IN142 - Tax Efficient Structures Using a Portuguese Company Licensed to Operate in the Madeira International Business Centre

Companies licensed to operate in the International Business Centre (IBC) of Madeira enjoy a number of tax benefits which are guaranteed to the end of 2011. Portugal is currently in negotiation with the European Union regarding the post 2011 position. It is anticipated that many of the low tax advantages available in the IBC will be extended, with the outcome of negotiations expected to be announced mid 2007.

Benefits currently available to these companies include:

• Corporate tax rates which ranges from 0% - 3% (depending on the date of issue of the company license).
• No exit tax on re-domiciliation of a company.
• No withholding tax on the distribution of dividends, interest and royalties.
• No capital duty.
• No stamp duty.
• No capital gains tax.
• No property transfer tax.
• Automatic VAT registration in Portugal.
• A low VAT rate of 15%.
• Access to most of the Double Taxation Treaties that are currently in place with Portugal.

Background

Dixcart has a number of companies available for sale with licences issued prior to 31st December 2000. These companies are exempt from corporation tax until the end of 2011. If a new company is currently incorporated in Madeira, it will be subject to a low corporate tax rate of 3%.

Companies incorporated in the IBC of Madeira are Portuguese companies and are therefore fully governed by the Portuguese legal and accounting system.

Seven examples of corporate structures using companies operating in Madeira’s IBC are detailed below. These are presented from the Portuguese/Madeira perspective and advice should be taken regarding the tax implications that might arise in other jurisdictions.

Corporate Structures

1. Madeira and the Supply of Internet Services

From 1st July 2003 legislation became effective dictating the way in which businesses supplying internet services and information to end users in the European Union must account for VAT.

Where electronic supply services are undertaken in the EU, the use of a Madeira company can provide a highly tax efficient structure. Under a EU Directive, companies are required to register in a EU country and, as a result, the supply of electronic services is then subject to VAT. Madeira, with a rate of 15%, is currently one of the lowest VAT jurisdictions in the EU.

Companies establishing a subsidiary in Madeira can take advantage of the low 15% VAT rate as well as the low level of corporation tax in Portugal of between 0% and 3%.

The different types of business that can take advantage of the above structure include:

• Automated distant teaching.
• Electronic images.
• Information supply.
• Music and films.
• Radio and television broadcasting.
• Services provided solely over the internet.
• Software supplies.
• Website supplies.
• Web hosting.

2. Use of Madeira within a Financing Structure

In the structure illustrated at the top of the next page supplementary capital is provided by the parent company to the Madeira company. This supplementary capital contribution is not subject to any capital duty in Madeira.

The Madeira company uses the supplementary capital to provide a loan to a EU company. The loan established between the two companies does not attract any stamp duty in Madeira. The funds that are made available to the EU company are in turn utilised in the form of loans to finance underlying operating subsidiaries.

Dividends can flow up to the parent company without any withholding tax. In addition if the Madeira company is incorporated with a licence issued prior to 31st December 2000, all profits generated are exempt from corporation tax in Portugal until the end of calendar year 2011.


A pure holding company or SGPS company can take advantage of the Parent Subsidiary Directive where participations are held within the EU, subject to certain conditions being met.

3. Foreign Company with a Branch in Madeira

A foreign company can register a branch in Madeira to take advantage of the tax benefits. Branches are normally managed and controlled within Madeira using local managers.

A branch is subject to a low level of corporation tax of 3%. A branch established under the IBC legislation of Madeira is automatically provided with a Portuguese VAT number.

4. Madeira as an Exit Route for Dividends

Madeira can effectively be used as an exit route for dividends from subsidiaries located outside the EU. As detailed in the structure at the top of the next page, a Madeira company can operate subsidiaries that are based both inside and outside the EU.


All profits generated by the Madeira company, such as interest on inter-company loans, dividends and royalties enjoy the tax benefits of the IBC. Depending on the date of licence of the company, the profits will be subject to a low level of corporation tax ranging from 0% to 3%.

The Madeira company can distribute dividends to its shareholders free of any withholding tax, providing that the shareholders are not resident in Portugal.

5. Leasing of Assets

In the following structure the parent company makes a contribution in kind of an asset to a Madeira company in exchange for shares in the Madeira company. The Madeira company enters into a leasing arrangement with its client. This is tax efficient as there is no stamp duty in Madeira for IBC companies and profits earned by the Madeira company (depending on the licence) will be subject to a low corporate tax rate of between 0% to 3%.


6. Use of Madeira within a Royalty Structure

In this example the parent company makes a contribution in kind, in the form of intellectual property, to the Madeira company in exchange for capital. Through a network of licence and sub-licence agreements, and the use of a subsidiary company or companies, royalties are generated by the Madeira company. The profits made by the Madeira company are subject to a corporate tax rate of between 0% to 3%. The Madeira company can then distribute profits to its shareholders free of withholding tax.


7. Private Tax Planning

Private individuals can organise their investment portfolios through Madeira and take advantage of the tax benefits that are available through the IBC of Madeira. One of the benefits available through the use of such a structure is exemption from capital gains tax on the sale of shares. In addition profits generated in the Madeira company are subject to a corporate tax rate of between 0% and 3%.

Contact Us

If you require any additional information about the corporate opportunities available through the jurisdiction of Madeira please contact John Dias or Robert Homem at Dixcart Management (Madeira) Lda. Alternatively speak to your usual Dixcart contact.