Companies in Madeira benefit from a very attractive environment for the development of international activities, thanks to a stable and safe legislative environment, full integration in the European Union, social and political stability, state of the art infrastructures, very competitive operational costs and availability of highly qualified employees, fluent in foreign languages.

• The development of the International Business Centre of Madeira was based on principles of transparency, credibility and security, with full observation of the EU and OECD guidelines regarding harmful tax competition. Madeira has never been classified as a tax haven and is not on any international blacklist.

• All principles of the Treaty on European Union are applicable to Madeira companies and their investors, namely the principle of freedom to establishment and to provide services. The European Court of Justice´s ruling on the Cadbury Schweppes case strengthened this principle, since this Court confirmed that a company can be located in a specific Member State solely for tax purposes.

• Madeira´s companies are automatically ascribed a VAT number, which provides access to the intra-Community market without any type of restrictions.

• Madeira is part of the European Monetary System (euro), a fact that provides for reduced operating costs and eliminates exchange rate risk.

• All Community directives are applicable to Madeira, guaranteeing a well regulated and modern legal system that protects investors´ interests.

Entities operating within the scope of the International Business Centre of Madeira benefit from one of the European Union´s most advantageous tax system.

COMPETITIVE TAX REGIME
Entities operating within the scope of the International Business Centre of Madeirabenefit from one of the European Union´s most advantageous tax system (5% rate of tax on profits) guaranteed up to 2027.

1. Reduced corporate income tax rate: 5% (until 2027);

2. Participation exemption regime applicable internationally to dividends, reserves, capital gains and capital losses;

3. No withholding tax on interest and other forms of payment for shareholders’ loans, capital allowances or advancements made by the shareholders to the company;

4. Tax credit for international double taxation, both legal and economic;

5. Exemption from withholding tax in the distribution of dividends to shareholders;

6. No withholding tax on royalties, services or interest paid to third parties;

7. Capital gains tax exemption from the sale of shares in Madeira companies;

8. Capital gains tax exemption on the sale of subsidiary companies under the conditions of the participation exemption;

9. 80% reduction on the rates of stamp duty, Real Estate Transfer Tax (IMT), Municipal Property Tax (IMI), regional and municipal surcharge, notary and registration fees;

10. Reduction of the Special Advance Tax Payment and Autonomous Taxation, in proportion to the applicable corporate tax rate (in this case, a reduction of 66%).

Madeira, as an integral part of Portugal, benefits from the large network of Double Taxation Agreements that Portugal is party to.

REDUCED BUROCRACY
Portugal has introduced legislation in the last few years aimed at reducing red tape and simplifying procedures in a wide range of areas, such as the legal, statistics, tax and licensing fields, as well as a host of others.
A significant example of this is the fact that since June 2006 it has been possible to perform most legal procedures for companies by private document, without the need for a notary public to intervene. Other significant examples include the formation of a company via the internet and the fact that a capital decrease does not require the approval of a law court, for example.

MODERN AND EFFICIENT INFRASTRUCTURES
In recent years Madeira´s infrastructures have undergone substantial investment, creating modern and efficient infrastructures that make the people of Madeira proud. These infrastructures have been the motor behind the archipelago´s development. Examples include the modern road network, the commercial port beside Madeira´s Industrial Free Zone and the modern communications network with high-quality bandwidth and levels of connectivity.
Madeira, due to its geographical position, is a node for a number of underwater cables connecting the continent of Europe to America and Africa. This fact guarantees the necessary bandwidth and connectivity with the rest of the world.

Madeira, as an integral part of Portugal, benefits from the large network of Double Taxation Agreements that Portugal is party to.

REDUCED BUROCRACY
Portugal has introduced legislation in the last few years aimed at reducing red tape and simplifying procedures in a wide range of areas, such as the legal, statistics, tax and licensing fields, as well as a host of others.
A significant example of this is the fact that since June 2006 it has been possible to perform most legal procedures for companies by private document, without the need for a notary public to intervene. Other significant examples include the formation of a company via the internet and the fact that a capital decrease does not require the approval of a law court, for example.

MODERN AND EFFICIENT INFRASTRUCTURES
In recent years Madeira´s infrastructures have undergone substantial investment, creating modern and efficient infrastructures that make the people of Madeira proud. These infrastructures have been the motor behind the archipelago´s development. Examples include the modern road network, the commercial port beside Madeira´s Industrial Free Zone and the modern communications network with high-quality bandwidth and levels of connectivity.
Madeira, due to its geographical position, is a node for a number of underwater cables connecting the continent of Europe to America and Africa. This fact guarantees the necessary bandwidth and connectivity with the rest of the world.

The International Business Centre of Madeira is an economic development instrument for the autonomous region of Madeira. It was created to modernise, diversify and provide for the international expansion of the autonomous region´s goods and services production structure, and to compensate for the structural constraints resulting from the reduced size of the domestic market and the ultra-peripheral status held by Madeira.
Entities operating under the framework of the International Business Centre of Madeira benefit from the most advantageous tax regime of the European Union, in terms of direct taxes (5% of income tax). Additionally, Madeira offers an environment of reduced bureaucracy, political and social stability and low operational costs.

Business Activities in the International Business Centre of Madeira

Business activities in the following fields can be carried out in the International Business Centre of Madeira:

• International services
  Trading, consultancy, professional or technical services, holding or any other international services.

• Industrial free trade zone
  Industrial or storage business activities, as long as they do not endanger public safety or national security.

• International shipping register
  Maritime transportation, registration of ships, oil rigs and commercial or pleasure yachts.

Benchmarking

When comparing Madeira to other European Union (EU) jurisdictions, the following differences, to Madeira’s credit, are apparent:

• A more competitive, simple and straightforward tax regime;

• A state aid plan, previously negotiated with the EU;

• Certainty until 2027;

• Lower operational costs.

Legislation

Decree-Law no. 500/80, October 20
Authorizes the establishment of the Madeira Free Zone.

Regulative Decree no. 53/82, August 23
This Decree regulates several aspects of the functioning of the Free Zone, particularly regarding the types of activities that can be established there and the corresponding customs procedures.

Regional Regulative Decree no. 21/87/M, September 5
This Decree approves the Regulation of industrial, commercial and service Activities, integrated within the scope of Madeira’s Free Zone.

