It was during the 1980’s that the first steps toward the creation of Madeira's International Business Centre (MIBC) were taken. Facing a predictable crisis in the traditional economical sectors and an excessive dependence on tourism, Madeira needed a mechanism that could efficiently contribute to modernise and diversify the local economy and which had already been successfully tested in other similar regions.
When Portugal joined the then European Community, the implementation of Madeira's IBC received a decisive push. It was accepted and approved by the Portuguese Government and at the highest instances of the European Union.
A well regulated environment has been of utmost importance for the performance of Madeira's IBC so far. The legislation governing the MIBC was approved and enacted by the Portuguese Government and is fully integrated and totally compliant with the solid foundations of the Portuguese legal system.
Madeira, in spite of the tax benefits in force, cannot be considered a tax haven under generally accepted international principles and practices. In fact, the legislation that supports the development of all activities within Madeira's IBC is not characterised by a deregulation vis-à-vis the Portuguese law. Additionally, any Portuguese company can apply for a license to operate with the IBC, and entities licensed to operate therein, with the exception of financial institutions, may interact with other Portuguese tax resident entities.
Presently, and entering its 13 years of existence, Madeira’s IBC within its 4 main sectors of activity – the Industrial Free Trade Zone, the International Shipping Register – MAR, the International Services and the Financial Services - comprises more than 4600 companies in operation and a number of registered vessels in excess of 260.
The Industrial Free Trade Zone (IFTZ) combines a mixture of tax and customs incentives making it an option of unique characteristics for manufacturing companies willing to set up or expand operations in the European Union. On top of the zero tax rate on profits and dividends, special note must be given to the possibility of manufacturers reducing up to 100% the import duties applicable to non-EU raw materials imported in the IFTZ, provided these undergo a substantial transformation in accordance with EU rules of origin.
The financial and insurance institutions operating in the MIBC, currently 47, have full and direct access to the EU market as a consequence of Portugal having adopted the relevant EU directives on the financial and insurance fields. Activities are duly supervised by the Portuguese Central Bank and by the Portuguese Institute of Insurance in accordance with the general regimes applicable in Portugal.
Tax residency in Portugal has been an instrumental factor for the growing number of companies using Madeira as a base for their international operations. The specific tax benefits of Madeira’s IBC, paired with some characteristics that directly result from its integration within the Portuguese legal regime and in the European Union, created a series of opportunities. Residency status entitles companies incorporated therein to automatically have a VAT registration number in the E.U., provides access to Portugal’s network of double taxation treaties and allows for the applicability of EU directives. The latter is of particular relevance for the Portuguese pure holding companies, the S.G.P.S.. This company when incorporated within Madeira’s IBC is liable, without possibility for option, to the Portuguese normal regime of taxation on profits becoming, as such, eligible for application of the Parent/Subsidiaries Directive.
MAR, Madeira’s International Shipping Register was created in 1989 with the goal of avoiding the flagging out process from the Portuguese traditional register and attracting new vessels from other nationalities. MAR was established as a high quality register and, simultaneously providing a cost efficient alternative for shipowners and shipping companies. This is why it abides by the provisions of all the international maritime treaties and conventions ratified by Portugal and, at the same time, offers an attractive set of fiscal advantages. An important step towards its competitiveness was given in 1993 when the Decree-Law 393/93 authorised the registration of yachts and made more flexible the crew requirements for commercial vessels. At the same time a new mortgage regime was also established which enabled the mortgagor and the mortgagee to choose by written agreement which mortgage law will rule the mortgage contract. Being a European Union register it has proven to be a serious option for shipowners and shipping companies interested on EU cabotage operations. It increasingly became so after Portugal took the initiative to liberalise cabotage between mainland ports in January 1997 and, more recently in 1999, when Portuguese Authorities decided to open islands cabotage following the recommendations of Regulation (EEC) 3577/92.
With just over a decade of existence, practice has shown that expectations on Madeira’s IBC effective contribution for the diversification and modernisation of the local economy were effectively correct.
The content of this article is intended only to provide general guidelines related to this particular matter. For your specific circumstances, full specialist advice is recommended.
