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Introduction | Information MADEIRA The International Business Company Madeira companies located within the Offshore Financial Centre can be structured so as to be exempt from all forms of Madeira taxation until 31st December 2011. Notwithstanding this attractive tax treatment, a Madeira company is considered to be the same as a normal Portuguese tax paying company and therefore falls within the terms of the taxation treaties signed by Portugal with Austria, Belgium, Brazil, Denmark, Finland, France, Germany, Italy, Japan, Mozambique, Norway, Spain, Switzerland and the United Kingdom. The terms of these treaties provide that payments from these countries can be made with a much lower rate of tax being withheld at source. For example, royalties being paid by a UK company to a non-resident corporation or individual would normally be subject to a withholding tax of 25%. However, if those same royalties are paid to a Madeira company the rate of withholding tax may be reduced to 10% by virtue of the provisions of the UK/Portugal tax treaty. This is despite the fact that those same royalties would not be subject to tax on arrival within the accounts of the Madeira company. The SGPS In addition to the normal offshore company, Madeira also allows for the incorporation of the SGPS (Sociedades Gestoras de Participações Sociais). The SGPS has been specifically designed to take advantage of European Union Directive 90/435. The terms of that Directive require that dividends paid by a subsidiary located in one EU state to a parent company located in another EU state must not be subject to any form of withholding tax as long as certain conditions are met - the most important of which is that the parent company cannot be exempt from taxation in its country of incorporation. The SGPS is therefore subject to a rate of tax of 36% on dividends received from subsidiaries situated in other EU states but 95% of the dividend income is exempt from taxation. Thus, the effective rate of taxation on dividends is 1.8% only. SGPSs must not undertake activities other than holding shares in other companies. This type of company is therefore of considerable use to any company located outside the EU which wishes to invest within the EU. Additionally, because the company is nominally subject to 36% tax, it would appear as though such a company would fall outside the provisions of the anti-tax haven legislation enacted by Japan. Under that legislation the profits of a foreign subsidiary of a Japanese company are taxed in the hands of the Japanese parent on a current year basis unless it can be demonstrated that the profits are subject to a rate of tax of at least 25% in the hands of the subsidiary. The Madeira SGPS would appear to fit this criteria and may therefore be extremely beneficial as an investment vehicle for a Japanese parent company. It should be noted that an SGPS company is required to appoint an official auditor (Revisor de Contas) whose fees are based on the volume of business undertaken. The Madeira companies described above have the following characteristics: Taxation This is dealt with above but, by way of summary, a normal Madeira company is exempt from all forms of taxation until 31st December 2011. An SGPS pays tax at a rate of 36% on dividends received from EU subsidiaries but 95% of that income is exempt from tax making an effective rate of tax on those dividends of 1.8%. The SGPS is otherwise exempt from all tax. Shareholders A minimum of one shareholder is required whose identity is a matter of public record. No share certificates are issued, the shareholding being described in the notarial deed when the company is set up or the structure altered. Directors A minimum of one director is required who may or may not be a shareholder and, once again, whose details are on public record. Corporate directors are not permitted. Due to the fact that there are various and frequent statutory procedures which have to be attended to in Madeira itself, it is advisable to make use of, at least, one Madeira resident third party director who can be provided from our own panel. Annual Reporting As with all Portuguese companies, Madeira companies are obliged to file monthly or quarterly VAT returns and annual accounts in the Portuguese language and currency. An audit is required for SGPS companies or for companies that have a substantial level of assets and turnover and/or large number of employees. Timescale Due to the fact that the initial steps of incorporation of a Madeira company follow the same pattern as that for a Portuguese mainland company the inevitable Portuguese bureaucracy causes substantial delays and a minimum of two months should be allowed for incorporation. In order to avoid these delays we are able to supply clients with ready incorporated Madeira companies which are able to commence business immediately however it should be noted that the documents evidencing any change in the structure of a Madeira company, including a change of shareholders, do involve considerable bureaucracy and will take a number of weeks to complete. Restrictions on Name and Activity Names end with the words "Limitada" or "Lda" and name clearance must be obtained through the Central Registry in Lisbon. Generally, names should be recognisable in the Portuguese language and restrictions would be imposed on names indicating involvement in banking, insurance and some financial services. Optional Services Accounts/Vat Returns - Fiscal Agency A Madeira company must, as a matter of Company Law, register for V.A.T. and submit quarterly V.A.T. returns. Additionally all Madeira companies must submit full audited accounts at the end of each financial year. We are able to arrange for the registration of the Company for V.A.T., the preparation and submission of quarterly V.A.T. returns and the preparation and filing of accounts upon request. Directors There is a requirement to report details of both the shareholders and directors to the local Companies Registry and these details are then available to any member of the public who cares to inspect them. Additionally, most onshore countries have provisions within their tax legislation whereby any company, no matter where it is incorporated, which is managed or controlled from within their jurisdiction can be considered tax resident and taxable on world-wide income at local rates. Therefore, to guarantee that confidentiality can be retained and in order to help rebut any suggestion that the company may be tax resident in the home country of the promoters or any other onshore jurisdiction, we strongly recommend that clients ask us to provide professional third party directors who are resident in a fiscally neutral location. It should be noted that directors of a Madeira company must pay Social Security contributions in Portugal unless they are able to show that they are paying into an obligatory (as opposed to voluntary) Social Security fund elsewhere in the European Union or in a country which has an accord with Portugal. The minimum level of Social Security contributions which are acceptable is approximately US$1,500 per year per director and we are able to attend to the necessary application to the Social Security Department.  |