Portuguese Double Taxation Agreements, Particularly Attractive Agreements and the Madeira International Business Centre

Companies licensed to operate within the legal framework of the Free Trade Zone of Madeira are Portuguese companies. The double taxation agreements (DTAs) concluded between Portugal and its treaty partners generally apply to Portuguese companies registered in Madeira. Not only is access to most of the agreements available, but also access to EU Directives, for instance the Parent-Subsidiary Directive.

Certain agreements are particularly advantageous and when combined with the benefits enjoyed by a Portuguese company licensed in Madeira the advantages are further enhanced.

Portugal does not impose withholding tax on dividends if the conditions for the application of the domestic participation exemption regime are satisfied and dividends are paid to a country with which Portugal has a DTA.

Portuguese Double Taxation Agreements

The network of double taxation agreements entered into by Portugal continues to expand. Portugal has 79 double taxation agreements with the following countries: Algeria, Andorra, Austria, Bahrain, Barbados, Belgium, Brazil, Bulgaria, Canada, Cape Verde, Chile, China, Colombia, Croatia, Cuba, Cyprus, Czech Republic, Denmark, East-Timor, Estonia, Ethiopia, Finland, France, Germany, Georgia, Greece, Guinea Bissau, Hong Kong, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Ivory Coast, Japan, Kuwait, Latvia, Lithuania, Luxembourg, Macao, Malta, Mexico, Moldova, Montenegro, Morocco, Mozambique, Netherlands, Norway, Oman, Pakistan, Panama, Peru, Poland, Qatar,  Romania, Russia, San Marino, São Tomé e Principe, Saudi Arabia, Senegal, Singapore, Slovakia, Slovenia, South Africa, South Korea, Spain, Sweden, Switzerland, Tunisia, Turkey, Ukraine, United Arab Emirates, United Kingdom, United States, Uruguay, Venezuela and Vietnam.

Particularly Attractive Agreements

Detailed below is a brief review of the particularly attractive DTAs between Portugal and Cape Verde, China, Colombia, Mexico, Mozambique, Singapore, South Africa and Turkey.

  • Double Taxation Agreement between Portugal and Cape Verde

Portugal is the only country with a signed agreement with Cape Verde. Foreign investors into Cape Verde, therefore, frequently use Portuguese companies licensed in Madeira to invest into Cape Verde.

  • Double Taxation Agreement between Portugal and China

This agreement is unique with regard to the taxation of capital gains from the sale of shares. Taxation only occurs in the state where the seller is resident. This is contrary to other agreements signed by China. In the case of a Madeira licensed company, capital gains realised from the sale of shares in China would be taxed in Portugal. If the company was licensed in Madeira, this would be at the low tax rate (of 5%) available to Portuguese companies licensed in Madeira.

  • Double Taxation Agreement between Portugal and Colombia

Portugal signed a double taxation agreement with Colombia in 2015. The agreement allows a withholding tax of 10% on dividends and also includes information exchange mechanisms to control tax evasion.

  • Double Taxation Agreement between Portugal and Mexico

There is a 10% withholding tax on the distribution of dividends from and to Portugal.

  • Double Taxation Agreement between Portugal and Mozambique

Portugal is one of only two countries with a signed agreement with Mozambique. Potential investors into Mozambique can therefore use Portugal, more particularly Portuguese companies licensed in Madeira, to invest into Mozambique.

  • Double Taxation Agreement between Portugal and Singapore

Although there is a provision in the agreement if 10% of withholding tax on dividends distributed by Portugal to Singapore, Portugal does not impose withholding tax on dividends if the conditions for the application of the domestic participation exemption regime are satisfied and the dividends are paid to a treaty partner recipient.

  • Double Taxation Agreement between Portugal and South Africa

The agreement provides for a 10% tax rate where dividends are paid to a company that directly holds at least 25% of the capital of the company paying the dividend for a minimum two-year period before the dividends are paid; otherwise the rate is 15%.