Decree-Law no. 212/94, August 10
This Decree-Law allows the constitution and permanence of Limited Companies, Joint stock companies and one-man companies licensed to operate in the Madeira Free Zone.

Decree-Law no. 250/97, September 23
Subjects to registration and publication the revocation and forfeiture of licenses granted to entities operating in the Madeira Free Zone.

Decree-Law no. 165/86, June 26
This Decree-Law establishes the regime of tax and financial incentives for companies incorporated in the Madeira Free Zone.

Article 33 of the Tax Incentive Statute
Tax benefits granted to entities licensed before December 31, 2000 to operate within the institutional framework of the Madeira Free Zone.

Article 34 of the Tax Incentive Statute
Taxable income obtained within the Free Zone of Madeira and Santa Maria Island.

Article 35 of the Tax Incentive Statute
Tax benefits granted to entities licensed as of January 1, 2003 to operate within the institutional framework of the Madeira Free Zone.

Article 36 of the Tax Incentive Statute
Tax benefits granted to entities licensed as of January 1, 2007 to operate within the institutional framework of the Madeira Free Zone.

Article 36-A of the Tax Incentive Statute
Tax benefits granted to entities licensed as of January 1, 2015 to operate within the institutional framework of the Madeira Free Zone.

Decree-Law no. 325-A/88, October 3
Regulates the establishment and operation of companies or branches of offshore trusts in the Madeira Free Zone.

Decree-Law no. 149/94, May 25
This Decree-Law regulates the incorporation of fiduciary management instruments (trusts).

Ordinance of the Autonomous Region of Madeira no. 222/99, December 28
Revises tax rates for entities licensed to operate within the institutional framework of the International Business Centre of Madeira.

Decree-Law no. 96/89, March 28
Authorizes the establishment of the International Shipping Register of Madeira – MAR.

Ordinance no. 715/89, de 23 de August
Approves Regulation regarding the International Shipping Register of Madeira.

Decree-Law no. 192/2003, August 22
Approves applicable regulations for recreational crafts registered or to be registered in the International Shipping Register of Madeira.

Ordinance no. 134/92, May 20
Defines tax rates for merchant ships registered in the International Shipping Register of Madeira – MAR.

Ordinance no. 135/94, August 1
Establishes the regime for applicable taxes for recreational crafts registered under the International Shipping Register of Madeira – MAR.

Madeira companies Madeira companies are Portuguese companies for all due effects, incorporated under the terms of the Code of Commercial Entities and subject to all the legislation and regulations in force in Portugal.

companies that wish to operate in the International Business Centre of Madeira (CINM), beyond atax system extremely advantageous, may take advantage of the Private Deeds Registry Office with full exemption from fees and notary costs. Before incorporation, a name approval certificate and a provisional identification card must be requested to the National Company Registrar (RNPC), and a license from the Regional Government of Madeira must be obtained.

As any other Portuguese company, a Madeira company may transfer its head office to another country as long as the law of said country allows such re-domiciliation. The company, upon such re-domiciliation, shall keep its legal personality.

The shareholders decision must be taken by at least 75%of the votes corresponding to the share capital. However, this company must adapt its articles of associationin order to comply with the Portuguese law.

Documents required to re-domicile a company to Madeira

In order to re-domicile a company to Madeira, the following documents are requested:

• Certified copy of the respective country’s law that foresees the possibility of re-domiciling companies;

• Certified copy of the articles of association of the company;

• Certified copy of the certificate of registration of the company;

• Certified copy of the resolution of the shareholders of the company with the following decisions:

  • to change its head-office to Portugal;

  • to approve the new articles of association adapted to Portuguese law;

  • to appoint the director(s).

All these documents should be legalized with the apostil of the Hague Convention.

Before preparing all these documents it is recommended that a first enquiry/pre-application is made in advance to the Portuguese authorities regarding the name approval of the company to be re-domiciled. Should the name not be approved in Portugal, then the above mentioned resolution must also mention that the company will adopt another name in Portugal.

Steps needed in order to complete the re-domiciliation:

1. To request the approval of the name and object of the company;

2. To apply for the licence for the company to operate within the scope of the International Business Centre of Madeira;

3. To register the company.

Exit Tax

As a rule, exit taxes aim to tax potential gains related to the patrimonial elements held by a taxpayer in the moment he decides to transfer its residency to another State.

Since the transfer of residency determines that the taxpayer will no longer be taxed in the residency State, the goal of these rules is:

1. To protect the right of the residency state to the revenues generated in its territory;

2. To work as an anti-avoidance clause in order to prevent tax schemes in which the taxpayer, prior to obtaining a significant gain, transfers its residency to a country with a lower taxation.

These rules establish that, in order to determine the taxable profit in the period when the taxpayer (with head office and effective management in the Portuguese territory) has ceased its activity or transferred its head office or effective centre of management to another State, the positive and negative components to be consider should correspond to the difference between the market value of the assets and liabilities and their tax value.

For this exit tax to apply the companies must have their head office and effective management in the Portuguese territory. Please note, in this respect, that our tax law does not require a minimum stay period in Portugal and that the relevant taxable fact is the transfer of residence. This transfer of residence must comprise both the transfer of the head office and of the effective centre of management.

Currently, these rules state that transfers of residence to other countries in the European Union or in the European Economic Area (provided, in this latter case, that an exchange of information agreement has been concluded), deferred tax rules may apply.

Partners or shareholders of a Company in Madeira are subject to the same legislation and principles applicable to the partners of companies in Portugal. There are however some differences at the level of the tax treatment of non-resident partners or shareholders of companies licensed to operate in the International Business Centre of Madeira, since these may benefit from withholding tax exemption on the distribution of dividends, under certain conditions described hereafter:

Tax Perspective

Provided they are not residents of Portugal or of tax havens, partners or shareholders of Madeira companies (entities and individual/physical persons) are exempt from tax on profits made available to them, including amortization of shares without reducing capital, provided that such profits derive from income that has benefitted from a reduced tax rate, or if they have not benefitted from such a rate, they derive from income obtained outside of Portuguese territory (except for tax havens).

If the partners or shareholders reside in Portugal (only for entities and not for individual/physical persons), distribution of profits/reserves made by the Madeira company shall also be exempt from taxes (withholding tax) if they hold, directly or indirectly, and uninterruptedly for the 12-month period prior to distribution, a shareholding no smaller than 10% of the shareholder capital or voting rights of that company.

