Using a Madeira Company

The Free Trade Zone of Madeira offers a number of advantages, including VAT benefits, when trading in Europe.

The main advantages of trading through a Madeira Free Trade Zone registered company are as follows:

• Low VAT rate of 15%.
• EU status for companies registered in Madeira.
• Zero-rated VAT invoices to companies within the EU.
• Cash flow benefits to companies trading with a Madeira company.
  
• Companies registered in Madeira's Free Trade Zone are Portuguese companies. They offer additional advantages in that they benefit from numerous tax incentives only applying to companies licensed to operate in the Free Trade Zone of Madeira. This gives Portuguese companies licensed in Madeira certain advantages when compared to companies in other jurisdictions.

VAT Registration

As Portugal is a member of the EU, Madeira companies are automatically provided with a VAT number on incorporation.

Benefits of Trading with an EU VAT Number

The fiscal advantages offered through registration in the Madeira Free Trade Zone combined with an EU VAT registration in Portugal distinguish the jurisdiction of Madeira.

A Madeira company can confirm its VAT number to suppliers within the EU and enjoy the cash flow advantages that this generates. Madeira companies trading within the EU may take advantage of the exemption from VAT on the movement of goods between countries within the EU.

Submission of Returns and VAT Threshold

VAT returns are normally filed with the tax authorities within 45 days of the end of each quarter. Depending on the volume of sales, the tax authorities may request filing of monthly VAT returns if a company's annual turnover is in excess of € 200,000. In such an event the monthly return must be filed with the tax authorities within one month and ten days of each return period.

Madeira companies are required to levy VAT, at the standard rate of 15% (one of the lowest levels within the EU) on invoices in the following instances:

• Where the purchaser is a resident of Portugal
• Where the purchaser is an individual who is not registered for VAT and is residing in the EU

VAT Refunds and Tax Credits

Companies registered under the provisions of the Free Trade Zone Legislation are able to recover all VAT charged to them in Portugal. Repayments of VAT can be claimed annually or quarterly when the amount reclaimable exceeds € 7,500.

In principle, general EU VAT rules apply to a Madeira company and a supplier may take credit for VAT in the event of the bankruptcy or insolvency of the customer. In addition, if a contract is revoked or if goods are returned, the supplier may credit the VAT. If goods are returned the supplier is required to issue a voucher or credit note in duplicate and record it within five business days of the date of return.

Distance Sales

In principle, distance sales are taxable in the EU member state to which the goods are sent.

The sale of goods is regarded as a distance sale if the goods are dispatched or transported by or on behalf of the supplier from one EU member state to another and where the purchaser, for whatever reason, is not registered for VAT. Sales below the threshold of € 100,000 (excluding VAT) will become taxable in the EU state of dispatch. Should this threshold be exceeded in a certain year, sales will be automatically taxable in the EU state of the purchaser during the following year.

In essence, therefore, a Madeira company which sells to entities that are not registered for VAT (normally private individuals) will be forced to charge VAT at the rate prevailing in the purchaser's country if and when the sale to that country exceeds the stipulated threshold.