  • Double Taxation Agreement between Portugal and Turkey

The agreement provides for a 5% tax rate where dividends are paid to a company (other than a partnership) that directly holds at least 25% of the capital of the company paying the dividends for a minimum two-year period before the dividends are paid; otherwise the rate is 15%.

A 10% tax rate applies to interest on loans where the duration of the loan is a minimum of two years; otherwise, the rate is 15%.

The Madeira International Business Centre: Additional Corporate Tax Details

Madeira companies are subject to a reduced corporate tax of 5% until the end of 2027. Corporate tax is applied in conjunction with ceilings relating to taxable income and is also dependent on the number of jobs created in Madeira. A low level of taxation is often more attractive than the use of a zero tax jurisdiction. The latter may invoke Controlled Foreign Company Rules and negate Double Taxation Agreements.

Additional tax benefits applicable to Portuguese companies registered in Madeira include:

  • exemption from withholding taxes on the distribution of dividends, royalty and interest payments to EU countries;
  • exemption from capital duty, notary and registration fees;
  • capital gains are not taxed separately from the company’s overall income. This means that capital gains realised by companies registered in the Madeira International Business Centre also benefit from the low corporate tax rate.

Additional Information

If you require additional information regarding Portuguese holding companies or registering a company in the International Business Centre of Madeira, please speak to your usual Dixcart contact, or contact the Dixcart office in Portugal: advice.portugal@dixcart.com.

Cyprus

The Cyprus Start-Up Visa Scheme – An Attractive Scheme for Technological Entrepreneurs from Non-EU Countries

Cyprus is already attracting global technology companies from all over the world, especially from EU countries, due to relatively low operational costs and its competitive EU-approved regimes for non-domiciled individuals. In addition, entrepreneurs from the EU do not require a resident visa to reside in Cyprus.

In February 2017, the Cypriot Government established a new scheme designed to attract Non-EU nationals specialised in the fields of innovation, and research and development (R&D) to Cyprus.

The Start-up Visa Scheme

The Cyprus Start-up Visa Scheme allows talented entrepreneurs from outside the EU and EEA to enter, reside and work in Cyprus in order to establish and operate a start-up company themselves or as part of a team, with a high growth potential. The aim of establishing such a scheme was to increase the creation of new jobs, promote innovation and research, and enhance the business ecosystem and economic development of the country.

The scheme consists of two options:

  1. Individual Start-up VISA Plan
  2. Team (or Group) Start-up VISA Plan

A start-up team can consist of up to five founders (or at least one founder and additional executive/managers who are entitled to stock options). Founders who are third country nationals must own more than 50% of the shares of the company.

Cyprus Start-up Visa Scheme: Criteria

Individual investors and groups of investors can apply for the scheme; however, in order to obtain the required permits, applicants must meet certain criteria:

  • The investors, whether they are an individual or a group, must have a minimum start-up capital of €50,000. This can include venture capital funding, crowdfunding or other sources of funding.
  • In the case of an individual start-up, the founder of the start-up is eligible to apply.
  • In the case of group start-ups, a maximum number of five individuals are eligible to apply.
  • The enterprise must be innovative. The enterprise will be considered innovative if its research and development costs represent at least 10% of its operating costs in at least one of the three years preceding the submission of the application. For a new enterprise the evaluation will be based on the Business Plan submitted by the applicant.
  • The Business Plan must stipulate that the organisation’s head office and tax residency will be registered in Cyprus.
  • Exercise of the management and control of the company must be from Cyprus.
  • The founder must hold a university degree or an equivalent professional qualification.
  • The founder must have a very good knowledge of Greek and/or English.

Benefits of the Cyprus Start-up Visa Scheme

Approved applicants will benefit from the following:

  • The right to reside and work in Cyprus for one year, with the opportunity to renew the permit for an additional year.
  • The founder can be self-employed or employed by their own company in Cyprus.
  • The opportunity to apply for a permanent residence permit in Cyprus if the business succeeds.
  • The right to hire a specified maximum number of staff from non-EU countries, without prior approval by the Department of Labour in the event that the business is a success.
  • Family members may join the founder in Cyprus if the business succeeds.

