JNC: Summary of the Formation and Maintenance Obligations of Portuguese Companies in Madeira

Why Use Madeira? 

Companies licensed to operate in the International Business Centre (IBC) of Madeira enjoy a number of tax advantages, under the IV Regime of Tax Benefits, which are guaranteed to the end of 2027. 

  • Corporate tax rate of 5%.
  • Madeira is an integral part of Portugal and therefore a full member of the European Union.
  • Access to the Portuguese Double Taxation Treaties that are currently in place between Portugal and other countries (over 60 treaties).
  • Access to the Agreements on the Mutual Promotion and Protection of Investments signed by Portugal (approximately 60 Agreements).
  • Application of the Portuguese Participation Exemption Method.
  • Application of the Portuguese Patent Box Regime.
  • Madeira offers an International Register for ships and yachts.
  • Madeira offers an International Register for aircraft.
  • 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 Registration fees.

Additional advantages include:

  • Competitive operational costs when compared with similar jurisdictions (Netherlands, Luxemburg, etc.).
  • Pro-Business Labour Laws providing favourable conditions for the hiring of staff.
  • Simple process in order to obtain a Work Visa.
  • Favourable Time Zone for business between the Americas, Europe and Asia.
  • Privileged economic, political and cultural relationship with Brazil, Angola and Mozambique (CPLP).
  • Portuguese Golden Visa Program for High-Net Worth individuals
  • Non-Habitual-Resident Tax Regime for entrepreneurs

BACKGROUND

Through legislation approved in Lisbon, and in Brussels by the European Commission, tax advantages have been granted to Portuguese companies registered in Madeira under the International Business Centre of Madeira (‘IBC’) legislation.

The objective of the legislation is to provide a boost to the economy of the island of Madeira. The tax advantages apply to industrial and manufacturing activity within the physical geographical area of the International Business Centre of Madeira, as well as to international service activities which can be organised through entities registered under the legislation and operating from either within Madeira or elsewhere in the world.

TAX EXEMPTIONS AND LOW CORPORATE TAX RATES

The corporate tax rate of 5% applies to the company’s taxable income, the limit of which depends on the number of jobs created. Details of these figures are set out below:

Job creation

Reduced Tax Rate applies to the following taxable income

1 - 2

€ 2.73 million

3 - 5

€ 3.55 million

6 - 30

€ 21.87 million

31 - 50

€ 35.54 million

51 - 100

€ 54.68 million

over 100

€ 205.5 million

In addition:

The overall tax benefits granted to companies licensed to operate in the MIBC are capped at one of the following amounts:

  • 15.1% of the annual turnover; OR
  • 20.1% of the annual earnings before interest, tax and amortisation; OR
  • 30.1% of the annual labour costs.

EMPLOYMENT CRITERIA

In order to benefit from the tax regime, all companies are obliged to employ at least one worker (even if this employee is part-time).

Through, the Dixcart company, Tempstaff, we are able to provide part-time employees to our client companies as well as prepare the payroll and meet all of the statutory requirements.

Under the IBC Tax Regime, companies are required to make an investment of €75,000 within the first two years of establishing the company if less than 6 members of staff are employed in Madeira.

The following assets qualify as investments, i.e. assets of a medium to long term nature:

  • Intellectual property including patents, trademarks and image rights
  • Property and other immovable assets for commercial use
  • Fixed assets used in day to day activity of the company
  • Medium to long-term financial assets (greater than 1 year) including participations held in other companies

The following assets do not qualify as an investment:

  • Short-term financial assets (less than 1 year)
  • Cash deposits held in the company’s bank account
  • Investment portfolios

Direct Employment or Tempstaff Alternative Solution

Where a company has not met the investment criteria it is possible to obtain an exemption from making the investment mentioned above by hiring at least 6 employees within 6 months of the incorporation of the company.

However, if the client does not want to employ its own staff, Dixcart can provide a solution through Tempstaff.

This solution is available to the client at a cost-effective cost.

MANAGEMENT AND CONTROL

Directors of companies incorporated in Madeira may be resident anywhere in the world.

This does not affect the tax benefits the company is entitled to in Madeira. All that is required is that the company has local legal representation, which Dixcart in Madeira can provide.

THE VAT ADVANTAGE

Companies registered in the IBC of Madeira are, on incorporation,  automatically provided with a VAT registration number.

Trading within the EU is therefore made simpler and more effective, from a cash flow point of view, by the provision of a registration number for VAT purposes.

FREQUENTLY ASKED QUESTIONS REGARDING THE INCORPORATION OF A MADEIRA COMPANY

a)     Legal Types of company?

A:      Private Limited Liability Company ("Limitada” or “Lda" where the minimum share capital requirement is € 1. Each Lda must have at least one quotaholder. Should the company be a single quotaholder company, then the expression "Sociedade Unipessoal" must be reflected with the name of the company);

Stock Corporation ("Sociedade Anonima” or “SA", where the minimum share capital is € 50,000 divided into shares with a minimum value of € 0.01 each.);

Any of the above types of companies can act as Holding Companies taking advantage of the Participation Exemption Method

b)     What about the Directors?

A:      The directors do not need to be Portuguese residents. However, if all directors are resident overseas, the company must appoint a local legal representative who can be provided by Dixcart.

c)     Are there any restrictions to the company’s activity?

A:      No, although financial activities do not benefit from the 5% corporate income tax rate.

d)     And what about the need to have a Registered Office in Madeira?

A:      A registered office address is required in Madeira.

e)     Which Accounting Standards apply?

A:      The accounting and statutory records of the company are governed by International Accounting Standards (SNC).

f)      Incorporation timings?

A:      The incorporation process generally takes 2 to 3 weeks to complete.

g)     Does the company need to pay an annual licence fee?

A:      Yes. An application for a licence to operate within the IBC of Madeira must be made to the Sociedade de Desenvolvimento da Madeira ("SDM - Madeira Development Company). The annual license fee charged by SDM for Limitadas and Sociedades Anonimas is € 1,800 per annum. This may be reduced to € 1,300 if paid by the required date through a local Management Company. such as Dixcart.

For further information, please contact John Dias: joao.dias@dixcart.com or Carlos Santos: carlos.santos@dixcart.com at our office in Madeira. Alternatively please speak to your usual Dixcart contact.

 

Updated July 2015

Categories: Jurisdiction, Madeira, Year, 2014