Partners or shareholders of licensed companies authorized to work within the IBCM until 31 December 2014 (only entities and not individual/physical persons) who did not opt to benefit from the new regime of the IBC are exempt from taxation on distribution of profits/reserves, provided that they comply with the following conditions:

• Are resident in another EU Member State or the European Economic Area (EEA*) – provided that administrative cooperation is guaranteed with respect to taxation in terms equivalent to those established in the EU – or in a state with which it has signed a convention to avoid double taxation (provided it is in force and the exchange of information);

• Hold, directly or indirectly, and uninterruptedly for the 12-months period prior to distribution, a participation no smaller than 10% of the share capital or voting rights of the Madeira company that distributes the profits or reserves;

• If the partners or shareholders reside in Portugal (only for entities and not for individual/physical persons), distribution of profits/reserves made by the Madeira company shall also be exempt from taxes (withholding tax) if they hold, directly or indirectly, and uninterruptedly for the 12-month period prior to distribution, a shareholding no smaller than 10% of the shareholder capital or voting rights of that company.

*The Member States of the European Economic Area include the 28 Member States of the European Union, Iceland, Liechtenstein and Norway.

**Documents with agreements to avoid double taxation can be read on the website Diário da República online (https://www.dre.pt/) and Tax Office (https://www.portaldasfinancas.gov.pt/).

If the aforementioned time requirement has not been complied with, the beneficiary entity can request reimbursement of the tax that was withheld at the source, up to two years after actual compliance with this requirement.

If the aforementioned conditions have not been met, dividends paid to shareholders shall generally be taxed at a withholding rate of 28% or 35% if payment of the dividends is made to shareholders residing in tax havens;

Prior to the date when the income is made available to the partner, there must be evidence that the requirements for exemption or reduction have been met, via statement confirmed and authenticated by the relevant tax authorities of the state where the beneficiary resides.

In the case of shipping or industrial activities, the tax exemption on distributed profits/reserves shall apply even if the partners or shareholders reside in Portugal and the profits derive from income obtained in Portuguese territory.

In the relationship between Madeira and Swiss companies and in the event of failure to comply with the aforementioned requirements, namely with respect to the tax rate that the Swiss company is subject to, the withholding tax exemption on distribution of profits is also applicable, pursuant to the Agreement between the EU and the Swiss Confederation, if the company that is the beneficiary of profits has held a minimum direct participation of 25% in the shareholder capital of the company that distributes the profits for at least 2 years, both entities are subject to income tax without benefitting from any exemption and both take on the form of a limited company. If these requirements have not been met, under the Double Taxation Treaty signed with Switzerland, the minimum rate for withholding tax shall be 5%.

Legal Perspective

Unless something different is agreed in the articles of association of the company or a resolution is passed by a majority corresponding to 75% of the share capital in a general shareholders meeting called for such purpose, half of the yearly net profits, which are distributable, must be distributed to the shareholders.

The distribution of dividends that each shareholder is entitled to matures 30 days subsequent to the respective resolution, unless the shareholder agrees to a deferred payment. However, in exceptional company circumstances, shareholders may request an extension of said period for a further 60 days.

Contudo, existe uma reserva legal mínima que não pode ser distribuída aos sócios. However, there is a minimum legal reserve that cannot be distributed to the shareholders. A minimum of a twentieth part of the net profits of each year of the company is destined for the legal reserve until it represents 20%of the share capital. The articles of association may set up a higher minimum percentage and higher amounts to the legal reserve. Nevertheless, the legal reserve cannot be less than 2500 Euros.

The legal reserve may only be used:

1. To cover the portion of losses in the balance sheet that cannot be covered by the use of other reserves;

2. To cover the portion of losses from the previous year that cannot be covered by net profits from the present year or by the use of other reserves;

3. To increase share capital.

Further to the mentioned legal reserve, there are some limitations to the distribution of dividends to the shareholders:

• Company assets cannot be distributed to the shareholders when the equity capital, including the year net income, as shown in the approved accounts, is less than the sum of the share capital and the reserves or becomes less than this sum as a result of the distribution;

• Dividends cannot be distributed to shareholders if they are necessary to cover accumulated losses or to form or reconstitute reserves required by law or by the articles of association;

• Dividends cannot be distributed to shareholders if the incorporation costs or research and development costs are not completely paid, unless the amount of free reserves and retained earnings is at least equal to those costs not paid;

• The reserves whose existence and amount does not appear explicitly in the balance sheet cannot be used for distribution to shareholders;

• The distributed reserves, in whole or in part, either alone or together with the yearly profits, must be expressly mentioned in the shareholders resolution.

The articles of association may authorize that, in the course of a year, advanced payments of profits are made to shareholders, provided that some rules are followed:

1. The board of directors approves the advanced payment;

2. Such resolution shall be supported by a interim balance report, no more than 30 days old and certified by a statutory auditor, showing the existence of available amounts, according to the legal limits and taking into account the results obtained during the elapsed period of the year in which the advance is to be made;

3. Only one advanced payment is allowed during each year and always in its second half;

4. The amounts to be advanced cannot exceed half of what would be distributable, as referred before.

Shareholders must return to the company all the assets received in breach of the law, but those who have received dividends or reserves whose distribution was not permitted by law, are only required to refund if they knew the irregularity of distribution or, given the circumstances, should have not ignored it. The company’s creditors can propose legal action for refund of the company regarding these amounts.

As in the case of any other Portuguese Company, Madeira companies must abide by the Companies Code and by other relevant tax codes. They are therefore subject to the tax and accounting information applicable to Portuguese companies.

Additionally, they are also subject to the legislation applicable at the regional level.

Companies licensed to operate in the International Business Centre of Madeira must also fulfill the eligibility criteria and requirements that derive from such license.

In this section we highlight the most relevant tax and accounting information for companies with head-office in Madeira.

To learn more about the most relevant tax and accounting aspects for Portuguese companies (including Madeira companies), visit Tax and Accounting Information in Portugal. Madeira companies are also subject to the application of anti-avoidance rules and autonomous taxation (albeit at reduced rates) in force in Portugal.