The success (or failure) of the business is determined by the Cyprus Ministry of Finance at the end of the second year. The number of employees, taxes paid in Cyprus, exports and the extent to which the company promotes research and development will all have an impact on how the business is evaluated.

How Can Dixcart Help?

  • Dixcart has been providing professional expertise to organisations and individuals for over 45 years.
  • Dixcart has staff located in Cyprus who have a detailed understanding of the Cyprus Start-up Visa Scheme and the benefits of establishing and managing a Cyprus company.
  • Dixcart can assist with applications for relevant Cyprus Permanent Residence Programmes if the start-up business succeeds. We can draft and submit the relevant documents and monitor the application.
  • Dixcart can provide on-going assistance in terms of accounting and compliance support in organising a company established in Cyprus.

Additional Information

For more information on the Cyprus Start-up Visa Scheme or establishing a company in Cyprus, please contact the Cyprus office: advice.cyprus@dixcart.com or speak to your usual Dixcart contact.

Representative of Overseas Business and the Advantages Available when Moving to the Isle of Man

The Isle of Man, United Kingdom, Channel Islands and Republic of Ireland collectively form a ‘Common Travel Area’. In effect this means that travel between each jurisdiction is deemed to be an internal domestic journey and there are no separate immigration controls in place.

This, of course, is not the case for foreign nationals journeying to members of the ‘Common Travel Area’ from overseas. It is then important to follow the immigration rules carefully to ensure that a suitable visa is applied for and held.

The Isle of Man has its own Immigration Rules and Immigration Service. The United Kingdom’s Immigration Rules are extended to the Isle of Man, whereby the Isle of Man makes modifications to reflect its different constitution.

Different Types of Visa

There are numerous different options available to foreign nationals, including 4 main options at Tier 1: a Tier 1 Investment Visa, Tier1 Entrepreneur Visa, Tier 1 Graduate Entrepreneur Visa and a Tier 1 Exceptional Talent Visa. There are also a range of Tier 2, Tier 5, Study and Family Visas available, depending on individual circumstances.

An additional option, which can be very beneficial for businesses wishing to set up an office in the Isle of Man, is the ‘Representative of Overseas Business’ Visa – or ROB.

What is a ‘Representative of an Overseas Business’ Visa – ‘ROB’?

A ROB Visa is an option for senior and experienced individuals to gain an initial 3-year Visa (possibly extending for a further 2 years) by relocating to the Isle of Man and setting up a branch or subsidiary of an overseas company. The basic requirements are as follows:

  • Overseas company establishes an Isle of Man branch or subsidiary.
  • The applicant is the sole representative working full-time within the business.
  • Must have been originally recruited and employed outside the Isle of Man.
  • Must be experienced and of senior status within the company and have the authority to establish and operate the entity.
  • The applicant cannot be a major shareholder in the parent company.
  • The initial 3-year Visa can be extended for a further 2 years and with ‘ILR’ (Indefinite Leave to Remain) after 5 years – with an option to Naturalise.
  • KOLL (Knowledge of Language and Life) required at the time of the application.

Timescales and Pros and Cons of using a ‘ROB’ Visa

The earliest an application can be made is 3 months before travel and a decision on the Visa should be received within 3 weeks of the application, when applying from outside the ‘Common Travel Area’.

ROB can:

  • Work full time for their employer.
  • Bring family members to the Isle of Man.
  • Extend the Visa multiple times.
  • Apply to settle after 5 years.

ROB cannot:

  • Work for themselves or any other business.
  • Stay in the Isle of Man if the arrangement is ended by the employer.
  • Switch to this Visa from another Visa category.
  • Receive public funds (Income Support etc.).

