New Tax Regime for the International Business Centre of Madeira

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On December 29, 2000 the Portuguese Parliament passed legislation implementing a change of the tax regime governing the International Business Centre (IBC) of Madeira. It is important to note that the changes as promulgated do not affect any company that has been licenced prior to 31 December 2000. The new legislation only affects new entities that are or will be licenced to operate after 1 January 2001.

In terms of Portuguese law the critical date in determining the tax status of a company licenced to operate in the International Business Centre of Madeira is the date that the licence has been issued. The incorporation date of the company can occur after 1 January 2001 but as long as the IBC licence was issued prior to 31 December 2000, then the company will have a ZERO tax regime until 2011.

In summary the changes to the legislation are as follows:

1. The Free Trade Zone

Companies that are licenced after 1 January 2001 to operate in the Free Trade Zone will continue to enjoy the tax rate of ZERO percent until the year 2011. It must be noted that these are companies that have a manufacturing facility in the Free Trade Zone area in Caniçal, located on the east side of Madeira.

2. International Services Companies

New entities that are licenced after 1 January 2001 to operate in the International Services Sector of the IBC a low rate of corporation taxes will begin to be applied to companies licenced up to the end of 2006. This is applied as a sliding scale increasing in three tranches.

Licences issued during 2001 and 2002 – 1% tax on profits until 2011,
Licences issued during 2003 and 2004 – 2% tax on profits until 2011, and
Licences issued during 2005 and 2006 – 3% tax on profits until 2011.

3. Financial Services Sector

New credit institutions and financial companies such as Banks the rates of corporate taxation from 1 January 2001 will be:

Licences issued during 2001 and 2002 – 7.5% tax on profits until 2011,
Licences issued during 2003 and 2004 – 10% tax on profits until 2011, and
Licences issued during 2005 and 2006 – 12.5% tax on profits until 2011.

The establishments of these types of entities still require the approval of the Bank of Portugal.

4. International Shipping and Yacht Registration

This sector remains unchanged and the tax position for vessels registered is ZERO until 2011.

Companies with IBC licences issued pre 31 December 2001

MRI Cheetah Management Services has several licences issued prior to 31 December 2000. As stated earlier, in terms of Portuguese law, the critical date in determining the tax status of a company licenced to operate in the International Business Centre of Madeira is the date that the licence has been issued.

Therefore we are in a position to supply to clients companies with fully tax-free regimes valid to 2011 guaranteed and approved by the European Union and the Portuguese Legislature.

Parent / Holding companies and Subsidiaries

Dividends distributed by or received from a company resident in Portugal, including all companies licenced in the IBC of Madeira, to and from holding or subsidiary companies resident in other European Union countries are exempt from corporate withholding taxation. This is provided that the share holding is of at least 25% and that it is held or will be held for a period of two consecutive years.


OECD and the Tax Haven Issue

The International Business Centre of Madeira has NOT been classified as an Offshore Centre or a Tax Haven by any of the following bodies involved in the identification of Tax Havens. These bodies that have approved the classification of the IBC of Madeira are:

- Financial Stability Forum – FSF established by the G7 countries.
- Financial Action Task Force – FATF established by the OECD.

The introduction of tax rates for companies licenced from 1 January 2001 allows the use of the EU directive 90/435/EEC that requires that a company be ‘subject to tax’. This opens the use of companies licenced in the IBC for use in International Tax planning opportunities within various countries of the European Union.

The inevitable conclusion that therefore can be drawn from these changes in legislation is that the International Business Centre of Madeira retains and has enhanced its status as a premier jurisdiction to utilise for the structuring of global corporate operations.

Double Tax Treaties

New double tax treaties that have been recently signed between Portugal and other countries, which include the International Business Centre of Madeira, are with Canada, China, Luxembourg, The Netherlands and Singapore.

Basis of Taxation of Portugal

Portugal, which includes Madeira, has a Residence Basis of Taxation with a Statutory Rate of Corporate Taxation of 32%. This fact is important when dealing with other countries with a Residence Base of taxation for the acceptance of valid transfer pricing structures and payment of dividends to companies outside the European Union.
For example the South African Revenue Services requirements for foreign dividend receipts to be tax exempt in South Africa a number of conditions to be fulfilled. Two of these conditions are that the dividend must originate from a country that has the same basis of taxation and a minimum statutory corporate tax rate of at least 27%.