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Investing opportunities in Madeira.

Posted by: Ibay | Posted on: June 29th, 2016 | 0 Comments

Do you want to consider other foreign investment opportunities? If so, have a look into what Madeira has to offer.

Madeira is an island which falls under the Portugal treaty for tax purposes, however, the Portuguese Constitution of 1976 granted political and administrative autonomy to Madeira. Therefore, from a political point of view, Madeira has its own government and legislative parliament. The Madeira Regional assembly has the right to create laws for the region, as long as it does not contradict the Constitution or the assembly of the Portuguese Republic. One of Madeira’s main characteristics is its political stability, with the Social Democratic Party in power since 1978.

Madeira is also fully integrated in the European Union and located in the Atlantic Ocean, 900km Southwest of Lisbon. The island cluster (archipelago) consists of a population of about 250,000 inhabitants. The Capital of the Madeira region is Funchal, which is a very cosmopolitan city due to its tourism industry.

Some highlights to invest in Madeira in a “nutshell”.

MAIN ADVANTAGES

Madeira IBC – it is not a “tax haven” “non-blacklisted” and not an “offshore jurisdiction” – Regime of tax benefits is pre-approved by the EU Commission. Additionally, Madeira IBC companies are subject to the same rules and regulations as a normal Portuguese company. As such, they can access all EU Directives and all Double Tax Agreements (more than 70) signed by Portugal. Additionally, they must also maintain organized accounts, submit all tax forms, VAT returns and reports for Bank of Portugal;

  1. E.U VAT system is fully applicable and Madeira IBC companies are automatically registered for VAT in the European Union with number validated at VIES;
  2. Low corporate income tax rate of 5% with possibility of international tax credit up to the limit of the 5% payable and with possibility to defer use of credit up to 5 years (on exceeding part);
  3. No withholding taxes on dividends distribution from a Madeira IBC Company to non-resident – corporate or individual – shareholders. And no taxation (corporate income tax) on dividends and reserves received from subsidiaries as these profits are removed from the taxable income (conditions apply);
  4. No withholding taxes upon payment of royalties and services to non-resident entities, as well as upon interest payment (under certain conditions), as well as possible application of the EU Directive on Interest and Royalties;
  5. No capital gains tax upon sale of subsidiaries and, as well, no capital gains tax upon disposal – by non-resident shareholders – of participation held in Madeira IBC Company;

COSTS TO OPEN AND MAINTAIN A COMPANY

The fees are not calculated on a time-spent basis and, therefore, the cost is fully predictable at company incorporation and maintenance allowing you to know, in advance, what will be your cost with setting up and running the company.

The fees are as follows:

  • Incorporation fees of €1,000
  • Governmental installation tax of €750
  • Annual SDM company licence tax of €1,300
  • Fixed costs for registered office fees (from July to December 2016) of €375
  • Fixed costs for provision of local directors fees of €900
  • Opening of a bank account of €350
  • Estimated Accounting fee up to a 100 entries of €2,500
  • Application for Portugese tax number per shareholder of €75

SUBSTANCE REQUIREMENTS

Madeira IBC companies have substance requirements: company must employ and maintain at least one (1) local worker at all times.

The application of the reduced corporate income tax rate will also imply the fulfilment by the Company of a minimum investment of € 75.000,00 euros within the first 2 years of activity. Such requirement, however, is waived if the Company creates 6 or more jobs within the first six months of activity.

It is strongly suggested that you have a Madeira resident Director appointed for the IBC Madeira Company, who will act as an active local director having “mind and management” in Madeira and providing further substance to the company. From an international perspective it is many times relevant to assess where the company has its effective place of management being this one of the key factors to determine where company’s activity is (or should be) taxed.

OTHER IMPORTANT ITEMS

Madeira IBC companies can undertake all type of activities, exception being made to financial services (banking activity) as well as insurance and re-insurance services. Intra-group services and intra-group financing (cash pooling and other related structures) are also forbidden.

Should you want further information on setting up and operating a Company in Madeira please contact your partner or contact person.

Author: Lizette Aldrich