Government Support for New Businesses

The Isle of Man Government has created a wide-ranging support package to attract and retain businesses of many types. A brief outline of 4 of these initiatives is detailed below:

  1. Financial Assistance Scheme – A wide-ranging scheme offering financial assistance/grants of up to 40% of first year costs to the business. This assistance, given on a case by case basis and paid retrospectively, may include building refurbishment, office equipment, marketing activity, set-up costs, legal and professional fees, rent and training.
  2. Key Employee Concession – Introduced in April 2003 to attract new businesses and employees to the island, this concession applies to key employees within a business who will be taxed on their Isle of Man employment income, benefits in kind and rent only. All other sources of income, either Manx based or outside the island, will not be chargeable to income tax. This concession is available for the first 3 years of employment only and must be agreed in advance with the Assessor of Income Tax.
  3. Relocation Expenses – Introduced from 6th April 2016, ‘reasonable relocation expenses’ (e.g. removal costs, legal costs of selling and then buying in the Isle of Man) paid by the employer, of up to £20,000 to the employee, will be exempt from any charge to income tax. In addition, travel expenses and temporary accommodation in the Isle of Man may also be exempt from income tax for an initial period.
  4. Tax Cap – A statutory income tax cap was introduced in 2006 as a Government initiative to attract wealthy entrepreneurs to live on the island. For the tax year 2018/2019, the ‘Tax Cap’ is £150,000 for an individual and £300,000 for jointly assessed couples. To elect for the tax cap an individual would apply to be taxed as such and, once approved, commit to paying the tax cap for a period of 5 consecutive tax years.

Case Study

Step 1 – Overseas parent company decide to set up an Isle of Man subsidiary of a branch and approach Dixcart to provide support.

Step 2 – Application for Representative of Overseas Business (‘ROB’) made to Isle of Man Immigration Office.

Step 3 – ROB application is approved and the foreign national relocated to the island to manage the business.

Step 4 – ROB works with Dixcart to incorporate the Isle of Man company.

Step 5 – ROB works with Dixcart to ensure business is compliant with necessary regulations where applicable.

Step 6 – ROB recruits local staff and/or EEA and/or Non-EEA staff subject to the job criteria.

Example

Next Steps

Dixcart’s Isle of Man office has been supporting businesses to establish real substance on the island for over 20 years and is therefore a very experienced partner to help guide a business through this process. With a skilled team in place and having provided managed office facilities on the island for over 10 years, it would be difficult to find a better organisation to help ensure that a business succeeds.

If you are interested in setting up a FinTech or other business in the Isle of Man, please contact us using the contact details below.

Additional Information

If you require any further information regarding the above article, please speak to your usual Dixcart contact or to Steve Doyle at the Dixcart office in the Isle of Man: advice.iom@dixcart.com.

Dixcart Management (IOM) Limited is Licensed by the Isle of Man Financial Services Authority

Multi-jurisdiction

Dixcart Business Centres – An Efficient Way to Establish Companies Abroad

Corporate entities are established and managed in a number of countries across the world for a variety of reasons. The location chosen for the incorporation and management of a company is a vital factor and integral aspect of the international, commercial planning process.

Business Centres are becoming an increasingly popular feature within international trading centres. They provide an opportunity for businesses with international interests to establish a presence in a particular location without the costs of setting up a new office. In addition, with the implementation of Anti Base Erosion and Profit Sharing legislation (BEPS) and the need to tackle international tax avoidance, it is becoming increasingly important to demonstrate real substance and genuine activity.

The Need for Substance and Value

Substance is an important factor for organisations to take into account, especially international companies seeking to establish subsidiaries in other countries. In addition, measures are constantly being implemented to ensure that corporate tax is levied where real value creation takes place.

Companies must show that management, control and day to day decisions concerning their activities are taken in the specific, relevant foreign jurisdiction and that the company itself operates through an establishment which provides a real presence in that location. In the event that substance and presence are not demonstrated and/or no real value creation has taken place in that jurisdiction, the tax benefits enjoyed by the subsidiary company may be negated by a tax imposition in the country where the parent company is based.

Dixcart Business Centres and the Benefits of Serviced Offices

Dixcart Business Centres provide office facilities and services to businesses wishing to establish themselves in a new location. Dixcart has serviced offices located in Guernsey, the Isle of Man, Malta and the UK, each offering advantageous tax regimes and attractive residency programmes to companies setting up for the first time or relocating.

Why Choose Dixcart Business Centres?

