Madeira: Law of Offshore
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.