The establishment of branches of Portuguese or foreign financial institutions in the FTZM involves special licensing requirements, which include an authorization by the Portuguese Minister of Finance preceded by an evaluation of the case by the Madeira Regional Government and by the Bank of Portugal.
The following innovations were introduced by the said Decree-Law:
1. Incorporation Of Financial Institutions And Companies
It is now possible to incorporate in the offshore zones credit institutions (under Portuguese law this concept includes entities such as banks, investment, leasing and factoring companies), financial companies, insurance and reinsurance companies, as well as pension funds management companies. Formerly, only branches of such entities could be based in the offshore zones.
In the past, several foreign banks showed interest in the incorporation of subsidiaries in the offshore zone of Madeira. Such incorporation has become possible under this new legal regime.
It is, of course, still possible to set up in the offshore zones branches, agencies, delegations, and other forms of representation of the above referred financial institutions.
2. Conditions and Procedure for Installation
The conditions and procedure for the installation of financial entities in the offshore zones are now similar to the ones applicable to the installation of the said entities in any other part of the Portuguese territory. (The conditions and procedure established under Portuguese law are currently the result of the implementation of EU harmonization measures in the financial and insurance sectors. The requirements and procedures for installation vary depending on whether the entity to be set up is a subsidiary or branch of an institution based in the EU, or of an institution based in a third country.)
The only speciality in respect of the installation in the offshore zones is the need of payment of an annual fee for operation in the offshore zone. Such fee is fixed by the Regional Government of Madeira or of the Azores, as the case may be.
3. Taxation
The tax regime applicable to financial entities based in the offshore zones is as follows:
- 3.1 The income of such entities is exempt from Corporate Tax, provided that their activity does not include operations with residents in Portugal (not based in an offshore zone).
- 3.2 Income paid by credit institutions based in the offshore zones to non-residents or to other entities of the offshore zones, as a result of operations for the financing of the credit institution (operations such as the receipt of common cash deposits are herein included), is exempt from income tax (ie: Corporate Tax if the recipient of the income is a corporate entity, IRS if it is an individual).
- 3.3 Acts and documents concerning any entities based in the offshore zones are exempt from stamp tax, provided such documents or acts do not involve residents in Portugal (not based in an offshore zone).
The treaties for the avoidance of double taxation concluded by Portugal are fully applicable to entities based in the offshore zones of Madeira and of Santa Maria.
4. External Financial Branches and International Financial Branches
The branches of credit institutions or of financial companies are classified into two different categories: External Financial Branches (SFE) and International Financial Branches (SFI). The operating licence of an SFE branch excludes from the activity of the branch the carrying out of operations with residents in Portugal (not based in an offshore zone).
Thus, SFE branches qualify for the tax exemption above mentioned in 3.1. SFI branches may carry out operations with any entity (resident or non-resident) and they do not qualify for the above referred exemption of Corporate Tax (vd above 3.1.). Nevertheless, non-residents to whom SFI branches pay interest can benefit from the tax exemption above mentioned in 3.2.
This apparently complex system was designed in order that Portuguese banks may pass deposits made by non-residents (using the above described tax exemption regime) on to their head-office located in Portuguese territory. A Portuguese bank may use its SFE to obtain funding from non-resident entities and then may pass it on to the SFI of the same bank. In turn, the SFI may pass the funds further on to the head-office. Using this system, the SFE will not loose its Corporate Tax exemption and the head-office may benefit from the funding thus obtained.
Foreign credit institutions and financial companies wishing to set up a branch in an offshore zone will, in principle, be interested in an SFE-type branch, and not in an SFI.
5. Documents required for the incorporation of a MIBC branch or financial institution
The documents required for incorporation of an offshore branch of a financial institution (e.g. bank) in Madeira are as follows:
A declaration issued by the applicant institution stating that it shall provide the branch with adequate capital or stating that the applicant shall guarantee with its own capital all the operations of its branch.
A declaration issued by the applicant institution assuming full responsibility for the operations of its branch.
Articles of association of the applicant institution, certificate of the latest approved balance, and profit and loss account .
List of members of the Board of Directors of the applicant institution.
Resolution of the shareholder's meeting of the applicant institution authorising the installation of the offshore branch.
Document issued within the last 90 days by the authorities of the state of origin stating that the installation of the branch has been authorised by them, or stating that such authorisation is not required by their laws.
Programme of activities to be carried out by the branch, indicating the technical means to be used.
8. The Government may additionally require the following documents:
Document issued within the last 90 days by the authorities of the state of origin certifying that the applicant institution has legal existence and is authorised to carry out its business activities.
Distribution of the capital of the applicant institution and list of its shareholders who held more than 5% of the capital.
List of branches and other representations of the applicant institution outside its country of origin.
Memorandum explaining the international activities of the applicant institution, and namely its commercial, financial or other business relations with companies or entities based in states of the European Community.
Secrecy: the managers and other employees of Offshore Branches are not allowed to disclose or to take advantage of information's (mainly names of clients, numbers of accounts, etc.). Offshore Branches must pay a licence for the use of their facilities and an annual operation license.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
For further information please contact:
Christina Perriera Madeira Fiducia Management LDA Rua 31 de Janeiro No 81-A 5E -9050 Funchal Madeira Portugal
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