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Madeira: Types of Company

Holding Company

A Holding Company (sociedada gestora de participacoes sociais) is a corporate entity which for a period of at least 12 months holds at least 10% of the voting share capital of the company in which it has a participating shareholding. Holding companies are governed by Decree law 495/88 and Decree Law No 21/87.

Holding companies can be either Private Limited Liability Companies or Stock Corporations and must have their accounts audited annually. The initials SGPS must be included in the Holding Company's name.

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: As its name suggests, a Mixed Holding Company can both hold shares in other companies and trade in its own right. It 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.

A Mixed Holding Company must combine its activities. Its trading activity cannot be exclusively limited to the holding of shares; nor can it be a pure trading company which does not hold shareholdings in any other company. Mixed Holding companies can be either Private Limited Liability Companies or Stock Corporations. License authorization comes from the regional authorities.

Most European Union member countries do not accept that the Parent Subsidiary Directive No 90/435 on withholding tax on dividends applies to Mixed Holding Companies (see Withholding Taxes and Double Tax Treaties).

NB: The Tax Reform Act of December 2000 somewhat reduced the tax advantages of both Pure and Mixed Holding Companies, particularly for Portuguese residents.



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