INTERNATIONAL BUSINESS CENTRE OF MADEIRA (IBCM) OTHER TAX PRIVILEGED REGIMES APPLIED IN PORTUGAL
INTERNATIONAL BUSINESS CENTRE OF MADEIRA I. Madeira II. International Business Centre of Madeira III. Tax Benefits for the International Services IV. Double Taxation Treaties V. International Shipping Registry (RIN-MAR) VI. Investment in Angola and Mozambique through Madeira VII. Characteristics of Madeira Companies VIII. Certificates of Fiscal Residency OTHER PRIVILEGED TAX REGIMES APPLICABLE IN PORTUGAL IX. Golden Visa X. Non-Habitual Resident Tax regime XI. About us XII. Contacts www.mcs.pt
INTERNATIONAL BUSINESS CENTRE OF MADEIRA MADEIRA Madeira is a Portuguese archipelago in the Atlantic Ocean, situated 625 miles (1,000 km) from Mainland Portugal and 545 miles (900 km) from North Africa. It consists of four islands: Madeira, Porto Santo, Desertas and Selvagens. Madeira and Porto Santo are the only inhabited islands, while the Desertas and Selvagens islands are uninhabited natural reserves that have been declared World Heritage Sites by UNESCO. Madeira Island is the biggest and most important island of the archipelago with an area of 741 km2. Due to its subtropical climate and landscapes, it is known worldwide as an all year round tourist destination. Although it is an integral part of Portugal and subsequently of the European Union, where all laws applicable on the mainland also apply, Madeira is an autonomous region with its own government and parliament. The population numbers approximately 245,000 inhabitants and its capital is the city of Funchal. Madeira’s International Airport serves several daily flights to Lisbon and other major cities. The official currency is the EURO and it is a civil law jurisdiction. A considerable part of the younger population is fluent in English. Madeira’s economy is based on tourism, wine production and the International Business Centre of Madeira (IBCM). Created at the beginning of the eighties, the IBCM has proved to be a success and currently represents around 21% of the Regional Gross Domestic Product. The highly advantageous tax regime, in addition to competitive operating costs, makes Madeira an attractive centre for international investment. 3 – 33 | www.mcs.pt
INTERNATIONAL BUSINESS CENTRE OF MADEIRA Madeira, for being an outermost region of the European Union and benefiting from the state aid regime foreseen in the EU treaties, was entitled to implement a development program to attract foreign investment and economic activity. This program commonly known as the Madeira Free Trade Zone or International Business Centre of Madeira (IBCM), initially created in 1980, was duly approved by the European Commission and subsequently over time reapproved on several occasions. In March 2015, Portugal negotiated with the EU Commission the main guidelines of the so- called “IV Regime”, for companies licensed between 2015 and 2020, and with tax benefits going up to 2027. The new regime now integrated in the General Block Exemptions Regulation (GBER) for State Aid, required some tough negotiations to enable specific derogations for Madeira. The new law (Law n.º 64/2015) was published on the 1st of July 2015, but with effects as from 1st of January 2015. SECTORS OF ACTIVITY Interested investors may take advantage of the several benefits of the following main sectors of activity of the IBCM: The Industrial Free Trade Zone All industrial activities such as manufacturing, production, assembling and warehousing should take place in an industrial park located in Caniçal, which is located 8 Km away from the island’s international airport and next to the main commercial port. These activities enjoy attractive tax and customs duties regimes. 4 – 33 | www.mcs.pt
International Services This is the main sector of the IBCM, allowing all type of international service activities such as international trading, management and consulting services, e-business, telecommunications, ownership of intellectual property, real estate investments or holding of participations. International Shipping Registry of Madeira ( RIN-MAR) An International Shipping Registry - MAR - Portugal’s second register, was also created within the IBCM. MAR accepts the registration of all types of commercial vessels, including oil rig platforms, as well as commercial and pleasure yachts. (Please refer to section V of this memo). New Upcoming International Aircraft Registration The new IV Regime also foresees the creation of an International Aircraft Registration (still subject to approval of internal legislation). TAX BENEFITS FOR THE INTERNATIONAL SERVICES As referred, following successful negotiations with the EU Commission, Portugal approved the so-called IV Tax Regime for the IBCM, for companies licensed between 2015 and 2020, and with tax benefits up to 2027. All existing companies licensed up to 31st December 2014, under the III Tax Regime for the IBCM, will maintain their tax incentives up to 31st December 2020, notwithstanding the possibility of transferring at any time into the IV Tax Regime to maintain benefits up to 2027. 5 – 33 | www.mcs.pt
The III & IV Tax Regimes are in general terms quite similar, with some small differences resulting from the latest negotiations with the EU Commission. MADEIRA IBC TAX REGIME General Guidelines All Madeira Companies duly licensed to operate within the IBCM, are entitled to benefit from a reduced Corporate Income Tax (“CIT”) rate of 5% provided that the conditions for admission to the mentioned Madeira IBC regime are complied with. This is the lowest corporate tax rate in force in the EU and one of the lowest in the World. Conditions (Substance Requirements) for admittance to the new regime In order to benefit from this special regime, companies shall comply with the following substance requirements: a) Creation of one to five jobs in the first six months of business and making a minimum investment of 75.000 Euros in the purchase of fixed assets, tangible or intangible, within the first two years of business; b) Creation of six or more jobs within the first six months of business. The reduced corporate tax rate that companies are entitled to benefit from is subject to a maximum limit of taxable income which depends on the number of jobs created in accordance with the following scale: 6 – 33 | www.mcs.pt
The reduced corporate tax rate that companies are entitled to benefit from is subject to a maximum limit of taxable income which depends on the number of jobs created in accordance with the following scale: NUMBER OF JOBS TAXABLE INCOME 1 – 2 Jobs EUR 2,73 million 3 – 5 Jobs EUR 3,55 million 6 – 30 Jobs EUR 21,87 million 31- 50 Jobs EUR 35,54 million 51 – 100 Jobs EUR 54,68 million More than 100 Jobs EUR 205,50 million The remaining tax result, which surpasses the threshold, shall be subject to the IRC tax rate applicable in the Madeira Autonomous Region, currently 21%. As regards specifically the creation of jobs, the Regional Government of Madeira issued an Order stating that any job relationship foreseen in the Portuguese labor code will qualify as a job creation. Therefore a part-time job will qualify as well as a director receiving a salary. What effectively matters is that the employee’s salary is processed through the Madeira Company and is in compliance with the legal rules regarding withholding personal income tax and social security contributions. If the entities licensed to operate in the IBCM fail to comply with the requirements of the regime with reduced taxes, the same shall be subject to CIT at the standard rate of 21%. 7 – 33 | www.mcs.pt
Further to the reduced corporate tax rate, the following additional tax benefits are applicable to companies licensed to operate in the Madeira IBC until 2020: i. Participation Exemption regime (described under 3.3 below); ii. No withholding tax on payment of dividends under IV Tax Regime to non-resident entities (under certain conditions as described below); iii. No withholding tax on payment of services to non-resident entities; iv. No withholding tax on payment of interest to non-resident entities (under certain conditions); v. No withholding tax on payment of royalties to non-resident entities; vi. No stamp duty or capital tax; vii. No capital gains on the sale of the company itself (under certain conditions); viii. Patent Box Regime (described below). 8 – 33 | www.mcs.pt
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