ANTI-AVOIDANCE RULES AND AUTONOMOUS TAXATION

• Anti-tax Avoidance General Rule (GAAR)

The anti-evasion general rule determines the inefficiency in tax matters of acts or legal transactions, essentially or mainly directed to the reduction, elimination or deferral of taxes that would be due to facts, acts or legal transactions of identical economic purposes, through artificial means, fraud and abuse of legal forms, or to obtain tax advantages that would not be achieved in whole or in part, without the use of such means.

In these cases, and given the ineffectiveness of such acts or transactions, the taxation of such income is made in accordance with the applicable rules without the desired tax benefits.

• CFC RULES:

Under Portuguese tax legislation, shareholders who reside in Portugal are attributed profits obtained by companies residing in tax havens in proportion to said shareholders’ share and regardless of distribution, provided that the shareholder directly or indirectly holds a share of at least 25%.

If the non-resident company is directly or indirectly more than 50% held by resident shareholders the share in question must be at least 10%.

These rules also apply whenever the profits or income ensue from an indirect participation held via a proxy, trustee or intermediary.

This attribution corresponds to the profit obtained by the company after deducting tax on profit applicable under the tax regime of the country where the company resides.

Not only entities residing in the countries of the official Portuguese list of tax havens are considered tax haven residents, but also those who are not taxed in such countries or who do not pay the equivalent of corporate income tax or when the tax paid is equal to or less than 60% of the legally applicable general corporate income tax rate.

This system does not apply to non-residents of Portuguese territory whose profits or income, in a proportion of at least 75%, come from an agricultural or commercial activity in the territory where they are established, or from an industrial activity or service that is not predominantly directed at the Portuguese market.

• Transfer pricing:

Portuguese rules regarding transfer prices are in line with OECD recommendations and thus within the standard for developed countries.

The Legal Persons Income Tax Code (CIRC) clearly states that for commercial operations, including operations or a series of operations regarding goods, rights or services and financial operations performed between a taxpayer and any other entity, whether or not they are subject to corporate income tax, with which there are special relationships, terms or conditions that are substantially identical to those that would normally be contracted, accepted and practiced between independent entities concerning comparable operations must be employed.

This principle is applicable to:

1. Related-party transactions performed between the corporate income taxpayer or personal income taxpayer and a non-resident entity;

2. Operations performed between a non-resident entity and its stable establishment, including those performed between a stable establishment located in Portugal and other stable establishments of the same entity located outside Portugal;

3. Operations between a resident entity and their stable establishments located outside Portugal or between the stable establishments located outside Portugal;

4. Related-party operations performed between entities residing in Portugal and corporate income taxpayers or personal income taxpayers.

Special relationships are considered to exist between two entities in situations where one has the power to directly or indirectly exercise significant influence over the management decisions of the other, which is verified namely between:

1. An entity and the holders of the respective capital or their spouses, ascendants or descendents that directly or indirectly hold a stake of no less than 20% of the capital or voting rights;

2. Entities in which the same holders of capital, respective spouses, ascendants or descendants directly or indirectly hold a stake of no less than 20% of the capital or voting rights;

3. An entity and the members of their governing bodies or any administrative bodies, boards of directors, management or auditing bodies and respective spouse, ascendants and descendants;

4. Entities in which most of the members of the governing bodies or members of any administrative bodies, boards of directors, management or auditing bodies, whether they are the same persons or different persons, are linked to each other by marriage, legally recognized cohabitation or line of descent;

5. Entities linked by subordination or same level group contract or any other contract of an equivalent level;

6. Companies that are in a dominating relationship in accordance with applicable legislation;

7. Entities whose legal relationship allows, as per their terms and conditions, that one affects the decisions of the other in accordance with the facts or circumstances that are foreign to the actual commercial or professional relationship;

8. A resident or non-resident entity with a stable establishment located in Portugal and an entity subject to a clearly more favourable tax regime residing in a country, territory or region on the list approved by Ministry of Finance Order in Council.

As such, companies must adopt, in order to determine the terms and conditions that would normally be agreed, accepted or practiced between independent entities, the method or methods that are likely to ensure the highest level of comparability between operations or series of operations that they perform and other substantially identical ones under normal market conditions or situations free of special relationships.

The following methods shall be used:

• The comparative market price method, the resale-minus method or the cost-plus method;

• The profit split method, the net operating margin method or any other method when the methods mentioned in the previous paragraph cannot be applied, or if they can be applied, do not permit the most reliable measurement of the terms and conditions that independent entities would normally agree to, accept or practice.

Companies are obliged to maintain a tax documentation file for each taxation period in good order for a period of 12 years at an establishment or installation located in Portugal.

This file must contain the company’s organized documentation related to its transfer price polices, including the directives or instructions pertaining to its application, contracts and other legal acts formed with entities with whom the company has a special relationship, indicating the modifications that have occurred and information regarding respective compliance, documentation and information related to such entities and the companies and goods or services that are used as comparatives, functional and financial analyses and sector data, as well as information taken into consideration to determine the terms and conditions normally agreed, accepted or practiced between independent entities and used to select the method or methods used.

Similarly, companies are obliged to indicate the existence or inexistence of operations, for the respective taxation period, with entities with whom they have special relationships in their annual accounting and tax information declaration.

Taxpayers may ask the Tax Authorities for a rulingTaxpayers may ask the Tax Authorities for a ruling to establish a prior method or methods of determining the terms and conditions that would normally be agreed, accepted or practiced between independent entities with respect to commercial and financial operations, including intragroup services and cost sharing agreements made with entities with whom they have special relationships or involving operations performed between the head office and the stable establishments.

Such aruling can be bilateral or multilateral in the case of operations with entities residing in a country with whom Portugal has signed an agreement to avoid double taxation. The taxpayer must request that the ruling be submitted to the respective applicable authorities within the scope of the amicable procedure instituted for such purposes.

The Tax Authorities may undertake the necessary corrections to determine taxable profit as a result of special relationships with another corporate income taxpayer or or personal income taxpayer, which implies that when determining the taxable profit of the personal income taxpayer the appropriate adjustments must be made to reflect the corrections made when determining the corporate income taxpayer.

The Tax Authorities can also undertake the correlative adjustment referred to in the previous paragraph when it is the result of international conventions signed by Portugal, as per the terms and conditions stipulated therein.

