Tag Archives: Madeira International Business Center

Year End Tax Updates

Madeira’s General Corporate Tax

Madeira’s Regional Budget for 2021 has been approved by the Representative of the Republic to the Autonomous Region of Madeira. Under the new budget, the general corporate income tax rate (CIT) is 14,7%. This means that Madeira has a more attractive CIT than major European economic power houses such as: Austria (25%), Germany (aprox. 25%), France (30%), Italy (27,9%), Luxembourg (25%), Netherlands (25%), etc…

This new 14,7% CIT, combined with Madeira’s internet infrastructure, full EU law compliance and friendly expat environment, makes the island the perfect location to conduct international business in Portugal and Europe. Furthermore, special incentives such a the Madeira International Business Center (a reduced 5% CIT) and a 10-year tax holiday for expats looking into to relocate to the island, can be also available, provided that several conditions are met by the investors.

Madeira International Business Center (MIBC)

The Assembly of the Republic has received, and is set to discuss, a bill from the Government of the Republic which will extend the deadline for the application of new company licenses until December 31st, 2021.

MCS and its multi-disciplinary team, with more than 20 years of expertise, is read to assist you in incorporating your business on the island. Feel free to contact us.

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Madeira to reduced its corporate tax

The Regional Government of Madeira is set to reduce the Autonomous Region’s corporate income tax from the current 20% rate to a 14,7% rate (the Portuguese current mainland CIT is 21%).

Madeira’s Regional Budget for 2021, which foresees the CIT reductions, was presented on November 30 the Legislative Assembly of the Autonomous Region of Madeira and is expected to be approved by the Government’s coalition.

If the CIT of 14,7% is approved by Madeira’s parliament, Madeira will have a more attractive CIT than major European economic power houses such as: Austria (25%), Germany (aprox. 25%), France (30%), Italy (27,9%), Luxembourg (25%), Netherlands (25%), etc…

This new 14,7% CIT, combined with Madeira’s internet infrastructure, full EU law compliance and friendly expat environment, makes the island the perfect location to conduct international business in Portugal and Europe. Furthermore, special incentives such a the Madeira International Business Center (a reduced 5% CIT) and a 10-year tax holiday for expats looking into to relocate to the island, can be also available, provided that several conditions are met by the investors.

MCS and its multi-disciplinary team, with more than 20 years of expertise, is read to assist you in incorporating your business on the island. Feel free to contact us.

 

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Invest in Madeira

Madeira is a Portuguese archipelago in the Atlantic Ocean, situated 625 miles (1 000 km) from Mainland Portugal and 545 miles (900 km) from North Africa. It consists of four islands: Madeira, Porto Santo, Desertas and Selvagens. Madeira and Porto Santo are the only inhabited islands, while the Desertas and Selvagens islands are uninhabited natural. Madeira’s unique forest has been declared a World Heritage Sites by UNESCO.

Madeira Island is the biggest and most important island of the archipelago with an area of 741 km2. Due to its subtropical climate and landscapes, it is known worldwide as an all year round tourist destination, thanks not only to its culture, but also spring-like climate.

Although it is an integral part of Portugal and subsequently of the European Union, where all laws applicable on the mainland also apply, Madeira is an Autonomous Region with its own government and parliament.

The population numbers approximately 267 785 inhabitants and its capital is the city of Funchal. Madeira’s Cristiano Ronaldo International Airport serves several daily flights to Lisbon and other major European cities. The official currency is the Euro and it is a civil law jurisdiction. A considerable part of the younger population is fluent in English.

Madeira’s economy is based on tourism, wine production and the International Business Centre of Madeira (MIBC). Created at the beginning of the eighties, the MIBC has proved to be a success and currently represents around 21% of the Regional Gross Domestic Product. This highly advantageous tax regime, for corporations and individuals, in addition to competitive operating costs, makes Madeira an attractive centre for international investment.

Under the MIBC scheme international services activities benefit from a reduced corporate rate (5%) applicable to profits derived from operations exclusively carried out with non-resident entities or with other companies operating within the ambit of the MIBC. There are no restrictions, nevertheless, on the development of business activities with Portuguese companies which will be taxed at the general corporate tax rate in Madeira, currently 20%.

