Madeira: Offshore Business Sectors

Madeira Financial Holding and Investment

A Holding Company (sociedada gestora de participacoes sociais - SGPS) is a tax-effective way of holding participations in subsidiary or related trading companies, including licensing companies, and those for the collection of royalty, franchise or interest income, wherever situated.

If a trading subsidiary is in the Madeira International Business Centre then income from it was completely tax-free until 2011 if the subsidiary was registered before 2001. Taxation rose to a maximum of 5% for companies founded after that. Capital gains and interest received by the company are subject to 3% to 5% tax. Roll-over provisions were removed by the Tax Reform Act of December 2000.

A Holding Company is not permitted by law to buy its own shares, purchase debentures in companies in which it does not hold a participating shareholding (subject to certain exceptions), make loans other than to companies in which it holds part of the share capital or engage in any commercial activities other than holding shares in other companies.

Madeira Banking

Until 2001, international and Portuguese banks could establish offshore subsidiaries or branches anywhere in Madeira in the 'Offshore Financial Centre' to take advantage of the Free Trade Zone Legislation. Permitted activities included foreign exchange, the management of investment funds and the issuance of negotiable securities as well as a normal range of banking services.

Unless an offshore bank held an international banking license it could not supply financial services to Portuguese residents. The law on the licensing, regulation and supervision of offshore banks and financial institutions was set out in Decree Law No 10/94.

Offshore banks were supervised by the Madeira Development Company. Additionally the Bank of Portugal oversaw and regulated banking matters; the regulations were the same as those that apply to the establishment of financial institutions in mainland Portugal and involve prior authorization from the Bank of Portugal or the Ministry of Finance. Capital requirements were high at 3.5 billion escudos prior to the issue of a banking license.

It took between 5-7 months for the license application to be processed. The banks of European member states were subject to less stringent authorization requirements than non European Union financial institutions, under the EU 'passport' rules.

A bank must paid an annual license fee of USD25,000. Prior to 2002, around 40 banks and other financial institutions were licensed to operate under the Free Trade Zone Legislation. They included such household names as Chemical Bank, Citibank, Deutsche Bank and ABN-Amro.

Under the 'acceptable state aid' scheme approved by the EU in late 2002 and extended in 2006, newly-established financial services companies were longer able to take advantage of the MIBC regime.

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Madeira Trust Management

Madeira is a civil law jurisdiction, subject in general to Portuguese law, and the trust thus does not exist as such. Portugal has not ratified the Hague Convention on the law applicable to trusts and their recognition.

Nonetheless when the Free Trade Zone Legislation of Madeira was enacted provision was made for the creation of offshore trusts. Decree Law No 352/88 & Decree Law No 149/94 deal with the registration and management of offshore trusts whereas Decree Law 264/90 concerns authorization by government of trust corporations and branches. The property of trusts must be outside Portugal, and income derived from outside the country.

An offshore trust lasting for more than one year needs to register in the Free Trade Zone registry, although the identity of the beneficiaries need not be disclosed. Neither settlor nor beneficiaries may be residents of Portugal. Only Stock Corporations (see above) and branches of foreign trust corporations licensed to operate under the Free Trade Zone Legislation of Madeira can act as trustees.

Trustees require authorization from the regional government of Madeira and at least 51% of the shares must be held by nominees. A transfer of more than 5% of the shareholding in a trust company requires the approval of the regional government.

Trust companies must be audited annually and must retain a statutory auditor on their board of directors. They must keep books of account relating to the trusts being administered.

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Madeira Ship Management and Maritime Operations

See Offshore Business Review – Shipping for a more general treatment of offshore shipping registries.

Under the Free Trade Zone Legislation vessels and yachts may be registered at the international ship registry of Madeira under the Portuguese flag provided their activities do not amount to transportation of goods between Portuguese ports. Transportation between Portuguese ports and foreign ports is allowed.

The shipping registry delegates some of its functions and recognizes certificates issued by specified classification societies. Among the functions that may be delegated are the supervision and enforcement of rules concerning stability, bulk cargo, on board security as well as the issuing of international certificates concerning conventions and resolutions of the International Maritime Organization and the OLO.

The classification societies recognized by the Madeira registry are Lloyds Register of Shipping, Bureau Veritas, Det Norske Veritas, Registro Italiano Naval, American Bureau of Shipping, Germanischer Lloyd, Rinave Portuguesa and Nippon Kaiki Kyokai. Other classification societies may in added to the list in the near future.

In assessing crew composition and minimum crew requirements the objective of the registry technical commission is to guarantee safety and the preservation of the quality of life abroad and at sea. The captain and 50% of the crew must be nationals of European Union member states, save where it is shown that such a composition is not possible or where non compliance with these conditions is justified by special circumstances. Crew composition requirements do not apply to yachts.

A fixed fee of EUR1,800 is payable to the registry upon registration. Thereafter there is an annual fixed fee of EUR1,400. Additionally a fee which varies according to tonnage must be paid both at the time of initial registration and annually.

In March, 2004, new regulations were introduced allowing the registration of charter yachts in the International Shipping Register.

See Offshore Legal and Tax Regimes for details of the taxation of ships and shipping companies in Madeira.

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