Tag Archives: International Business Center of Madeira

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Madeira is open for business

Starting July 1, Madeira and Porto Santo, Portugal, will be open to international travelers. To ensure security for both visitors and residents, all people traveling to the Atlantic islands will have to either present a negative test done within 72 hours prior to departure or be tested upon arrival (without any costs; COVID-19 tests on arrival will be paid for by the Madeira Government).

The Madeira Islands, Discover Madeira says, are focused on being a COVID-safe destination and are working with SGS, a world leader in certification, to ensure good practice across the destination to minimize risk in the wake of COVID-19 (coronavirus).

In May, Madeira developed a good practices document to deal with COVID-19. These measures are intended to provide comfort to those who travel and, ultimately, for the wellbeing of all. These three initiatives—to cover testing costs, partner with SGS in certification and develop a good practices document—form the destination’s plan to ensure a safe vacation for all visitors.

Good to know: According to Discover Madeira, the Portuguese island had very few cases of COVID-19 and acted quickly to control the virus on the archipelago. Portugal, overall, has been commended for its response to coronavirus. At present, Madeira has registered 90 positive cases of COVID-19, 67 recovered cases and no deaths.

Of volcanic origin, its location provides a mild climate and sea all year round, in addition to scenery of mountains, valleys and cliffs, all covered by the Laurissilva vegetation, named Natural Heritage of Humanity by UNESCO. The archipelago is formed by a set of islands, the main and only inhabited being Madeira and Porto Santo.

in Travel Agent Central

Offering unique corporate and personal tax advantages to expats and digital nomads, Madeira is a reference in Portugal for those looking to work and live in the sun. We at MCS have more than 20 years of experience in assisting companies, expats, digital nomads and entrepreneurs relocating to the Pearl of the Atlantic.

 

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Netherlands to Change Tax Law

Netherlands to change tax law by introducing withholding tax on dividends.

The change is expected to come into effect in 2024, and to be only applicable to dividends sent to countries that have a corporate tax rate of under 9 percent and are included in the EU’s blacklist of non-cooperative tax jurisdictions.

Still in the draft-making, the proposed tax is foreseen to be implemented in combination with a withholding tax on interest and royalty payments that will be effective in 2021.

According to the Dutch State Secretary for Finance, Hans Vijlbrief, “this additional withholding tax represents another major step in our fight against tax avoidance,” as “financial flows channelled from or through the Netherlands to another country where they are not or not sufficiently taxed, will soon no longer go untaxed.” The State Secretary for Finance also stressed that “it’s now vital to make even better international agreements to prevent other countries being used for tax avoidance purposes”.

This expected change to Netherland’s tax law shows that the Netherlands has ceded to international pressure regarding claims that the country used for tax evasion.

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The Netherlands and the Madeira International Business Center (MIBC)

Although at a first glance one would expect that such measure could ruin international groups of companies where money flows exist between the MIBC (given it 5% corporate tax rate) and the Netherlands it is important to mention the following:

  • The MIBC is not an offshore jurisdiction, but a form of State Aid duly approved and regulated by European Union authorities and Portuguese authorities;
  • Companies operating with the MIBC are subject to state of the art economic substance requirements (without which the 5% corporate income tax rate is not granted);
  • The Netherlands cannot discriminate, under EU-Law, a Member State nor their outermost regions.

Further to the above, once concludes that the foreseen tax changes affecting Netherlands do not affect companies licensed to operate within the Madeira International Business Centre. In fact company formation (or company incorporation) in Portugal, for international services, is much more efficient within the scope of the MIBC.

auctor Miguel Pinto-Correia

MCS and its team has more than 20 years of experience in assisting corporate and private clients wishing to invest in Portugal or within the Madeira International Business Center. For more information on our services please do no not hesitate to contact us.

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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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Madeira Island, Portugal

A safe haven during and after Covid-19

The COVID-19 pandemic is taking a toll on businesses across the world. Governments are pouring in money, setting up credit lines and other forms of state aid to support businesses.

Start-Ups, especially those breaking-even or already profitable are also facing cuts on their investment while facing the same responsibilities, compliance and deadlines as full grown-up companies. Because despite the support offered by governments, the taxes and taxes systems have not been adapted to the demand of the current and following-up crisis.

The businesses that will thrive are those who have introduced the option of online shopping or those who can even remotely provide and deliver their services. There is no question that the trends that small and medium international services providers are setting will surely influence the way many businesses will seek to operate once the COVID-19 pandemic is over.

How the post-pandemic economy will recover, and whether Europe will come up with a Marshall Plan is all still a mystery. In a world of uncertainties, companies need, more than ever, to have access to a stable ecosystem where they can recover and relaunch their operations and where operational costs are minimal.