Further to the above, Madeira offers incredible internet speeds, when compared to mainland Europe. This is because Madeira benefits from a Submarine Cable Station, hosted in the “Madeira Datacenter”, operating several international optical submarine cables, allowing interconnectivity with national and international SDH networks and providing, as such, significant advantages in terms of quality, cost, bandwidth and scalability.

Another available infrastructure is the Internet Gateway provided by Marconi Internet Direct (MID). This MID offers international Internet access without any 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.

Madeira also offers low operational costs when in comparison with other European countries. In fact, the cost of human resources and the price of several goods and services are very competitive when directly compared with other European locations, allowing companies to face considerably lower costs when establishing operations in Madeira.

In addition to the above, a superb work-life balance is available to those wishing to make Madeira their home. This unique European island life-style sought by many is the reason for Madeira’s success.

If you are considering investing in Madeira, our team has more than 20 years of experience in assisting international investors and expats to make the right move. For more information please visit our website or contact us.

Source: SDM – Sociedade de Desenvolvimento da Madeira

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Starting a Business in Portugal

There are several ways one can start a business in company in Portugal, as the Portuguese Government aims at reducing bureaucracy for investors and as such it has implemented some quicker ways for investors to start a business.

Starting a business in Portugal (or Madeira), i.e. opening a company, is an easy process and we our team at MCS is ready to assist you. Nevertheless, regardless of the path you choose for your business you will always need the following documentation: a Portuguese Taxpayer Identification Number (also known as NIF) and a Portuguese Social Security Identification Number (also known as NISS).

Apart from all the standard bureaucracy associated with the process of starting a business in Portugal, potential investors ought to be aware of the corporate tax benefits existing in in the country, especially if they intend to mainly engage non resident clients (B2B or B2C), i.e. located outside Portuguese territory. In this regard the Madeira International Business Center, located in Madeira Island, offers a unique set of tax advantages in whole Europe, including the lowest corporate rate in the entire continent: 5% on all profit derived from non-resident entities.

When compared with the Portuguese mainland, Madeira Island offers better conditions for the purpose of starting a business than the rest of the Portuguese territory, not only from a tax stand point but also from an IT infrastructure standpoint and better work-life balance for investors and workers.

It is therefore no surprise that many expats opt to start a business in Madeira while choosing to live either on the island or on the Portuguese mainland. The is especially true when considering digital nomads, IT workers and other entrepreneurs that are not physically bound to a place to generate their income.

Madeira is a Portuguese archipelago in the Atlantic Ocean, situated 625 miles (1 000 km) from Mainland Portugal and 545 miles (900 km) from North Africa. It consists of four islands: Madeira, Porto Santo, Desertas and Selvagens. Madeira and Porto Santo are the only inhabited islands, while the Desertas and Selvagens islands are uninhabited natural. Madeira’s unique forest has been declared a World Heritage Sites by UNESCO.

Madeira Island is the biggest and most important island of the archipelago with an area of 741 km2. Due to its subtropical climate and landscapes, it is known worldwide as an all year round tourist destination, thanks not only to its culture, but also spring-like climate.

Although it is an integral part of Portugal and subsequently of the European Union, where all laws applicable on the mainland also apply, Madeira is an Autonomous Region with its own government and parliament.

The population numbers approximately 289,000 inhabitants and its capital is the city of Funchal. Madeira’s Cristiano Ronaldo International Airport serves several daily flights to Lisbon and other major European cities. The official currency is the Euro and it is a civil law jurisdiction. A considerable part of the younger population is fluent in English.

Madeira’s economy is based on tourism, wine production and the International Business Centre of Madeira (MIBC). Created at the beginning of the eighties, the MIBC has proved to be a success and currently represents around 21% of the Regional Gross Domestic Product.

The highly advantageous tax regime, for corporations and individuals, in addition to competitive operating costs, makes Madeira an attractive center for international investment.

