MADEIRA ISLANDS
AN EUROPEAN OFFSHORE CENTRE
OFFSHORE COMPANY FORMATION
Free Trade Zone
In the 1980s a deep sea port was constructed at Caniçal, 30 km from Funchal, where only a fishing village had existed before and it was here that an industrial free trade zone was established. The industrial free trade zone now measures some 138 hectares in size. A large number of companies engaged in such diverse activities as foodstuffs, tobacco, metal works and electrical appliances have set up there.
Goods and raw materials imported into the Free Trade Zone are free of import duty, and manufactures exported from the zone are duty-free in the single market except in respect of that part of their value that can be attributed to non-EU origin. The zone is therefore ideal for 'screwdriver' assembly plants for imports into the EU. The zone also has some exemptions from EU import quotas.
A further attraction of locating a factory in the industrial free trade zone is access to special subsidies provided by European Community structural funds. Currently the European Community will refund up to 50% of the training costs of apprentices in certain trades and up to 50% of the purchase costs of energy-saving technology.
The Industrial Free Trade Zone has been created to receive activities which, by their nature, involve the physical movement of goods. All goods, regardless of their nature, quantity, origin and destination, may be imported into the Zone in order to be stored, repaired or transformed with few formalities and with a total exemption of import duties and quotas, provided they are not a threat to national security or public health.
The Zone is being developed in three phases. Each existing plot has direct access to all basic infrastructures, such as water supply, sewerage and energy supply and telecommunications. Likewise, the Zone has at the disposal of its investors a sea terminal sufficient to guarantee the unloading of bulk cargo. The bulk cargo area has two galleries with facilities for suction and discharge of solid and liquid materials. The terminal has elevation and movement means, among which we highlight a movable crane of great capacity. It is supported by various buildings, namely for the customs authorities and the terminal's management services and personnel.
Incentives and Advantages
Madeira's FTZ offers a wide range of both tax and customs incentives which form a unique package, unrivalled by any other Free Trade Zone. Madeira can be of great benefit for non-European companies wishing to penetrate into the EU Single Market more easily, and for European companies aiming at reducing their operational costs and enhancing their tax efficiency.
1. Full membership in and consequent access to the European Union
Goods and raw materials imported into the Free Trade Zone are free of import duty, and manufactures exported from the zone are duty-free in the single market except in respect of that part of their value that can be attributed to non-EU origin.
2. Competitive operational costs
3. Other. In addition, Madeira's FTZ has other characteristics which, in some cases, may also become important competitive factors:
The islands' geographical location, with speedy access to the European, African, and American markets;
Political and economic stability;
Modern telecommunications;
An excellent climate without great temperature variations throughout the year;
MADEIRA INTERNATIONAL BUSINESS CENTRE
Traditionally, Madeira's main sources of income have been tourism, wine and agriculture. To broaden the base of the economy of the island, the Free Trade Zone Legislation was enacted with the full support of both the Portuguese Government and European Union. This has led to Madeira becoming a successful international business centre.
The International Business Centre Legislation provides for the setting up and development of the following:
Manufacture and Warehousing of Goods
Industrial activity must be undertaken in the designated area of Canical in Madeira, and may include activities of an industrial or commercial nature. In particular this includes manufacturing, assembling, packaging or warehousing of goods, provided that these operations do not present any threat to national security, public health or the natural environment.
International Services
As in other financial centres, international services, predominantly of a non-financial nature, may operate in and from Madeira. These activities may include, amongst others, international trading, management services, consulting services, the provision of trustee services and holding and property companies. As these types of activity do not normally involve the physical movement of goods, they can be established anywhere on the island, including the town of Funchal.
Financial Activities
The legislation allows for the establishment in Madeira of branches of both international and Portuguese banks, as well as other financial institutions. Such bank branches can deal in foreign exchange operations, free from any Portuguese domestic exchange control regulations, and transactions can be carried out in any foreign currency.
International Shipping Registry
Under the International Business Centre Legislation, Madeira has created an international register for ships and yachts.
Vessels are registered as operating under the Portuguese flag, a traditional and respected maritime jurisdiction. No taxation (or a very low level) will arise on the activities of the vessel when operating outside Portuguese territory, as long as the vessel is owned by a company licensed to operate within the International Business Centre.