Dixcart Business Centres not only offer serviced offices, they are also Dixcart offices with Dixcart professionals working there, who are able to provide a complete range of services to companies wishing to establish themselves in a new location. A comprehensive range of administrative support and professional services is available to tenants, including accounting, business planning, HR, IT support, legal support, management, payroll and tax support, if required.

In addition, our experienced teams of well qualified, professional staff provide international business support and private client services to clients around the world.

Key Characteristics of Dixcart Business Centre Jurisdictions

Guernsey

Guernsey is an attractive location for international companies and individuals. Benefits include:

  • A general zero rate of corporate tax.
  • No VAT.
  • A personal income tax rate of a flat 20%, with generous allowances.
  • No wealth taxes, no inheritance taxes and no capital gains taxes.
  • A tax cap of £110,000 for Guernsey resident taxpayers on non-Guernsey source income or a tax cap of £220,000 on worldwide income.

The Dixcart Business Centre is situated in a prime location within the island’s main financial district of St. Peter Port. Our nine fully furnished offices can each accommodate between two and four staff.

Isle of Man

The Isle of Man continues to attract an increasing number of international businesses. The Dixcart Business Centre is spread across two buildings, each in a prime location within the island’s main financial district of Douglas. A number of suites are available, with each office varying in size and accommodating between one and fifteen staff.

Companies and individuals in the Isle of Man benefit from the following advantages:

  • A zero rate of corporate tax on trading and investment income.
  • Businesses in the Isle of Man are treated by the rest of the EU, for VAT purposes, as if they were in the UK, and they can therefore register for VAT.
  • There is no wealth tax, inheritance tax, capital gains tax or investment income surcharge.
  • A standard rate of income tax for individuals of 10%, with a higher rate of 20%.
  • A cap of £150,000 exists on an individual’s income tax liability for a period of up to five years.

Malta

The Dixcart Business Centre in Malta is located in the prime area of Ta’Xbiex, close to the capital, Valetta. The building is iconic and incorporates a delightful roof terrace. An entire floor is dedicated to serviced offices; nine in total, accommodating between one and nine people.

  • Companies operating in Malta are subject to a corporate tax rate of 35%. However, shareholders enjoy low effective rates of Maltese tax as Malta’s full imputation system allows generous unilateral relief and tax refunds:
    • Active income: in most instances shareholders can apply for a tax refund of 6/7ths of the tax paid by the company on the active profits used to pay a dividend. This results in an effective Maltese tax rate of 5% on active income.
    • Passive income: in the case of passive interest and royalties, shareholders can apply for a tax refund of 5/7ths of the tax paid by the company on the passive income used to pay a dividend. This results in an effective Maltese tax rate of 10% on passive income.
  • Holding companies – the dividends and capital gains derived from participating holdings are not subject to corporate tax in Malta.
  • There is no withholding tax payable on dividends.
  • Advance tax rulings can be obtained.

UK

The Dixcart Business Centre in the UK is located on Bourne Business Park, Surrey. Dixcart House is 30 minutes by train from central London and minutes from the M25 and M3, allowing a 20-minute drive to Heathrow Airport and 45 minutes to Gatwick Airport.

Dixcart House has 8 serviced office suites, each accommodating two to seven staff, 6 meeting rooms and a large boardroom, which can accommodate up to 25 people comfortably.

The UK is a popular jurisdiction for both companies and individuals:

  • The UK has one of the lowest rates of corporation tax in the western world. The current UK corporation tax rate is 19% and this will be reduced to 17% in 2020.
  • There is no withholding tax on dividends.
  • The majority of share disposals and dividends received by holding companies are exempt from taxation.
  • Controlled foreign company tax only applies to a narrow classification of profit.

Additional Information

Dixcart is seeking to expand its Business Centres and will be opening a further Centre in Cyprus before the end of 2018. Dixcart Cyprus has acquired a new office building in Limassol, which will have approximately 400 square metres of serviced office space.

If you require additional information regarding substance and the serviced offices offered through the Dixcart Business Centres, please visit our Business Support Services page and speak to your usual Dixcart contact, or email: advice.bc@dixcart.com.