Madeira: Offshore Business Sectors
Financial Holding and Investment
A holding company (sociedada gestora de participacoes sociais - SGPS) is a tax-effective way of holding participations in subsidiary or related trading companies, including licensing companies, and those for the collection of royalty, franchise or interest income, wherever situated.
A holding company is not permitted by law to buy its own shares, purchase debentures in companies in which it does not hold a participating shareholding (subject to certain exceptions), make loans other than to companies in which it holds part of the share capital or engage in any commercial activities other than holding shares in other companies.
See Offshore Legal and Tax Regimes for details of the taxation of holding companies, which receive generous tax breaks on income from their holdings.
Mixed holding companies can both hold shares in other companies and trade in their own right; however they have disadvantages, including that many EU states do not accept that they fall within the Parent and Subsidiary Directive, which can limit their tax-effectiveness.
They cannot engage in the type of trading activities which are carried on by banks and financial institutions and which require licensing and authorization from the Bank of Portugal.
In the last 15 years or so, a series of law and regulation changes have been passed with the intention of tightening up the level of supervision of offshore property holding companies.