Advantages of the Madeira International Business Centre
Conditions have been created under the International Business Centre Legislation to give Madeira a competitive edge over many other international financial centres. These advantages are:
Income and Corporation Tax
All companies and enterprises licensed prior to 31st December 2000 continue to enjoy a total exemption from corporation tax until 31st December 2011. Certain conditions apply relating to company licenses being granted since 1st January 2003. Full details of these rates and conditions are available from any Eurofinanzza office.
Please note: for financial institutions approved by the Bank of Portugal and licensed to operate within the International Business Centre, higher rates of corporation tax apply.
The shareholders of the licensed companies are also exempt from any withholding tax on profits received from those companies. Otherwise, within Madeira, the taxation system remains the same for local companies and individuals as that which exists in the rest of Portugal.
For information relating to SGPS companies licensed prior to 1st January 2001 please contact any Eurofinanzza office.
As the companies incorporated in Madeira are Portuguese companies, they are also entitled to virtually all the benefits of the network of Double Taxation Agreements entered into by Portugal with countries elsewhere.
Customs Duties and VAT
There is an exemption from customs duties for many goods and raw materials imported into the International Business Centre.
On incorporation, all Portuguese companies are automatically provided with a tax reference number, which is also used for value added tax purposes. The companies themselves are registered for value added tax, and when trading within the European Union can take advantage of the exemptions from value added tax on movement of goods within the European Union.
VAT on the Supply of Telecom and Digitalized Services
The advantage in supplying telecom and digitalized services from Madeira lies in the fact that Portugal has a lower rate of VAT on the supply of such services than other EU countries.
Exchange Controls
All companies licensed to operate in the International Business Centre of Madeira benefit from complete freedom from exchange controls. The companies can operate using any currency and they may transfer capital, profits and funds freely. There is specific legislation covering bank secrecy and there are both civil and criminal penalties for those convicted of breaches of confidentiality.
Fiscal and Financial Incentives
There is an exemption from customs duties for many goods and raw materials imported into the International Business Centre.
Work Force
The Madeira authorities prefer that the local workforce be employed. However, there are no legal limitations on the ability of companies to employ expatriate workers of any level of skill.
European Union Status
Madeira is an integral part of Portugal. Consequently the Madeira International Business Centre is within the European Union.
This status provides benefits for both companies within the EU and outside, in that movement of goods between member countries can be arranged without VAT or taxation complications.
NEW TAX REGIME OF THE MIBC
Reduced corporate tax rates:
1% 2003 – 2004;
2% 2005 – 2006;
3% 2007 – 2011.
Creation of employment
The rule is the registration in the Portuguese social security regime. This must be ascertained and proved through a declaration issued by Social Security, and will take in consideration the income received, that can never correspond to less than one minimum national wage (since 1st January 2004, this value is €372,91).
For this reason we can say that if a foreign director is registered in the Portuguese social security with a minimum wage it should be considered a creation of one job.
Minimum investments of € 75.000
This investment should be an "active investment", i.e. just paying the share capital up to this amount is not considered as an "active investment".
Ceiling on the taxable income
In case of taxable income higher than the limit, only the amount that exceed the ceiling will be subject to the normal rate of Income Tax of Madeira (from 2004 22.5%).
All companies licensed to operate in the MIBC prior to 31st December 2000 will enjoy the previous regime until 31st December 2011.
Under the new regime only the activities of financial intermediation, insurance and reinsurance, as well as "intra-groups services", namely coordination, treasury and distribution centers are completely interdicted.
Companies licensed before 2001 and incorporated after 2003 can carry out all the other activities and namely:
Industrial activity;
E-commerce;
Shipping;
Trustee companies activities.
TAX EXEMPTIONS
All companies licensed to operate in the IBC prior to 31st December 2000 will enjoy a total taxation exemption until 31st December 2011.
Eurofinanzza has a number of companies which were licensed during 2000, which are entitled to a zero tax exemption until 31st December 2011.
All types of companies in the International Business Centre (i.e. licensed under the Free Trade Zone Legislation) are exempt until 2011 from charging withholding tax on remittances of dividends, interests or other payments to non-residents (whether on Portuguese territory or not) or to other companies within the Centre.