List of countries, territories and regions with favourable tax systems:

Anguila	Antígua e Barbuda	Antilhas Holandesas
Aruba	Ascensão	Bahamas
Bahrain	Barbados	Belize
Ilhas Bermudas	Bolívia	Brunei
Ilhas do Canal 1	Ilhas Cayman	Ilhas Cocos e Keeling
Ilhas Cook	Costa Rica	Djibouti
Dominica	Emirados Árabes Unidos	Ilhas Falkland ou Malvinas
Ilhas Fiji	Gâmbia	Grenada
Gibraltar	Ilha de Guam	Guiana
Honduras	Hong Kong	Jamaica
Jordânia	Ilhas de Queshm	Ilha de Kribati
Koweit	Labuán	Líbano
Libéria	Liechenstein	Ilhas Maldivas
Ilha de Man	Ilhas Marianas do Norte	Ilhas Marshal
Maurícias	Mónaco	Monserrate
Nauru	Ilhas Natal	Ilha de Niue
Ilha Norfolk	Sultanato de Oman	Ilhas do Pacífico 2
Ilhas Palau	Panamá	Ilha de Pitcairn
Polinésia Francesa	Porto Rico	Qatar
Ilhas de Salomão	Samoa Americana	Samoa Ocidental
Ilha de Santa Helena	Santa Lúcia	São Cristovão e Nevais
São Marino	Ilha de São Pedro e Miguelon	São Vicente e Grenaldinas
Seychelles	Suazilândia	Ilhas Svalbard (aquipélago Spitsbergen e Ilha Bjornoya) 3
Ilha de Tokelau	Tonga	Trinidad e Tobago
Ilha Tristão da Cunha	Ilhas Turks e Caicos	Ilha Tuvalu
Uruguay	República de Vanuatu	Ilhas Virgens e Britânicas
Ilhas Virgens dos Estados Unidos da América	República Árabe do Iémen

• VAT – Taxable amount:

In determining the taxable amount for VAT on transactions between taxable persons who have special relations, but only in certain situations, the prevailing criteria is of its normal value, rather than the value of the consideration obtained or to obtain from the purchaser, consignee or a third party.

However, this deviation from the general rule for determining the taxable value, may be dismissed if there is proof that the difference between the normal value and the consideration is justified by circumstances other than the special relationship between the parties.

• Thin capitalization rules:

Net financing costs contribute to determining taxable profit up until the greater of the following limits: 1 million euros or 30% of EBITDA.

Net financing costs that are not deductible under the aforementioned terms can also be considered when determining taxable profit of one or more of the subsequent taxation periods, after net financing costs for this period, taking into account the aforementioned limitations.

Whenever the amount of financing costs deducted is less than 30% of the result before Net financing costs that are not deductible under the aforementioned terms can also be considered when determining taxable profit of one or more of the subsequent taxation periods, after net financing costs for this period, taking into account the aforementioned limitations., amortization, net financing costs and taxes, the unused part of this limit shall be added to the maximum deductible amount up until the 5th period subsequent taxation period.

These rules apply to the permanent establishments of non-resident entities, with the necessary adaptations

• Exit Tax: As a rule, exit taxes aim to tax potential gains related to the patrimonial elements held by a taxpayer in the moment he decides to transfer its residency to another State.

Since the transfer of residency determines that the taxpayer will no longer be taxed in the residency State, the goal of these rules is:

• To protect the right of the residency state to the revenues generated in its territory;

• To work as an anti-avoidance clause in order to prevent tax schemes in which the taxpayer, prior to obtaining a significant gain, transfers its residency to a country with a lower taxation.

These rules establish that, in order to determine the taxable profit in the period when the taxpayer (with head office and effective management in the Portuguese territory) has ceased its activity or transferred its head office or effective centre of management to another State, the positive and negative components to be consider should correspond to the difference between the market value of the assets and liabilities and their tax value.

For this exit tax to apply the companies must have their head office and effective management in the Portuguese territory. Please note, in this respect, that our tax law does not require a minimum stay period in Portugal and that the relevant taxable fact is the transfer of residence. This transfer of residence must comprise both the transfer of the head office and of the effective centre of management.

Currently, these rules state that transfers of residence to other countries in the European Union or in the European Economic Area (provided, in this latter case, that an exchange of information agreement has been concluded), deferred tax rules may apply.

Exit taxes may be paid:

1. Immediately, comprehending the total amount of CIT due upon exit;

2. During the year following that in which any asset being transferred out of Portugal is sold, written off, or detached from the company’s activity, provided such sale is made to a country other than the EU or the EEA (in this latter case, if there is an exchange of information agreement with Portugal); and

3. Annually, over a fifth of the total amount of the tax due.

Upon the change of residence, the taxpayers must opt for one of the above alternatives. However, the following tax consequences must be taken into account:

1. The deferral of the tax payment triggers late payment interest (currently the annual late payment interest rate is of 5,476%);

2. Under certain circumstances, the possibility to defer the exit taxes will be subject to the provision of a guarantee corresponding to the amount of tax due plus 25%;

3. In case the taxpayer opts to defer the taxation to the moment when the capital gains are obtained, he must submit annually, and on an ongoing basis, a tax return, since the failure to comply with this obligation may trigger the payment of the tax due.

In the event the taxpayer selects option 3, the payment of the tax should occur: (a) he first 1/5 upon the submission of the tax return referring to period when the activity was ceased or the when the transfer occurred, and (b) the remaining 1/5 every year until the last day of May (the late payment interests due should be accrued to the amount of tax). The failure to comply with one of these payments determines the maturity of the whole tax due;

If, after electing option 2 or 3, the taxpayer decides to subsequently transfer its residence to a non-EU or non-EEA Member State, it must pay the total amount of tax still due. The change of residence results in the termination of activity for CIT purposes and in the assessment of gains and losses determined by the difference between the market value and the tax value of the assets and liabilities.

All assets and liabilities comprise fixed tangible assets, intangible assets, non-consumable biological assets, investment properties, financial instruments except those recognized at their fair value, and all other assets owned by the company and part of its inventory.

The gains obtained under these exit tax rules should be determined in accordance to the ones established in case of onerous transfer of assets, i.e., the coefficient of currency devaluation should be considered, as well as any amortizations or depreciations.

Normally, the transfer of residence should not trigger the taxation of the respective shareholders.

