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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.
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
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. Continue reading
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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. Continue reading
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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.
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. Continue reading
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|Investing in Madeira remains an attractive solution for those looking to operate in Portugal and abroad.|
The International Business Center of Madeira (MIBC, also known as Madeira Free Trade Zone) remains attractive for foreign and Portuguese investors, representing the single Portuguese fiscal incentive created to directly support the internationalization of worldwide companies.
Duly licensed companies benefit from one of the lowest corporate income tax (CIT) rates in the EU, 5%, to which 0% withholding tax on interest, capital gains, services, royalties and dividends is added (provided that certain requirements are met).
The MIBC is a real European incentive for the internationalization of exporting companies or international services providers.
Most service providers can benefit from the MIBC, including those engaged in trading, e-business and telecommunications, consultancy and marketing services, as well as intellectual property management, real estate project development or holding-related services.
Another important feature of the MIBC related benefits is that once the licensing process is done, the tax benefits become immediately effective. Unlike European funds there is no waiting period between the approval of the incentive and its implementation.
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 under the Madeira 14-20 program and other financial instruments available to companies based in the Autonomous Region of Madeira.
Last, but not least, Madeira has all kinds of high quality support services, such as a broad network of information technology companies, consulting firms, financial services and administrative support, thus making operational costs low when compared to other European markets.
Our team at MCS, with more than 20 years of experience in the sector, is able to assist in the incorporation of your company within the MIBC or Portugal. For more information click here, for information our services click here. Continue reading