The founding of Madeira Corporate Services (MCS) dates back to 1995. MCS started as a private and corporate service provider in the Madeira International Business Center and rapidly became one of the leading management firms. As a result of its position in the market, the quality of the services it has been providing for over a decade and full compliance with business ethics, MCS was awarded the Merit Certificate by SDM – Sociedade de Desenvolvimento da Madeira.

auctor Miguel Pinto-Correia

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Madeira Tech Hub

Madeira as a Low Tax Tech Hub

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.

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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.

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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

  • Corporate tax rate of 5%, applicable on the taxable income derived from profits of operations exclusively carried out with non-resident entities or with other companies operating within the ambit of the MIBC.
  • Access to the Portuguese participation exemption regime.
  • Non-resident single and corporate shareholders of Madeira’s IBC companies will benefit from a full exemption from withholding tax on dividend remittances from the Madeira companies, provided that they are not resident in jurisdictions included in Portugal’s “black list”. Moreover, Portuguese corporate shareholders will also be exempt if holding a participation of at least 10% for 12 consecutive months.
  • Exemption on capital gains payments to shareholders not resident in black listed jurisdictions.
  • No withholding tax on the worldwide payment of interest, royalties and services.

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):

–    General Block Exemption Regulation (GBER) – under which the Madeira International Business Center (MIBC) is regulated.

–    De minimis Regulation

–    Guidelines on State aid for rescuing and restructuring non-financial undertakings in difficulty

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.

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European Union flag

Tax Avoidance Directive

Portugal has effectively transposed the European Corporate Tax Avoidance Directive which introduces rules to prevent tax avoidance by companies and thus to address the issue of aggressive tax planning in the EU’s single market. Madeira, being an outermost region of the EU is subject said directive.

The directive applies to all taxpayers that are subject to company tax in one or more EU country, including permanent establishments in one or more EU countries of entities resident for tax purposes in a non-EU country.

The directive lays down anti-tax-avoidance rules in 4 specific fields to combat BEPS, while amending Directive (EU) 2017/952 (which only covered hybrid mismatches within the EU):

  • Interest limitation rules: where multinational companies artificially erode their tax base by paying inflated interest payments to affiliated companies in low-tax jurisdictions. The directive aims to dissuade companies from this practice by limiting the amount of interest that a taxpayer has the right to deduct in a tax period. The maximum amount of deductible interest is set at a maximum of 30% of the taxpayer’s earnings before interest, tax, depreciation (a measure of how much of an asset’s value has been used up at a given point in time) and amortisation (spreading payments over multiple periods).
  • Exit taxation rules: where taxpayers try to reduce their tax liability by transferring its tax residence and/or its assets to a low-tax jurisdiction, solely for the purposes for aggressive tax planning. Exit taxation rules aims to prevent the erosion of the tax base in the EU country of origin when high-value assets are transferred with ownership unchanged, outside the tax jurisdiction of that country. The directive gives taxpayers the option of deferring the payment of the amount of tax over 5 years and settling through staggered payments, but only if the transfer takes place within the EU.
  • General anti-abuse rule: this rule aims to cover gaps that may exist in a country’s specific anti-abuse rules against tax avoidance, and allows tax authorities the power to deny taxpayers the benefit of abusive tax arrangements. The general anti-abuse clause of the directive applies to arrangements that are not genuine to the extent that they are not put into place for valid commercial reasons that reflect economic reality.
  • Controlled foreign company (CFC) rules: in order to reduce their overall tax liability, corporate groups are able to shift profits to controlled subsidiaries in low-tax jurisdictions. CFC rules re-attribute the income of a low-taxed controlled foreign subsidiary to its more highly taxed parent company. As a result of this, the parent company is charged to tax on this income in its country of residence.

Rules on hybrid mismatches: where corporate taxpayers take advantage of disparities between national tax systems in order to reduce their overall tax liability, for instance through double deduction (i.e. deduction on both sides of the border) or a deduction of the income on one side of the border without its inclusion on the other side. To neutralise the effects of hybrid mismatch arrangements, the directive lays down rules whereby 1 of the 2 jurisdictions in a mismatch should deny the deduction of a payment leading to such an outcome.

For more information on how the Directive might affect your MIBC company or investments in Portugal, or fore detailed information on the transposition mechanism, please do not hesitate to contact us.

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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.

in TaxLink

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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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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