Tag Archives: Tax Benefits

Golden Visa and Tax Benefits

Golden Visa – Can it be a profitable investment? Tax Benefits related to the rehabilitation of real estate.

In the last few articles I have been mentioning and outlining several reasons why the purchase of a property worth 350 thousand Euros with rehabilitation works will be a good and profitable investment to obtain the Golden Visa.

Associated to a lower investment value, which will be a minimum of 350 thousand Euros for the purchase of a property and rehabilitation works, in comparison to the investment of 500 thousand Euros for any property or group of properties, the option for rehabilitation of urban real estate, especially in the perspective of its profitability through rental housing, there are also other advantages for the investor.

In addition to some support programs and funds available to owners who proceed with the rehabilitation of buildings in areas of urban rehabilitation, in this article we will specifically focus on the aspect of tax benefits associated with urban rehabilitation, which adds even more advantages to the Golden Visa regime through real estate investment.

The Golden Visa regime in the form of investment in a minimum global (acquisition of property and rehabilitation) value of 350 thousand Euros foresees that the same can be made in real estate located in an area of urban rehabilitation, or in real estate whose construction has been concluded at least 30 years ago.  This is also the premise in the case of the tax benefits stipulated in article 45 of the Statute of Tax Benefits (EBF), as the benefits will be attributed when the rehabilitation works are carried out in real estate that is in either of the two aforementioned situations.

However, there are two other conditions, in this case cumulative, which need to be observed:

  1. a) the property rehabilitation interventions must be promoted under the terms of the Urban Rehabilitation Legal Regime;
  2. b) As a result of the intervention referred to in the previous sub-paragraph, the maintenance status of the property needs to be two levels higher than that previously attributed, and must have at least a Good level, comprehending that the energy efficiency and thermal quality requirements applicable to the buildings are fulfilled.

In order to comply with that mentioned in paragraph b), it will be necessary to request a technical evaluation from the Municipality and the fee for such evaluation of the state of conservation will be reduced by 50% in these cases.

If the requirements are fulfilled, in accordance with the EBF, the tax benefits to be granted are as follows:

Exemption from municipal property tax (IMI) for a period of three years from the year, of the conclusion of the rehabilitation works, with the possibility of this exemption to be renewed and extended, at the request of the owner, for a further five years in the case of properties assigned to rental for permanent dwelling purposes or to own as permanent dwelling;

Exemption from municipal tax on onerous transfers of real estate (IMT) in the acquisition of real estate for rehabilitation, provided that the purchaser begins the respective works within a maximum period of three years from the date of acquisition;

Exemption from municipal property transfer tax (IMT) on the first transmission of property, following the rehabilitation intervention, in the case that the property will be used as rental for permanent dwelling purposes or, when located in an area of urban rehabilitation, also for own and permanent dwelling purposes;

In my opinion, these exemptions allied with the Golden Visa regime, in which the investor is obliged to maintain the investment property for a period of five years, may bring enormous advantages by mitigating the most onerous taxes and costs related with the acquisition and holding of a property.

The first advantage will be the IMI exemption that may last for eight years after the acquisition and rehabilitation of the property, if it is used to rent for habitational purposes, or even if it’s used as the permanent habitation of the investor.

The second advantage will be not having to pay IMT if the rehabilitation works are started within the first three years after the acquisition of the property. That is, there is a suspension in the payment of IMT during the first three years, and a total exemption of its payment if it is proven that the owner started the rehabilitation within the maximum period established.

If we take as an example a property acquisition to rehabilitate in the amount of 350 thousand Euros, the investor can be exempted from paying the 8% tax on that amount, corresponding to a value of 16,964.75 Euros.

Finally, the advantage of exempting the future purchaser of the rehabilitated property from the IMT tax, if he uses the property for rental as a permanent residence, or even as his own permanent residence.

This advantage of exempting the future buyer of the payment of IMT is a great advantage at the level of marketing of the property in the future, when the investor under the Golden Visa, has already exceeded the five years in which it is required to maintain ownership of the property, and now decides to capitalize the investment through the sale of the same.

Another interesting tax benefit is the fact that the cost of the contract for the rehabilitation of the property can be taxed in terms of VAT at 6% instead of the usual 22% applicable to construction contracts. With a rehabilitation contract, it will be possible to apply the lower rate of VAT.

Also at the Personal Income Tax (IRS) level there are some interesting benefits when opting for the investment in real estate for rehabilitation, through the Golden Visa, and its profitability through renting.

And although it is not contradictory to the Golden Visa regime, the truth is that in order to benefit from these incentives in terms of IRS, the investor must become a tax resident in Portugal, something that every so often it’s not a common aspiration from the investors.

As we know, many of the investors who opt for the Golden Visa, do not intend to become tax resident in Portugal, however for other investors who effectively choose to move to Portugal cutting ties with their country of origin, the change of tax residence to Portugal is not an impediment at all.

For those investors who choose to become tax resident in Portugal, Article 71 of the EBF, grants two tax benefits in terms of IRS:

  1. a) Capital gains earned by IRS taxpayer’s resident in Portuguese territory arising from the first disposal, subsequent to the intervention, of property located in an urban rehabilitation area, are taxed at an autonomous rate of 5%, without prejudice to the option for aggregation;
  2. b) Rental income earned by IRS taxpayer’s resident in Portugal is taxed at 5%, without prejudice to the option for aggregation, when it derives entirely from the rental of real estate located in an ‘urban recovery area’, recovered under the terms of the respective recovery strategies;

Finally, and perhaps of less relevance for those who make an investment under the Golden Visa, also in terms of IRS, if the investor becomes tax resident in Portugal, he will be entitled to deduct 30% of the costs incurred by the owner/investor related to the rehabilitation of the property, up to a limit of 500 euros.

As mentioned above, there are other tax benefits associated with rehabilitation if the investment is made through other vehicles holding the property, and there are also other incentives and support in the form of funds and support for rehabilitation.

Nevertheless, as it was possible to demonstrate, the tax incentives themselves, allow, in the case of investment through rehabilitated real estate, to mitigate one of the disadvantages most often mentioned in real estate investment under the Golden Visa regime, which is related to the tax costs, some fixed as the IMI, throughout the five years in which the investor is obliged to keep the property in his ownership.

Therefore, using the example I have been giving, the profitability of the investment through the rental housing, it is possible to avoid most of the tax costs in the procedure of purchase and maintenance of the property.

auctor Pedro Marrana

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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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Rising after Covid-19

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

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

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

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

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

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

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

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

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

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

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

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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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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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