A number of significant benefits are available through using a Portuguese holding company. Portugal offers an internationally competitive tax framework that is both transparent and compliant.
As an alternative to being registered on the mainland, Portuguese companies can, in the correct circumstances, be registered on the island of Madeira. The Madeira International Business Centre (MIBC) offers a number of attractive tax advantages.
The Portuguese Corporate Tax Structure – An Overview
Portuguese companies are subject to tax on their worldwide income. Branches of non-resident companies are only taxed on Portuguese-source profits.
Corporate tax is charged at a rate of 21% on a company’s profit, although some exemptions may apply in relation to passive income, under the Participation Exemption Method.
Worldwide Participation Exemption Regime: Applicable to Capital Gains and Dividend Payments Inbound and Outbound
Under Portugal’s participation exemption regime, dividends received and capital gains received and distributed by a Portuguese resident company from a domestic or foreign shareholding are exempt from tax, provided that the shareholder holds, directly or indirectly, at least 10% of the capital or voting rights of the other company for 12 months.
The subsidiary may not be resident in a listed tax haven and must be subject to, and not exempt from, income tax at a rate which is equivalent to at least 60% of the Portuguese corporate tax rate (currently 21%).
A tax credit may be applicable when the conditions for the application of the participation exemption regime are not fully met, with an option for an underlying tax credit for dividends on foreign shareholdings held for 12 months of at least 10%.
In terms of capital gains, the participation exemption method applies to the gains on disposal of shares.
Patent Box Regime
There is a 50% exemption on income generated by intellectual property. This is applicable to the income generated by the assignment or sub-licensing of patents, models and industrial designs protected by intellectual property and which have been subject to registration.
The acquisition costs of certain intangible assets, with unlimited durability, and goodwill are deductible on an annual basis of 5% for a period of 20 years. In addition, all costs associated with the development of the intellectual property are tax deductible.
The current Portuguese R&D benefit package is valid until 2020.
A tax credit is available, under certain conditions, for R&D expenses:
- A corporate tax credit of 32.5% of qualifying R&D expenses is available in the relevant tax year and may be carried forward for eight years;
- 50% of the surplus of expenses suffered in the tax year over and above the average two previous tax years, capped at €1,500,000.
Madeira Free Trade Zone
Taxable income derived from the activities of licensed financial, industrial, international service and shipping companies established in the Madeira free trade zone are subject to a reduced corporate tax rate of 5%, when certain conditions are met.
The Advantages for Portuguese Companies in Madeira
Companies licensed to operate in the International Business Centre (IBC) of Madeira enjoy a number of tax advantages, which are guaranteed until the end of 2027.
Portuguese companies registered in the IBC of Madeira enjoy:
- A corporate tax rate of 5%
- Access to the majority of Portuguese Double Taxation Treaties
- Application of the Portuguese participation Exemption Method and Patent Box Regime
- Automatic VAT registration when incorporating a company
- Exemption from withholding taxes on Dividends, Interest and Royalties, with the exception of Dividends paid to entities resident in tax havens as defined by Portugal
- Exemption from capital duty, notary and company registration fees.
In addition, directors of companies incorporated in Madeira do not need to be Portuguese resident. However, if all of the directors are non-resident in Portugal, the company must appoint a local representative in Portugal, who can be provided by Dixcart.
Certain criteria need to be met to register a company in Madeira. Full details are available from the Dixcart offices in Madeira and Lisbon.
If you require any additional information on this topic, please contact your usual Dixcart adviser or speak to Carlos Santos in the Portugal office: firstname.lastname@example.org