That is why Portugal, and more specifically, its Autonomous Region of Madeira, offers one of the most important types of support to a company’s economic growth to recovery: a stable low taxation tax regime.

Since the 1980s that the Autonomous Region of Madeira has provided a stable business friendly ecosystem that allows small and medium international enterprises to expand their international business.

Madeira Island, is located 1h 30min by plane from Lisbon, 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 – Madeira International Business Centre is a state aid 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.

In addition, in Madeira there is an easy access to a skilled workforce, speedy internet infrastructure and access to mainland Europe.

Furthermore, 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.

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 to easily bring your team to live in one of the world’s most beautiful islands, but also to attract the best of the best worldwide.

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.

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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Incorporating a Company in Portugal

To start a business activity in Portugal you will need to incorporate a company and, usually, license its activity.

Madeira Corporate Services, can help you set up a company, make changes or amendments to the memorandum of association or statutes, dissolve companies, provide you accounting services plus provide you with information on the licensing of commercial activities within the International Business Center of Madeira.

Company Incorporation

The choice of the legal entity type of the company will determine its operating model from the outset and has implications for both the shareholder/quota-holder and the future development of the company and the business itself. The most common types of legal entities are the following:

  • Single-person limited company (Sociedade Unipessoal por Quotas – Uni. Lda.)
  • Limited liability company (Sociadade por Quotas – Lda.)
  • Joint stock company (Sociedade Anónima – S.A.)

Note: In choosing any of the above-mentioned types, you must take into account all the assets you wish to allocate to the company, the type liability for the company’s debts (personal property or assets of the company) and additionally, whether you wish to pursue the economic activity alone or with other business partners. Before committing to a specific type of company, our legal and accounting teams are able to advise on the most suitable entity type based on your needs and plans for your business.

Amendments to the memorandum or articles of association

The amendment to the articles of association may be the introduction, removal or modification of some of the clauses of the memorandum of association and must be the result of a resolution by all the shareholders, made according to the by-laws set forth for each type of company. Pursuant to Portuguese law, all changes can be made by the Minutes of the General Meeting. Therefore, a public deed for such amendments is optional.

Of course, our legal team is able to assist you in drafting such minutes that are required for different amendments.

Types of Amendments:

  • Capital Increase
  • Capital Reduction
  • Transfer of shares
  • Change of the company’s name, the corporate purpose or headquarters (to another district)

Dissolving and winding up companies

The dissolution of a company by resolution of the shareholders may be carried out according to one of the following ways:

  • Immediate extinction (no assets or liabilities)
  • Dissolution and liquidation (free assets or liabilities)
  • Dissolution and liquidation by partition (with assets and without liabilities)
  • Dissolution with liquidation (with assets or with assets and liabilities)
  • Dissolution with liquidation by global transmission (with liabilities)

International Business Center of Madeira License

In order to benefit from the unique tax incentives, namely Europe’s lowest corporate tax rate of 5%, available in the Autonomous Region of Madeira, through its International Business Center of Madeira, a special application (in Portuguese language) must be submitted.

This application is submitted to the official concessionaire of the International Business Center, in two copies, addressed to the Cabinet of the Vice-President of the Regional Government of Madeira in the name of an existing company, in Portugal or abroad, or of a company to be incorporated. Branches of existing companies may also be licensed.

All relevant information concerning the activity to be performed by the company must be included in the licence application, namely:

  • Company name and address;
  • Activity to be undertaken and respective NACE code (European nomenclature of the economic activity);
  • Total value of the investment;
  • Indication of the number of jobs to be created.

In the case of a successful application, the license is deemed to be granted in favor of the company once the applicant furnishes proof of the formation and registration of such company. All documents in support of the license application must be duly translated into Portuguese and legalized.

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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Holdings in Madeira (Portugal)

Portugal, and more specifically Madeira, offers unique conditions conditions for investors to locate not only their holding company, but also their commercial and trading company. Keep reading our article to find out why.

Why Portugal? Why Madeira?

Cost and Quality of Living

Portugal ranks in the Top 30 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.

Add that to the fact that Portugal ranks 1st in the World in the Quality of Life for Expatriates and is the 2nd best country in the World in leisure activities, you will rapidly understand why people have been relocating to Portugal in the last couple of years.

Furthermore, 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.

On the other hand, international Living ranks Portugal in the Top 10 Best Countries to Retire in the world and Investopedia 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 is the place to be. The Portuguese consumer association has ranked Funchal as the second-best city to live in Portugal.

Political Stability and Legal System

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.

The Autonomous Region of Madeira 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 (Assembleia Regional). The assembly is elected by universal suffrage. Power in Madeira has been exercised by the same party since 1976.

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 6 Most Powerful Passport Index (Visa-Free Score of 185 countries) to have the most cost-efficient Residency and Citizenship by Investment in Europe.

