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this Page:
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MADEIRA INTERNET SERVICE PROVIDERS
- MADEIRA OFFSHORE
ACTIVITIES
- MADEIRA CASE
STUDIES
Madeira
encourages information technology operations,
and the island has invested heavily in state-of-the-art
telecommunications. There are already a number
of Internet Service Providers in Madeira, with
clear interest being shown in offshore e-commerce
development. See below for specific information
on e-commerce in Madeira, or go to Offshore-e-com.com
for an extensive analysis of the commercial possibilities
and the legal background.
A
conference held in January 2006 heard that increasing
competitiveness in the e-business sector and the
improvement of the jurisdiction's internal efficiency
through e-government may be fundamental tools
in stimulating the creation of new economic activities
and the strengthening of innovation in Madeira.
The
suggestion was made by Willem Mole, senior adviser
of ECORYS Nederland, part of the European research
and consulting group, during the conference organized
by S.D.M., the jurisdiction's investment promotion
agency, which was held in Funchal under the theme:
“Madeira, Present and Future: the challenge
of development."
The
conference heard how Madeira could learn how other
small and dynamic economies, such as Luxemburg,
Malta, The Isle of Man and Singapore, overcame
their own difficulties and developed strategies
to respond to the challenges of the constantly
changing global economy.
The
general conclusion drawn by the delegates as a
result of the presentations and debates was that
Madeira needs to reinforce its presence worldwide
and must use the strengths of the International
Business Centre and the Tourism industry.
This
view was strongly endorsed by the Vice-President
of the Regional Parliament, Miguel de Sousa, who
stressed that “all the required conditions
must be created in order to assure the competitiveness
of Madeira's IBC as well as the necessary stability
to attract international investors".
Madeira
Internet Service Providers
The
main Internet Service Providers in Madeira are
Cabo TV Madeirense, SA and Portugal Telecom.
Other
ISPs with smaller market-share on the island are:
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KPNQwest Portugal
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Telepac
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Vodafone
-
Equant
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NovisNet and
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Dixcart.Net Serviços de Internet Lda
Madeira
Offshore Activities
The natural bonding of the Internet and Offshore
stems from the fact that both, of their nature,
manage to avoid tax. Businesses which can operate
on the Internet without, so to speak, touching
ground in a high-tax jurisdiction will naturally
migrate to offshore jurisdictions; while businesses
that already have offshore existence will find
it highly convenient to be able to use the Internet
to trade with their high-tax customers without
having to make a landing in their countries.
As
a major offshore jurisdiction with many thousands
of offshore enterprises already installed, including
many trading companies, it is only a matter of
time before Madeira becomes a centre of e-commerce
activity. The island's geographical location between
continents, its good telecommunications links,
sophisticated business infrastructure and the
highly-educated work-force are all factors which
will attract the sales, marketing and administrative
departments of retail operations, particularly
those trading into EU and African countries.
By
locating websites in Madeira to carry out functions
previously based in high-tax jurisdictions such
as sales and marketing, treasury management, supply
of financial services, and most of all, the supply
of digital goods such as music, video, training,
software etc, businesses can take advantage of
low rates of taxation for increasingly substantial
parts of their operation.
In
many countries, the distribution of goods from
a warehousing facility does not constitute the
carrying on of a trade or business in that jurisdiction,
so that even for physical goods, in many case
it will be possible to avoid a permanent establishment
(taxable presence) altogether in many high-tax
jurisdictions where trading activities currently
take place.
During
2002, Madeira became the country of choice for
EU Internet Service Providers wishing to offer
broadband services, due to its low VAT rate and
the advantages of the International Business Centre
(MIBC).
British
Telecom announced in April of that year that it
was planning to move its broadband internet division
BTopenworld to Madeira, where it joined Virgin.net,
a new flat-rate internet service which is a joint
venture between the Virgin Group and cable provider
NTL, and which established its financial base
in Madeira.
Later
in the year, Freeserve (now Orange) joined BT
and Virgin. Freeserve, controlled by France Telecom,
was at that time the UK's largest ISP with an
estimated 2.5 million customers. Freeserve reckoned
to save around GBP4.5 million in tax from the
move.
Madeira is also thought to have benefited from
the European Union's decision to apply its Value
Added Tax to digital downloads by consumers. Starting
in July, 2003, VAT has been payable by the supplier
of goods and services downloaded over the Internet
in the EU, including downloads of software, music
and videos from non-EU companies, subject to de
minimis rules. Before, these products had escaped
VAT, which ranges from 15% on the Portuguese island
of Madeira to 25% in Sweden.
Under
the single registration clause of the directive,
companies are allowed to pay the combined tax
liability that they have accumulated throughout
the EU in one member state, which retains part
of the tax before passing on the rest to the other
states involved. Graeme Ross, head of indirect
tax at KPMG, said that faced with the prospect
of dealing with 15 tax authorities, it was inevitable
that internet companies and ISPs would opt for
single registration. The island is also ideal
for e-commerce, as following a decade of telecoms
infrastructure investment, it now boasts the widest
bandwidth in Europe.
A
proposal advanced in May 2006 by Karl Heinz Grasser,
Finance Minister of Austria, would mean that VAT
will be charged on the basis of where the customer
is situated rather than the jurisdiction in which
the vendor is based, a plan which would likely
have serious consequences for Madeira, which as
previously mentioned, is - for the moment, at
least - the jurisdiction du jour when
it comes to such matters.
According to EU Tax Commissioner Laszlo Kovacs,
the activities of the companies which have chosen
to relocate to low-VAT territories such as Madeira
are tantamount to tax avoidance, distorting intra-union
competition.
“We
want to avoid unfair tax competition because if
we maintain the place of origin principle, in
that case, businesses will establish themselves
in the country with the lowest rates and that
would certainly distort the competition,”
stated Kovacs at the time.
"Until
there's greater harmonisation we would prefer
the country of consumption as a principle,”
he added.
However,
in June of that year, German insistence that the
European Union change its tax legislation to crack
down on widespread value added tax fraud put the
brakes on the planned e-commerce VAT reforms.
At
a meeting of European Union finance ministers
(Ecofin), German Finance Minister Peer Steinbrueck
told fellow ministers that Germany would not support
the e-commerce VAT measure unless it was given
permission by the European Commission to introduce
'reverse charging' to reduce missing trader fraud,
which Berlin claims costs the government as much
as EUR18 billion annually in VAT revenues.
In
June, 2005, mobile phone tycoon John Caudwell,
owner of Caudwell Group, denied rumours that he
was to re-register his firm in Madeira to cut
costs as the company underwent a major management
shake-up.
A
company operating an e-commerce facility in Madeira
will very probably choose to establish itself
in the International Business Centre (see Offshore
Legal and Tax Regimes) and will therefore
have minimal local taxes to pay.
For information about the impact of e-commerce
on a number of the main offshore activities which
take place on the island, click
on a link below to go to our specialist E-commerce
site Offshore-e-com.com
Sales and Distribution of Physical Products
Sales
and Distribution of Digital Products
Banking
and Financial Services (including Investment
Funds)
Corporate
Support Functions
To
see an analysis of the current state of legal
and tax issues surrounding offshore e-commerce,
click
here.
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Madeira Case Studies
This section will contain case studies of e-commerce
solutions applied to offshore business activities
carried out from Madeira. The case studies will
be developed in association with
partners. Contact us
to learn more.
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