portugal. These new rules approved by Parliament mean that, acquisition of nationality by Sephardic Jews will become more difficult.

Last but certainly not least, changes to the nationality also wide de possibility of acquiring Portuguese nationality through jus soli. In accordance with the new rules approved by the Portuguese parliament: individuals born in Portugal, children of foreigners who are not in the service of their State and who do not declare that they do not want to be Portuguese, at the time of birth, one of the parents is legally resident in Portugal or, regardless of the title, has been resident in Portugal for at least one year.

The approved amendments will enter into force on the day following its publication, once presidential assent is given, which is expected to be soon.

MIBC: licensing period extended

The MIBC

The Madeira International Business Center (MIBC) is a set a set of taxation incentives, granted since the 80s with the objective of attracting inward investment into Madeira, recognized as the most efficient mechanism to modernize, diversify and internationalize the regional economy.

Main Tax Benefits

Licensing

Companies wishing to benefit from the above tax benefits need to obtain a license from Sociedade de Desenvolvimento da Madeira which if applied for with the Vice-Presidency of the Regional Government of Madeira. Under the current regime licenses could be applied for until December 31st, 2020. However the European Commission has extended the licensing period until 2023.

The Portuguese Government is expected to legislate on the extension period soon.

Extension Period Background

The European Commission has prolonged, on July 2 the validity of certain State aid rules which would otherwise expire at the end of 2020. In this context, and to take the effects of the current crisis into due consideration, the Commission, after consulting Member States, has decided to make certain targeted adjustments to the existing rules with a view to mitigate the economic and financial impact of the coronavirus outbreak on companies.

To this end, the Commission has adopted a new Regulation amending the General Block Exemption Regulation (GBER) and the de minimis Regulation, and a Communication amending seven sets of State aid guidelines and prolonging those which would otherwise expire on 31 December 2020.

Prolongation of the existing State aid rules

In order to provide predictability and legal certainty, whilst preparing for a possible future update of the State aid rules in the context of the ongoing “fitness check” exercise and of the ongoing evaluation and future review of certain sets of State aid rules set out in the recent European Green Deal and European Industrial Strategy Communications, the Commission has decided to prolong the validity of the following State aid rules, which are due to expire by the end of 2020:

Prolongation by three years (until 2023):

After 2020

The Portuguese Government, together with the Madeira Regional Government, is expected to soon start negotiating the 5th MIBC Regime to be applicable to private and corporate investors wishing to relocate or incorporate their businesses with the MIBC framework.

MCS and its multidisciplinary team have more than 20 years of experience in assisting international private and corporate investors with incorporation, accounting and management of MIBC licensed companies. Do not hesitate to contact us.

Cryptocurrency Taxation in Portugal

Portuguese Central Bank’s position on cryptocurrencies

Since there is no central entity that guarantees the irremovability and finality of payment orders, virtual currency cannot be considered a safe currency, as there is no certainty of its acceptance as a means of payment. The same is to say that the Portuguese Central Bank (Banco de Portugal) does not technically recognise cryptocurrency as currency per se due to lack of monetary policy regulation.

Portuguese Tax and Customs Authority’s position

It is the understanding of the Portuguese Tax and Customs Authority that, “cryptocurrencies are not technically considered “currency” because they do not have a legal tender or liberating power in Portugal, however, (…) they can be exchanged, with profit, for real currency (…), with specialized companies for the effect, with its value, compared to the real currency, being determined by the online demand for cryptocurrencies”. Its position is, therefore, in line with that of the Portuguese Central Bank.

As such, income resulting from the sale of cryptocurrencies will not be taxable under the Personal Income Tax Code, within the scope of category E (referring to capitals), nor subject to being taxed under category G (referring to equity increases, as capital gain).

Furthermore, it is also the understanding of the Portuguese Tax and Customs Authority that the profits obtained from the sale of cryptocurrencies are not taxable under the Portuguese tax system, unless by their regularity ends up constituting a professional or entrepreneurial activity of the taxpayer, in which case it will be taxed as a qualifying income under the category B (freelancing) of the Personal Income Tax Code.

Last, but not least, the Portuguese Tax and Customs Authority issued clear guidelines in January 2019 providing many answers to questions related to dealing with cryptocurrency, reporting obligations, cryptocurrency invoicing rules, rules for initial coin offerings,etc…

European Court of Justice and VAT

Jurisprudence of the European Union Court of Justice (EJC) on bitcoin, states that its sale is an onerous activity, subject to VAT, but covered by the exemption, as with other means of payment with a liberating value . “Considering the decision handed down by the ECJ (…) the exchange of cryptocurrency for‘ real ’currency constitutes a provision of services carried out against payment, exempt from VAT”.

Thus, the Portuguese Tax and Customs Authority concludes that although “cryptocurrency remuneration is a service provision subject to VAT”, the VAT code article that defines the exemptions covers “also cryptocurrency transactions”.

In the medium-long run

It is expected that, in the medium term, cryptocurrencies will be regulated and their tax regime concretely defined. In fact, its regulation may not imply taxation of the income derived from them. However, it is expected that it may eventually pass through its classification as financial assets, and through its classification as a security or derivative – not as a currency for purchase and sale transactions – with a consequent change in the definition of a security. Should this be the case, the respective income, obtained by taxpayers who do not engage in any activity related to cryptocurrencies, could eventually be taxed as passive income, such as capital income (for examples as dividends in proportion to the original investment) or capital gains.

Conclusion

Although Portugal has great conditions, from a personal income tax and VAT standpoint, for those who income is generated through cryptocurrencies, some uncertainty remains due to the fact that there’s no regulatory framework, which in turns makes it difficult for individuals (and companies) to open bank accounts in the country to be used for the purpose of trading.