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, bio-ethical, 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 also among ILGA-Europe’s Rainbow Index Top 10 European countries in respect to LGBTQI equality, surpassing countries like, the United Kingdom, Norway, Sweden, Germany, France and the Netherlands.

Qualified Workforce and Low Operational Costs

Portugal has a vast network of prestigious private schools and state-run Universities scattered across the country (including Madeira), to which those residing in Madeira can apply.

Universities in Portugal rank among the Top 500 in the international Shanghai Ranking and have European renowned colleges in the engineering, economics and medicine, such as: Instituto Superior Técnico and Aveiro University (both with audited courses by the European Network for Accreditation of Engineering Education (EUR-ACE Accreditation Program)); Nova School of Business and Economics and Católica Lisbon School of Business and Economics (both certified by the Association to Advance Collegiate Schools of Business International Accreditation, EQUIS – EFMD Quality Improvement System Accreditation; and the Association of MBAs Accreditation), with the first being a Member of CEMS Global Alliance in Management Education.

The Portuguese labor force is also known for its language skills, being ranked 7th in in World by the IMD World talent report).

Operational costs in Portugal, from a human resources and managing services perspective, are the lowest in Western Europe.

Holding Companies in Portugal

Under Portuguese law a pure holding company (SGPS – Sociedades Gestoras de Participações Sociais), has the sole contractual purpose of managing stakes in other companies as an indirect form of economic activity, the taxation for this structure is the same as that of any other commercial company.

Nevertheless, any commercial company with a broad business purpose that includes the possibility of holding stakes in other companies can benefit from the mechanisms stipulated in Portuguese and European tax law for eliminating double taxation on the ensuing income, as long as certain requirements have are met. As such, investors may hold stakes in addition to the undertaking of their commercial activity, through a single company.

General Overview of the Taxation of Holding Companies in Portugal

Taxation of Holdings in Madeira (Portugal)

Apart from the considerable tax benefits granted under the Portuguese tax law, described below, Portuguese holding companies resident in the Autonomous Region of Madeira and duly licensed to operate within the International Business Center of Madeira will also benefit from the following tax advantages:

  • The corporate income tax rate is 5%
  • No withholding tax on royalties, services or interest paid to third parties
  • Exemption from withholding tax in the distribution of dividends to shareholders
  • Exemption from withholding tax upon payment of interest and other forms of remuneration through increases, allowances or advances to shareholders
  • An 80% reduction in stamp duty, Real Estate Transfer Tax (IMT) and Municipal Property Tax (IMI), regional and municipal surcharges and taxes, and notary and registration fees.
  • Reduction in the special payment on account and autonomous taxation in proportion to the applicable corporate income tax rate (in this case, a 76.2% reduction).
  • Commercial or trading activities performed by the Madeira company shall be taxed in accordance with the income tax rate applicable to companies licensed within the scope of MIBC, i.e. 5%.

Conditions for Participation Exemptions

  • The Portuguese company holds, directly or indirectly, and continuously, for the 12 months that precede the distribution or transfer, a participation that is no less than 10% of the shareholder capital or the voting rights of the entity that distributes the profits/reserves or whose participation has been transferred (in the case of distribution of profits, if the participation has been held for less time, it must be maintained throughout the time necessary to complete the 12 months);
  • The participated company is subject to and not exempt from corporate income tax (in the case of Portuguese companies), any tax referred to in the Parent-Subsidiary Directive (companies resident in the EU) or a tax of an identical or similar nature to that of corporate income tax, provided that the rate applicable to said entity is not less than 60% of the corporate income tax rate (other cases);
  • The participated company is not resident in a tax haven;
  • The distributed profits/reserves do not correspond to costs deductible by the entity that distributed it;
  • The participated company is not subject to a tax transparency regime.

There is also the possibility of making use of the unilateral tax credit for international double taxation.

If participation exemption requirements are not met, there is the possibility of considering only half (50%) of the capital gains generated if such capital gains are reinvested. This possibility is subject to certain conditions

Conditions for the Taxation of Interests

European Directive 2003/49/EC, allows for the payment of interest and royalties between companies in the EU to be exempt from taxation, provided that the following requirements are met:

  1. Both companies meet the criteria of one of the corporate forms stipulated in the Directive Annex;
  2. Both are subject to income tax;
  3. The direct capital relationship between both companies is 25%, or if both are directly held in 25% by a third party fulfilling the two above-mentioned requirements, if in both cases the stake has been held for at least two years;
  4. The company to which the interest or royalty payments are made is the beneficial owner of such income, which shall be deemed to be the case when it earns the income for its own account and not as an intermediary, and where a permanent establishment is deemed to be the beneficial owner, the credit, right or use of information from which the income derives is effectively related to the activity carried out through its intermediary and constitutes taxable income for the purpose of determining the profit attributable to it in the Member State in which it is situated.