• Inability to benefit from capital gains tax exemption

The system of exemption from capital gains with the onerous transfer of shares, other securities, autonomous warrants ssued by entities resident in Portugal and traded on regulated stock markets and derivative financial instruments made on regulated stock markets, by entities or individuals that are not domiciled in Portugal and there is no permanent establishment to which said income is imputable, is not applicable if resident in a tax haven.

• Inability to reinvest capital gains

The possibility of reinvestment of capital gains made by way of the transmission with consideration of parts of the share capital, including remission and amortization with reduction of share capital, is void where such transmissions with consideration and the acquisitions of parts of the share capital are carried out with entities resident in Tax havens.

• Derogation of banking secrecy

The Tax administration has the power to access all banking information and documents and is not contingent upon any previous consent from the holder of the account and protected information:

• When there is evidence of tax fraud;

• When there is evidence of the lack of veracity regarding the filed tax return, or when the tax return does not comply with the necessary requirements;

• When there is evidence of unjustified increase in wealth;

• For the purposes of confirming information submitted in the supplemental documents of the taxable entities under the organized accounting regime;

• When the need exists to control the basis for privileged tax regimes that a taxable entity benefits from;

• When it is not possible to verify the direct and exact quantification of taxable items, and in general, when the grounds for a request of evaluation have been checked.

The tax administration also has the power to directly access bank documents, in situations of refusal of disclosure or authorization to review documents by family members or third parties that have a special relationship with the taxable entity.

All of the above referenced actions are subject to legal appeal.

In this context, we advise all of our clients to solely perform bank transactions related to the licensed activities of their companies in Portugal, which should be duly reported and fully supported with documents by the company.

• Payments unduly justified

Under Portuguese law, payments made by Madeira companies to entities residing in Tax havens are not deductible for the purpose of calculating taxable profit, but are subject to a specific tax at the rate of 35%, unless the purchaser can prove that said charges correspond to operations effectively implemented in circumstances that are not abnormal and the amount involved was also not excessive.

Similarly, it shall not be deductible amounts paid or due, indirectly, to entities resident in tax havens, where the taxpayer has or should have known of the destination of such amounts, unless it can demonstrate that such costs correspond to operations effectively implemented in circumstances that are not abnormal and the amount involved was not excessive.

It is presumed to exist such knowledge when there are special relations between the taxpayer and the entity resident in the tax haven, or between the taxpayer and an agent, trustee, or intermediary.

• Autonomous Taxation/Vehicles

Charges incurred or paid related to lightweight passenger vehicles, lightweight commercial vehicles and motorcycles, excluding vehicles powered exclusively by electrical energy, shall be taxed autonomously.

Charges related to lightweight passenger vehicles and motorcycles include depreciation, rentals, insurance, maintenance and conservation, fuels and taxes on their possession or usage.

If the motor vehicle is used personally by a worker or member of a governing body and creates costs for the employer, and if there is a written agreement between the worker or member of the governing body and the employer regarding attribution of the vehicle to the worker or member of the governing body, then the aforementioned autonomous taxation shall not apply, since taxation shall be applied via income tax.

The aforementioned autonomous taxation rates shall be increased by 10 percentage points for taxpayers who report a tax loss during the period of the respective taxation occurrences.

Companies licensed to operate within the International Business Centre of Madeirabenefit from a reduction of the autonomous taxation rates, in proportion to the applicable corporate tax rate (in this case, a reduction of 76,2%).

• Confidential or undocumented expenses

The tax rate applicable to confidential or undocumented expenses made by companies in Portugal is 50% and these are not deductible for the purpose of calculating taxable profit. The applicable rate shall be increased by 10% to companies that have tax losses in the respective year.

• Entertainment expenses

Entertainment expenses, which are basically expenses related to receptions, meals, trips, excursions, and shows offered to clients, suppliers or any other entities, are taxed at the rate of 10%, irrespective of whether the company is exempt from corporate income tax or not.

Companies licensed to operate within the International Business Centre of Madeira benefit from a reduction of the autonomous taxation rate, in proportion to the applicable corporate tax rate (in this case, a reduction of 76,2%).

The characteristics of Portugal and its various regions are reason enough to justify a new life in this country, but the tax advantages on offer are the icing on the cake for anyone who wishes to invest and live in Portugal. In 2009, in order to attract high net worth individuals to Portugal, a new and more favourable personal income tax regime (IRS), applicable for a period of 10 consecutive years, was created for non-habitual residents.

Who is deemed to be non-habitual resident in Portugal?

Expatriates, who establish their tax residence in Portugal but have not had resident status during any of the previous five years, are not considered to have habitual residence in Portugal.

Where Portugal is concerned, as a general rule, Portuguese residents are those persons who remained in the country for more than 183 consecutive or non-consecutive days, out of any period of 12 months that starts or ends during the year in question, or if the person remained for fewer days, has a domicile on any given day of that period, exhibiting conditions that lead one to believe that there is an intention to maintain and occupy it as an habitual residence. However, it is important to analyse the double taxation agreements that may exist between Portugal and the non-habitual resident’s home country, in order to avoid possible conflicts between the two places of residence. The taxpayer must register as a non-habitual resident at the taxpayer registry of the Tax and Customs Authority upon registering as a resident of Portugal or subsequently up until 31 March, inclusive, of the year that follows the year in which the taxpayer becomes a resident of Portugal.

Accordingly, the non-habitual resident acquires the right to be taxed as such for a period of ten consecutive years. Each year, the the taxpayer must be considered a tax resident for income tax purposes.

Advantages for non habitual residents?

Non-habitual tax residents benefit from a more competitive tax regime that functions on two levels:

Income from Work

This exemption applies wheneverincome is subject to taxation in another country with which Portugal has signed a double taxation treaty; if

• there is no double taxation treaty, the exemptionwill also apply as long as the income is taxed abroad

• and the source is not considered to be Portuguese as per Portuguese domestic law.

Professional income, capital income, capital gains and rental income

In such cases (excepting professional income), the exemption applies whenever income is taxable in another country with which Portugal has signed a double taxation treaty; or:

• , in the absence of a double taxation treaty, the income is taxable in another country, region or territory in accordance with the OECD Model Tax Convention on Income and on Capital, interpreted in accordance with the observations and reservations made by Portugal,

• and the income is not considered to be from a Portuguese source, in accordance with Portuguese domestic legislation. In relation to professional income, the exemption shall only apply in the above-mentioned conditions to services that are considered to be of added value of a scientific, artistic and technical nature, or intellectual property and transfer of know-how.

