Madeira Table of Statutes
This is a non-exhaustive list of the main Madeiran
(usually Portuguese) statutes affecting offshore
and non-resident business. The statutes are
listed in alphabetical order – click on
the statute for a fuller description of the
statute, the legal regime it forms part of,
or in some cases the text of the law.
Decree
Law No 262/86 (Companies Code)
Decree Law No
21/87 (Holding Companies)
Decree Law No 352/88 (Trusts)
Decree Law No
495/88 (Holding Companies)
Decree Law No 96/89 (Shipping Register)
Decree Law No 715/89 (Ship Registration)
Decree Law No 264/90 (Trust Companies)
Decree Law No 393/93 (Miscellaneous Shipping)
Decree Law
No 10/94 (Offshore Banks)
Decree Law
No 149/94 (Trusts)
Decree Law No 212/94 (Company Law)
Tax Reform Act 2000
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Madeira Trust Law
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.
Portuguese
residents cannot use Madeira offshore trusts.
The law forbids a trust to hold immovable property
situated in Portugal and to have either a settlor
or a beneficiary who is a Portuguese resident
. All trust property should be based outside
Portugal and all trust income should be derived
from non-Portuguese sources if the favorable
taxation regime governing entities licensed
to operate under the Free Trade Zone Legislation
of Madeira is to apply.
Where
trust income arises in Portugal it is taxable
in the hands of the trustees as if the trustees
were both legally and beneficially entitled
to the income. The reasoning behind this principle
is that Portuguese law does not recognize the
concept of a trust and so does not recognize
the distinction between legal and beneficial
ownership for the purposes of taxation. By way
of exception income arising through investments
made through companies licensed to operate under
the Free Trade Zone Legislation of Madeira is
not considered to have arisen within Portugal
for tax purposes.
For
a Madeira trust to be valid it must satisfy
the following criteria:
-
The trust must pass the 3 tests of certainty
of intention, certainty of objects and certainty
and identification of the beneficiaries;
-
The settlor, the trustees, the beneficiaries
and the assets settled by the trust must all
be identified in the trust deed;
-
The trust period must be specified.
- A
power to accumulate income must be specified
in the deed;
-
The trust deed must stipulate a foreign proper
law governing the validity, interpretation
and administration of the settlement;
- The
trust deed must set out the trustees powers
of investment, the rights and obligations
of trustees and the relationships between
trustees and beneficiaries including any personal
liability arising.
Re-domiciliation: Trusts that are created
in or transferred to Madeira may emigrate without
prior authorization by exchanging the law governing
the trust with the law of the foreign jurisdiction
to which the trust is going to migrate.
Change
of Proper Law: The trust deed can reserve
the right to change the proper law governing
the validity, interpretation & administration
of the trust at any future point in time
Creation
of a Madeira Trust: a Madeira offshore trust
is brought into existence by the execution of
a notarial trust deed in front of a public notary.
Provisions
protecting Confidentiality: There are a
number of provisions that protect trust confidentiality:
- Although
an offshore trust must be registered in the
private Trust registry located in the Madeira
free trade zone neither the trust deed nor
the names of beneficiaries and settlor need
be registered;
- A
trustee who is opening a bank account on behalf
of a trust does not need to disclose the names
of the beneficiaries to the bank although
the bank may require such details for the
purposes of its internal controls;
-
The exchange of information agreements contained
in double taxation treaties only allow for
the disclosure of information relating to
drugs or weapons trafficking;
-
European Union directives as transposed on
the Islands do require the local authorities
to co-operate in matters relating to drug
trafficking, weapons trafficking and money
laundering but do not require the local authorities
to cooperate with foreign investigators in
matters of tax evasion;
-
Disclosure of the details of a trust is only
allowed pursuant to a court order (See Article
11 of Decree Law No 264/90). An unauthorized
breach of the confidentiality provisions contained
in article 11 will result in criminal sanctions.
Unit Trusts
There are no unit trusts in Portugal or Madeira.
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Madeira Tax Reform Act
2000
All
companies licensed before December 31, 2000
will continue to be tax exempt until 2011. As
finally approved by the EU in late 2002, companies
which registered under the new regime were able
to enjoy a reduced rate of tax of 1% in 2003-2004,
2% in 2005-2006 and 3% in 2007-2011 (instead
of the normal rate, 25% since 2005).
Financial
institutions were not permitted to take advantage
of the new scheme operating from 2003; but existing
formations continued to benefit under the old
law until 2011.
In
January 2008, the Portuguese government published
Decree Law n.º 13/2008 which adds Article
34-A to the Statute of Tax Benefits. This article
regulates the extension of the preferential
tax regime of the IBC of Madeira until the year
2020.
According
to Article 34-A, new companies licensed from
January 2007 to December of 2013 will continue
to enjoy reduced corporate tax rates of 3% between
2007 and 2009, then 4% between 2010 and 2012
and 5% between 2013 and 2020. Companies licensed
to operate within Madeira's International Business
Centre before the year 2001 will continue to
benefit from a full exemption from corporate
tax until the end of 2011, as well as from withholding
taxes on dividends, royalty payments and capital
duty. As of 2012, such companies will fall under
the new regime which shall be valid until the
year 2020.
The
regime for holding companies has also been adjusted
in various respects, including the abolition
of roll-over relief on proceeds from the sale
of subsidiary shareholdings - tax will now be
payable over a 5-year period subsequent to a
disposal, at the ruling Portuguese rate.
MIBC
companies had previously been deemed to be non-resident
in Portugal, but in order to guard against abuse
by Portuguese residents, it was decided that
they will have to document transactions in order
to prove that they are trading or dealing with
non-Portuguese partners or customers. This is
just a bureaucratic annoyance for companies
with genuinely non-resident activities, but
has adversely affected a number of companies
who have been running Portuguese trading operations
from the MIBC.
No
doubt with an eye to the general tightening-up
of global standards of protection against money-laundering,
the Tax Reform Act changed the rules so that
the tax authorities are no longer required to
obtain a Court Order requesting taxpayer's information
from banking, credit and finance institutions.
There
is still a right of appeal for the taxpayer
in most circumstances, and this is sometimes
suspensive. There are a number of other safeguards,
including compulsory notification to the tax-payer
of any investigative process and a requirement
to disclose evidence to the taxpayer. The legislation
also contains a much wider definition of reportable
transactions than previously.
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