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••• Madeira's International Business Centre
INTERNATIONAL SERVICES
The International Services is a broad definition given to one of the four areas that make up Madeira's International Business Centre, where trading, holding, management, trusts, consulting, and any other type of service-oriented companies may be formed. From these activities, it is particularly interesting to highlight the establishment of trusts as well as the operation of holding companies.
In fact, although Madeira is a jurisdiction governed by civil law, it is also a business centre competing directly within the international market. For this purpose, Madeira has enacted legislation allowing the formation and management of trusts. The assets of a trust registered in Madeira may not include immovable assets located in Portuguese territory. A unique point concerning trusts in Madeira is that the settlor may select the trust law of the country under which the trust is to be administered.
It is also important to highlight the regulations concerning the use of holding companies within Madeira's IBC. Two types of holdings may be formed in Madeira: pure and mixed holdings, whose characteristics are as follows:
a) A pure holding company is defined by Portuguese law as an SGPS ("Sociedade Gestora de Participações Sociais"), whose activity is exclusively the management of shares held in other companies. Portuguese holding companies are exempt from taxation on the income received from EU affiliated companies, in accordance with the EU directive EEC/90/435.
b) The SGPS structure has been used by European companies wishing to reduce the tax burden applicable to the income obtained from their affiliated companies spread throughout the EU, and for non-EU multinationals which set up holding companies in Madeira as part of their worldwide network in order to enhance their overall tax-planning on a cost-effective basis.
c) Mixed holdings are companies which may carry out other activities, in addition to the management of shares held in other companies. As far as their tax treatment is concerned, they are totally exempt from taxation, except for any income acquired through operations in Portuguese territory.
Incentives and Advantages
Although some of the benefits applicable to companies undertaking service operations in Madeira have already been referred, it is worthwhile to highlight them in detail, and stress their importance in comparison with other jurisdictions:
A total exemption from taxation until the year 2011, except for any income obtained in Portuguese territory.
The already described system of SGPS holdings, which is probably one of the best ways to structure investments in Europe available today.
The access to Portugal's network of double taxation treaties, which makes it possible to further enhance the tax efficiency of investments through Madeira. The tax treaties may be used for both direct and indirect flows of income.
The operational costs available on the island. Salaries, office rentals and real estate prices compare very favourably with other European jurisdictions.
Companies incorporated within Madeira's IBC are considered for all purposes as fiscally resident in Portugal, a status which not only grants the above-indicated tax benefits, but also provides them with a VAT number. This does not take place in other IBC centres, where it is difficult to qualify for residence.
Finally, all the legislative framework that governs Madeira's International Business Centre was presented and approved by the European Commission, a fact which coupled with the supervision of the Bank of Portugal and other important institutions, characterizes Madeira as a sound and reputable business centre, with all the warranties of security and credibility attached thereto.
Advantages for tradings, trusts and other service companies
Exempt, until the year 2011, from corporate taxes on the income obtained from operations carried out exclusively with other entities established within the legal framework of the International Business Centre or with non-residents in Portuguese territory.
Exempt from corporate taxes on the interests from loans contracted by entities licensed within the legal framework of the International Business Centre provided the loan is used within that same framework and as long as the lenders are non-residents in Portuguese territory.
Shareholders non-resident in Portuguese territory are exempt, until the year 2011, from corporate and individual taxes in relation to:
1 ) dividends resulting from the income of these entities obtained through their operations within the legal framework of Madeira's International Business Centre, excluding the proportion of the income not exempt obtained from operations carried out in Portuguese territory.
2) income from interests and other forms of loans, bonds, and advances of capital given to these entities.
Foreign companies operating in Madeira's International Business Centre will additionally not be subject to restrictions on:
- The transfer of profits and capital invested;
- The transfer of funds connected with trade;
- The importation of funds.
Types of companies which may be formed
Among the various legal structures available according to Portuguese law, investors have generally chosen the stock corporation (S.A.) and the Private limited company (Lda.). In addition, two other legal structures are available, since they are often used to operate in Portugal and, therefore, within the legal framework of Madeira's Free Trade Zone.
These are the Branch and the S.G.P.S. (Portuguese holding company). The main characteristics of these various forms of companies are the following, according to the Portuguese legislation inforce:
Private limited company (Lda.), with a minimum of 2 shareholders and a minimum capital of Euro 5,000. This type of company does not need to appoint directors; the minimum requirement is to appoint a manager who, by law, has the powers to undertake the management of the company.
Stock Corporation (S.A.), with a minimum of 5 shareholders and minimum capital of Euro 50,000. These companies may issue bearer shares provided all the share capital is fully paid up. Non-voting preference shares may be issued up to a maximum of 50% of the share capital. Redeemable preference shares may also be issued provided they are fully paid up. The management of these companies must be guaranteed by a board of directors made up by an odd number of members.
Branch. There are no minimum capital requirements for a branch, unless it relates to a bank, in which case either a minimum capital of an acceptable amount applies, or the Head Office must provide a full guarantee for the branch's operations.
S.G.P.S. (Portuguese Holdings), it must have the legal form of an S.A. or Lda. company and must have as its single object the management of shares held in other companies. It may render services and, in certain cases, lend credit to the companies in which it holds shares. It qualifies for the 90/435/CEE Directive.
The S.A. and the Lda. companies licensed to operate in the IBC may be incorporated by means of D.L. 212/94, of the 10th of August, with one shareholder who may be an individual or a company, national or foreign.
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