Income from Pensions

Regarding pensions, income obtained by non-habitual residents abroad, which is, for the same portion which was considered taxable, not considered tax deductible in Portugal, is taxed at a 10% rate.

Notes:

Income which is exempt from Personal Income Tax (IRS) under the above stated terms, is mandatorily included for the purposes of determining the taxable amount on remaining income, except in the case of:

• Capital Gains from Securities;

• Dividends and interest owed by non-residents, when not subject to withholding at source;

• Income from employment or self-employment, subject to the above referenced special tax rate of 20%.

Non-habitual residents, whose income is not taxable under the Personal Income Tax, per the above referenced terms, may opt to use the method of tax credit provided for by the international double taxation (in lieu of exemptions), and in this case, income is mandatorily included for the purposes of taxation under the general terms of the Personal Income Tax (IRS) code, except:

• Gratuities earned for services rendered or due to the performance of work, when not attributed by employer;

• Capital Gains from Securities;

• Dividends and interest owed by non-residents, when not subject to automatic withholding;

• Income from employment or self-employment, subject to the above referenced special tax rate of 20%.

Participation exemption is the term generically used to refer to the tax exemption applicable to dividends received from a subsidiary and any possible capital gains ensuing from the sale of that participation.

Profits and reserves distributed to Portuguese companies by their associated companies, along with capital losses or gains occurring due to the transfer of shares in these companies at a cost in any form, and regardless of the percentage of the share transferred, shall not contribute to their taxable profit, provided that:

• The Portuguese company holds, directly or indirectly, and uninterruptedly, for the 12 months that precede the distribution or transfer, a participation that is no less than 10% of the shareholder capital or the voting rights of the entity that distributes the profits/reserves or whose participation has been transferred (in the case of distribution of profits, if the participation has been held for less time, it must be maintained throughout the time necessary to complete the 12 months);

• The entity that distributes the profits/reserves or whose participation

• has been transferred is subject to and not exempt from corporate income tax (Portuguese companies), any tax referred to in the Parent-Subsidiary Directive (companies resident in the EU) or a tax of an identical or similar nature to that of corporate income tax, provided that the rate applicable to said entity is not less than 60% (12.6%) of the corporate income tax rate (other cases); * *
  The entity that distributes profits/reserves or whose participation was transferred is not resident in a tax haven;
  The distributed profits/reserves do not correspond to costs deductible by the entity that distributed it; The company is not subject to a tax transparency regime.

* This requirement shall be dispensed with when the following conditions have been cumulatively met:

a) The proportion of the respective profits or income derived from the performance of the following is at least 75%:

1. An agricultural or industrial activity within the territory where they are established;

2. A commercial or service activity that is not predominantly directed at the Portuguese market;

b)The main activity of the non-resident entity is not included in the following operations:

1. Operations pertaining to the banking activity, even if not performed by credit institutions;

2. Operations related to the insurance industry when the respective income results mostly from insurance related to goods located outside the residential territories of the entity or insurance pertaining to persons who do not reside in that territory;

3. Operations related to shareholdings accounting for at least 5% of shareholder capital or voting rights, or any participations held in entities residing in a tax haven, or operations related to other securities, intellectual or industrial property rights, supply of information pertaining to experience acquired in the industrial, commercial or scientific sector or the supply of technical assistance;

4. Rental of goods, except real estate, in the territory of residence.

Elimination of international double taxation

For cases in which the Participation Exemption does not apply, there is a unilateral tax credit for international economic double taxation, namely income tax paid abroad by the entity residing outside Portugal on profits/reserves distributed to the Portuguese company, provided that the first two aforementioned requirements are complied with in terms of the participation exemption.

There is also the possibility of making use of the unilateral tax credit for international legal double taxation, applicable when the taxable amount includes income obtained abroad and income tax has been paid abroad on such income.

This tax credit shall be determined according to the country, taking into account the total income from each country, with the exception of income attributable to permanent establishments located outside Portugal, the deduction of which is calculated individually. The deduction provided for can be made within the 5 taxation periods that follow.

Reinvestment of capital gains

If the capital gains are not exempt because the Participation Exemption requirements Participation Exemptionhave not been met, there is also the possibility of only half (50%) of the capital gains being considered if the capital gains are reinvested, subject to certain conditions.

Portugal provides for the following mechanisms for eliminating double taxation on income taxed at source in a foreign country:

a) Application of double taxation treaties (over 70 treaties signed by Portugal);

b) Unilateral tax credit for international economic double taxation, namely income tax paid abroad by the entity residing outside of Portuguese territory on profits/reserves

distributed to the Portuguese company, provided that:

• The Portuguese company holds, directly or indirectly, a participation that is no less than 5% of the shareholder capital or the voting rights of the entity that distributes the profits/reserves or this participation has been owned by the Portuguese company uninterruptedly for the 2 years preceding distribution, i.e. maintained during the time necessary to complete such a period;

• The associated entity does not reside in a tax haven.

c) Unilateral tax credit for international legal double taxation, applicable when the taxable amount includes income obtained abroad and income tax has been paid abroad on such income.

This tax credit shall be determined according to the country, taking into account the total income from each country, with the exception of income attributable to permanent establishments located outside Portugal, the deduction of which is calculated individually.

The deduction provided for can be made within the 5 taxation periods that follow.

All documents are available onDiário da República Electrónico andportal das financas, and their responsability is of INCM – Imprensa Nacional – Casa da Moeda e da Direção Geral dos Impostos, respectively.

Portugal currently has Tax Information Exchange Agreements with the following 15 countries/territories: Andorra, Antigua e Barbuda, Belize, Bermudas, Dominica, Estado de Guernsey, Gibraltar, Ilhas Caimão, Ilha de Jersey, Ilha de Man, Ilhas Virgens Britânicas, Ilhas Turks e Caicos, Libéria, Santa Lucia, St. Kitts and Nevis.

The aforementioned agreements are legal instruments that will enable the Portuguese authorities to request details relevant to the combat against fraud and tax evasion from the competent authorities of each country/territory, including information about financial transactions and the ownership of companies, foundations, trusts, or other kinds of operation created in said countries/territories.