Portuguese, and companies duly licensed to operate within the International Business Center of Madeira, companies fulfill the first two requirements. If the third and fourth ones are also met, it shall be possible for entities resident in another EU Member State to pay interest or royalties to Portuguese companies without paying withholding tax in the State of origin and vice-versa.

Conditions of the Taxation of Dividends

Dividends distributed by a Portuguese company to its shareholders who are natural persons shall be taxed in accordance with the Personal Income Tax Code (28%) unless they are not resident in Portugal and the company is licensed to operate within the scope of the International Business Center of Madeira or a double taxation treaty is applied.

Profit or dividends distributed by a Portuguese company to shareholders that are legal persons, are exempt, provided that they:

  • Are residents either in Portugal, in the EU, in the European Economic Area (provided that administrative cooperation is guaranteed with respect to taxation in terms equivalent to those established in the EU); or in jurisdiction with which Portugal has signed a currently valid agreement for avoiding double taxation and allowing for exchange of information.
  • Are subject to and not exempt from Corporate Income Tax (Portuguese companies), a tax mentioned in the Parent-Subsidiary Directive (companies resident in the EU) or a tax that is identical or similar to Corporate Income Tax, provided that the rate applicable to the entity is not less than 60% of the corporate income tax rate (other cases).
  • Hold, directly or indirectly, a participation that is no less than 10% of the shareholder capital or the voting rights of the Portuguese company.
  • Hold a participation in the Portuguese company in a manner that has been uninterrupted during the 12 months prior to the distribution date.

Taxation of Capital Gains

Capital gains earned by non-residents of Portugal from the sale of a shareholding in a Portuguese company shall not be taxed if the company’s main assets do not include real estate in Portugal. This exemption shall not apply to shareholders residing in tax havens.

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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MIBC: ready for business

Portugal has one of the most important tax policy tools in Europe, the Madeira Free Trade Zone, internationally known as the International Business Center of Madeira (MIBC) and it is ready for business.

Intended for the internationalization of Portuguese and foreign companies, this State aid, foreseen in the Statute of Tax Benefits and duly approved by the European Commission, is based on the fact that the Autonomous Region of Madeira is considered an outermost region (ORs) of the European Union, lacking as such of incentives to promote tradable services to the sector in the Region.

Companies licensed under the IBC-M benefit from one of the lowest Corporate Income Tax (CIT) rates in the EU, i.e. 5% on all activities carried out with non-resident entities, making Madeira a 100% Portuguese destination for national and foreign investors, with due validation by the Portuguese and European authorities.

This internationalization platform from the Atlantic, places Madeira, and consequently Portugal, in an important geostrategic position between Europe, America and Africa.

In addition to the 5% CIT, the MIBC provides a set of tax incentives that also cover non-resident shareholders, such as: exemption from withholding tax on the payment of dividends, in the proportion resulting from the profits that at the level of society, have been taxed at the reduced rate of CIT or which, if not, are derived from income obtained outside Portuguese territory; exemption from withholding tax on the payment of interest, royalties and services.

Merchandise trading, e-business, technology, telecommunications, call-centers, consultancy and marketing services, intellectual property management, development of real estate projects, shipping companies or shareholding management, can all benefit from the tax regime in force of the Madeira Free Trade Zone (currently known as the IV Regime), which allows investors a tax saving that translates into greater financial availability to reinvest in their employees and in their business activity, thus leveraging the regional and national economy.

The tax benefits provided for in the institutional scope of the Free Zone of Madeira are based on mandatory requirements of economic substance, namely: the creation of a certain number of jobs, to be filled by tax residents in the Autonomous Region of Madeira (regardless of their nationality), and the number of which will vary according to the estimated taxable profit for each year; and investment of at least 75 000 euros (in tangible or intangible fixed assets) if less than 6 jobs are created.

The regulation and transparency on which the entire regime in the Madeira Free Zone is based, and which implies subjecting all companies licensed therein to the very same obligations as other Portuguese companies (“General Taxation Regime”) for tax, regulatory and statistical reporting , confer a high degree of confidence and rigor.

Exactly for the reasons explained above, in 2018 about 28% of the companies operating in the Free Zone result in Portuguese capital investment and 77% of the companies result from European investment, thus showing the enormous economic potential of the tax regime.

In most recent years the main investors in the MIBC are high-mobility expats whose business is centered around consultancy services and tech-companies looking for high-speed internet connections and cheap qualified labor forces.

Our team at MCS, with more than 20 years of experience in the sector, is able to assist in your relocation to Madeira. For more information click here, for information our services click here.

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