Further to the above, crypto traders opting for taking up residency in Portugal, and more specifically Madeira Island (due to is safe haven status during the Covid-19 pandemic) for tax purposes, may combine the above benefits with the ones available under the Non-Habitual Resident taxation regime, under which most the foreign sourced income is exempt.

MCS and its team has more than 20 years of experience in assisting international investors and expats making their move to Portugal and Madeira Island. Should you request our assistance do not hesitate to contact us.

Getting to Madeira amidst COVID-19

The Government of the Autonomous Region of Madeira (RAM) has defined, in relation to the Standardization Plan for Air Accessibility, to be in force as of July 1, with regard to travelers to the airports of Madeira and Porto Santo:

The form should be filled in previously to the trip, between 48 and 12 hours before departure.

The survey is available at the Regional Health Authority’s website and, will also be accessible through airlines’ websites that so consent.

Alternatively, the completion of the survey, on paper, may occur on arrival at airports in the Autonomous Region of Madeira.

All passengers landed at airports in Autonomous Region of Madeira are subject to thermal screening, even if they carry a negative test for COVID-19 disease, carried out within 72 hours prior to landing, in laboratories certified by national or international authorities.

Each traveller who disembarks at the airports of the Autonomous Region of Madeira is obliged to alternatively fulfill, and under the supervision and guidance of the competent health authorities, that which is established in one of the following paragraphs:

3.1. The PCR screening tests for SARS-CoV-2 considered for the purposes of paragraphs a) and b) are those certified by national authorities and recommended by international health authorities, the European Centre for Disease Prevention and Control (ECDC) and the World Health Organization (WHO);

3.2. The financial costs incurred at the Hotel where the traveller is accommodated, in the cases referred to in paragraphs b) and c) of number 3 are the responsibility of the traveller alone.
Criteria for submission to the SARS CoV2 test in childhood and pre-adolescence:

Mandatory confinement, if necessary compulsively, for a period of 14 days, in a health establishment, in the respective home or in an accommodation establishment, by decision of the competent health authorities:

b) For citizens for whom the health authority or other health professionals have determined active surveillance.

The Government of the Autonomous Region of Madeira collaborates with all Diplomatic Authorities and Operators involved.

All charges related to repatriation operations must be covered by passengers’ travel insurance.

Travellers between Madeira and Porto Santo are currently free from any control by Health authorities.

The Regional Government of Madeira, through the Regional Secretariat for Tourism and Culture, and Madeira Promotion Bureau are working side by side with all stakeholders to relaunch the Destination. Our teams are always available to share information.

Madeira was the first region in Portugal to implement a “Contingency Plan for Emerging Infections: Coronavirus”, presented on 03 February 2020, a document that is subject to continuous updates.

Please consult the poster with health recommendations regarding Coronavirus – COVID 19: https://covidmadeira.pt/

For more information, browse the IASAÚDE microsite for regular updates at : https://covidmadeira.pt/

For more information on which countries have not been blocked from flying to Portugal, please consult the IATA’s website.

The best of both worlds

Created in September 23^rd, 2009, the NHR regime is a set of personal income tax exemptions and reduced rates aimed at people wishing to transfer their residence to Portugal. Those qualifying for the NHR regime are entitled to the above-mentioned reduced rates for a period of 10 consecutive years.

Among the several tax benefits deriving from the NHR regime, is the tax exemption on foreign sourced income (interests, dividends, capital gains, income from real estate property (rents), royalties, intellectual property income and business income) provided that: these latter types of income can be taxed in the country of origin under a Double Taxation Agreement signed with with Portugal.

Given the above, potential investors with structures in Malta or Switzerland can relocate to Portugal and have peace of mind with respect to dividends/profits distributed by Maltese and Swiss companies (such as a SICAV type company – investment company with variable capital) to their shareholders benefiting from the NHR scheme.

In fact, the Portuguese Tax and Customs Authority not only applies full tax exemption on income received from the above entities (as generally foreseen in the Portuguese Personal Income Tax Code), but has also established recently binding information to its taxpayers that dividends paid to NHR shareholders of Maltese companies and SICAVs are exempt from personal income tax in Portugal.

In the light of the Double Taxation Treaty concluded with Malta in Portugal, the tax credit provided to shareholders is assimilated to dividends, taking into account the specificity of the Maltese tax system of imputing income to shareholders.

On the other hand, and although the Portuguese Personal Income Tax Code considers the income paid by a collective investment organization, namely a SICAV, to its participants, is as capital income, in light of the Double Taxation Treaty between Switzerland and Portugal, the same income is considered as dividends.

Further to the above, the same treaty establishes a situation of cumulative tax jurisdiction for this income, with Portugal being able to exercise taxation as the State of residence of the beneficiaries, and Switzerland, as the State of the source. Therefore, under the NHR regime, income deriving from SICAVs will be exempt from taxation in Portugal.

The NHR as a stand-alone option, or together with the corporate tax incentives under the Madeira International Business Center, makes available to international investors. a higher degree of international mobility and liquidity, the latter through a low corporate tax rate of 5% applicable to international services companies.

These features of the Portuguese Tax System make it possible for one to benefit from the best of both worlds.

MCS and its team have more than 20 years of experience in assisting private clients who want to transfer residence or invest in the Autonomous Region of Madeira.

Obtaining RNH status requires a careful assessment of the income structure of the potential beneficiary.

Category Archives: Investment

Madeira as a Low Tax Tech Hub