The agreements are equally relevant with regard to obtaining exemption from personal or corporate capital gains tax, applicable to companies within the Madeira International Business Centre, on the sale of shares and other securities, since this is only applicable to entities domiciled outside Portugal, in a country, territory or region where a Double Taxation Agreement or a Tax Information Exchange Agreement is in force. where a Double Taxation Agreementor a Tax Information Exchange Agreement is in force.

Profits/dividends distributed by a Portuguese company to its shareholders who are natural persons shall be taxed in accordance with the Personal Income Tax Code (28%) unless they are not resident in Portugal and the company is licensed to operate within the scope of the International Business Centre of Madeira or a double taxation treaty is applied.

Profit or dividends distributed by a Portuguese company to shareholders that are legal persons, are exempt, provided that:

• They are residents:

– of Portugal or any other European Union Member State;

– of another Member State of the European Economic Area provided that administrative cooperation is guaranteed with respect to taxation in terms equivalent to those established in the European Union;

– of a State with which Portugal has signed a currently valid agreement for avoiding double taxation and allowing for exchange of information;

• Are subject to and not exempt from Corporate Income Tax (Portuguese companies), a tax mentioned in the Parent-Subsidiary Directive (companies resident in the EU) or a tax that is identical or similar to Corporate Income Tax, provided that the rate applicable to the entity is not less than 60% (12.6%) of the corporate income tax rate (other cases);

• They hold, directly or indirectly, a participation that is no less than 10% of the shareholder capital or the voting rights of the Portuguese company;

• They hold a participation in the Portuguese company in a manner that has been uninterrupted during the 12 months prior to the distribution date;

This exemption does not apply in cases where:

• The entity which makes the profits and reserves available has not complied with the reporting obligations laid down in the Legal Framework of the Central Registry of the Effective Beneficiary;

• The actual beneficiary(s) of the Portuguese company declared under the terms of the Legal Framework of the Central Registry of the Effective Beneficiary have their residence in a tax haven, unless they prove that the company benefiting from such income is not part of a construction or series of constructions considered not genuine, taking into account all the relevant facts and circumstances (a construction or series of constructions is considered not genuine to the extent that it is not carried out for valid economic reasons and does not reflect economic substance).

If the Portuguese company is licensed within the scope of the International Business Centre of Madeira,the respective partners or shareholders (including natural/individual persons), provided that they are not residents of Portugal or of tax havens, pay no tax on profits made available to them, including amortization of shares without reducing capital, provided that such profits derive from income that has benefitted from a reduced tax rate..

As a member of the European Union, Portugal is subject to and benefits from the application of the European Directives, which aim to reduce the tax obstacles in cross-border operations and minimize situations of double taxation.

Parent-Subsidiary Directive

Council Directive 2011/96/EU of 30 November 2011 (previously Directive 90/435/EEC) regarding the common tax regime applicable to parent companies and affiliate companies of different Member States is fully applicable to Portuguese companies.

Through this directive, distribution of profits by a Portuguese company to companies residing in the European Union (EU) shall benefit from withholding tax exemption, providing that the following conditions exist:

• Both companies meet the criteria of one of the corporate forms stipulated in the Directive Annex;

• Both are subject to and not exempt from the income tax referred to in the Directive;

• The shareholder has directly or indirectly held a share in the subsidiary >= 10% for at least 2 years.

Portuguese companies fulfil the first two requirements. If the third is also met, it shall be possible for entities resident in another EU Member State to pay dividends to Portuguese companies without paying withholding tax in the State of origin and vice-versa.

Under article 15 of the Agreement between the EU and the Swiss Confederation, the aforementioned exemption is also applicable to the relationship between companies in Portugal and Swiss companies if the company benefitting from the profit has had at least a 25% direct stake in the capital of the company distributing the profits for at least two years, if both entities are subject to income tax without exemptions, and if they are both limited companies.

Similarly, if the requirements of this Directive have been complied with, the distribution of profits made by companies that reside in the European Union to a Portuguese company shall be exempt from withholding tax.

Merger Directive

Directive 2009/133/CE adopted by the council on October 19, 2009, regarding a common system of taxation applicable to mergers, divisions, transfers of assets, and trading of shares that are of interest to companies of different Member States, is fully applicable to companies in Portugal.

Mergers, division of assets and exchanges of shares between companies established in the EU, as well as transferring headquarters within the EU, are carried out with Corporate Income Tax neutrality, as long as the companies involved embody one of the legal forms of constitution provided for in the Directive, and are subject to income tax.

In certain instances, transmission of unused tax losses is allowed.

Interest and royalties directive

Council Directive 2003/49/EC dated June 3, 2003 on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States, is applicable to companies in Portugal.

Payment of interest and royalties between companies in the EU are exempt from withholding tax, if:

• Both companies embody one of the legal forms of constitution provided for in the Appendix to the Directive;

• Both are subject to Income Tax;

• There is an existing association of capital between them >= 25%, or if both are directly held in >= 25% by a third company, which complies with the two requisites stated above, so long as in either of the cases, the subsidiary is held for a minimum of two years;

• The company to which the interest or royalty payments are made is the beneficial owner of such income, which shall be deemed to be the case when it earns the income for its own account and not as an intermediary, and where a permanent establishment is deemed to be the beneficial owner, the credit, right or use of information from which the income derives is effectively related to the activity carried out through its intermediary and constitutes taxable income for the purpose of determining the profit attributable to it in the Member State in which it is situated.

Companies in Portugal comply with the first two requirements. If the 3rd and 4th are also fulfilled, it is possible for entities in other Member States to pay interest or royalties to the company in Portugal without automatic withholding at source.

Under the Agreement between the EU and Switzerland, tax exemption on the payment of interest and royalties shall also apply to the relationship between Portuguese and Swiss companies, provided that both are limited companies and fulfil the above-mentioned requirements.

A significative advantage of Madeira companies in relation to companies under the Portuguese general tax regime is that, with the application of the tax regime available within the International Business Centre of Madeira, payment of interest to third parties is exempt from withholding tax.

Partners or shareholders of Madeira companies, as long as non-resident in Portugal or in tax-havens, are also exempt from tax on the payment of income deriving from interest or other form of remuneration of shareholder loans, allowances or advances of capital that they have made to the company.