INTERNATIONAL BUSINESS CENTRE OF MADEIRA (IBCM) OTHER TAX - - PDF document

INTERNATIONAL BUSINESS CENTRE OF MADEIRA (IBCM) OTHER TAX PRIVILEGED REGIMES APPLIED IN PORTUGAL

INTERNATIONAL BUSINESS CENTRE OF MADEIRA I. Madeira II. International Business Centre of Madeira III. Tax Benefits for the International Services IV. Double Taxation Treaties V. International Shipping Registry (RIN-MAR) VI. Investment in Angola and Mozambique through Madeira VII. Characteristics of Madeira Companies

• VIII. Certificates of Fiscal Residency

OTHER PRIVILEGED TAX REGIMES APPLICABLE IN PORTUGAL IX. Golden Visa X. Non-Habitual Resident Tax regime XI. About us XII. Contacts www.mcs.pt

MADEIRA

Madeira is a Portuguese archipelago in the Atlantic Ocean, situated 625 miles (1,000 km) from Mainland Portugal and 545 miles (900 km) from North Africa. It consists of four islands: Madeira, Porto Santo, Desertas and Selvagens. Madeira and Porto Santo are the only inhabited islands, while the Desertas and Selvagens islands are uninhabited natural reserves that have been declared World Heritage Sites by UNESCO. Madeira Island is the biggest and most important island of the archipelago with an area of 741

• km2. Due to its subtropical climate and landscapes, it is known worldwide as an all year round

tourist destination. Although it is an integral part of Portugal and subsequently of the European Union, where all laws applicable on the mainland also apply, Madeira is an autonomous region with its own government and parliament. The population numbers approximately 245,000 inhabitants and its capital is the city of

• Funchal. Madeira’s International Airport serves several daily flights to Lisbon and other major
• cities. The official currency is the EURO and it is a civil law jurisdiction. A considerable part of

the younger population is fluent in English. Madeira’s economy is based on tourism, wine production and the International Business Centre of Madeira (IBCM). Created at the beginning of the eighties, the IBCM has proved to be a success and currently represents around 21% of the Regional Gross Domestic Product. The highly advantageous tax regime, in addition to competitive operating costs, makes Madeira an attractive centre for international investment.

INTERNATIONAL BUSINESS CENTRE OF MADEIRA

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INTERNATIONAL BUSINESS CENTRE OF MADEIRA

Madeira, for being an outermost region of the European Union and benefiting from the state aid regime foreseen in the EU treaties, was entitled to implement a development program to attract foreign investment and economic activity. This program commonly known as the Madeira Free Trade Zone or International Business Centre of Madeira (IBCM), initially created in 1980, was duly approved by the European Commission and subsequently over time reapproved on several occasions. In March 2015, Portugal negotiated with the EU Commission the main guidelines of the so- called “IV Regime”, for companies licensed between 2015 and 2020, and with tax benefits going up to 2027. The new regime now integrated in the General Block Exemptions Regulation (GBER) for State Aid, required some tough negotiations to enable specific derogations for Madeira. The new law (Law n.º 64/2015) was published on the 1st of July 2015, but with effects as from 1st of January 2015.

SECTORS OF ACTIVITY

Interested investors may take advantage of the several benefits of the following main sectors

• f activity of the IBCM:

The Industrial Free Trade Zone All industrial activities such as manufacturing, production, assembling and warehousing should take place in an industrial park located in Caniçal, which is located 8 Km away from the island’s international airport and next to the main commercial port. These activities enjoy attractive tax and customs duties regimes. 4 – 33 | www.mcs.pt

International Services This is the main sector of the IBCM, allowing all type of international service activities such as international trading, management and consulting services, e-business, telecommunications,

• wnership of intellectual property, real estate investments or holding of participations.

International Shipping Registry of Madeira ( RIN-MAR) An International Shipping Registry - MAR - Portugal’s second register, was also created within the IBCM. MAR accepts the registration of all types of commercial vessels, including oil rig platforms, as well as commercial and pleasure yachts. (Please refer to section V of this memo). New Upcoming International Aircraft Registration The new IV Regime also foresees the creation of an International Aircraft Registration (still subject to approval of internal legislation).

TAX BENEFITS FOR THE INTERNATIONAL SERVICES

As referred, following successful negotiations with the EU Commission, Portugal approved the so-called IV Tax Regime for the IBCM, for companies licensed between 2015 and 2020, and with tax benefits up to 2027. All existing companies licensed up to 31st December 2014, under the III Tax Regime for the IBCM, will maintain their tax incentives up to 31st December 2020, notwithstanding the possibility of transferring at any time into the IV Tax Regime to maintain benefits up to 2027. 5 – 33 | www.mcs.pt

The III & IV Tax Regimes are in general terms quite similar, with some small differences resulting from the latest negotiations with the EU Commission.

MADEIRA IBC TAX REGIME

General Guidelines All Madeira Companies duly licensed to operate within the IBCM, are entitled to benefit from a reduced Corporate Income Tax (“CIT”) rate of 5% provided that the conditions for admission to the mentioned Madeira IBC regime are complied with. This is the lowest corporate tax rate in force in the EU and one of the lowest in the World. Conditions (Substance Requirements) for admittance to the new regime In order to benefit from this special regime, companies shall comply with the following substance requirements: a) Creation of one to five jobs in the first six months of business and making a minimum investment of 75.000 Euros in the purchase of fixed assets, tangible or intangible, within the first two years of business; b) Creation of six or more jobs within the first six months of business. The reduced corporate tax rate that companies are entitled to benefit from is subject to a maximum limit of taxable income which depends on the number of jobs created in accordance with the following scale: 6 – 33 | www.mcs.pt

The reduced corporate tax rate that companies are entitled to benefit from is subject to a maximum limit of taxable income which depends on the number of jobs created in accordance with the following scale: The remaining tax result, which surpasses the threshold, shall be subject to the IRC tax rate applicable in the Madeira Autonomous Region, currently 21%. As regards specifically the creation of jobs, the Regional Government of Madeira issued an Order stating that any job relationship foreseen in the Portuguese labor code will qualify as a job creation. Therefore a part-time job will qualify as well as a director receiving a salary. What effectively matters is that the employee’s salary is processed through the Madeira Company and is in compliance with the legal rules regarding withholding personal income tax and social security contributions. If the entities licensed to operate in the IBCM fail to comply with the requirements of the regime with reduced taxes, the same shall be subject to CIT at the standard rate of 21%. NUMBER OF JOBS TAXABLE INCOME 1 – 2 Jobs EUR 2,73 million 3 – 5 Jobs EUR 3,55 million 6 – 30 Jobs EUR 21,87 million 31- 50 Jobs EUR 35,54 million 51 – 100 Jobs EUR 54,68 million More than 100 Jobs EUR 205,50 million 7 – 33 | www.mcs.pt

Further to the reduced corporate tax rate, the following additional tax benefits are applicable to companies licensed to operate in the Madeira IBC until 2020: i. Participation Exemption regime (described under 3.3 below); ii. No withholding tax on payment of dividends under IV Tax Regime to non-resident entities (under certain conditions as described below); iii. No withholding tax on payment of services to non-resident entities; iv. No withholding tax on payment of interest to non-resident entities (under certain conditions); v. No withholding tax on payment of royalties to non-resident entities; vi. No stamp duty or capital tax; vii. No capital gains on the sale of the company itself (under certain conditions); viii. Patent Box Regime (described below). 8 – 33 | www.mcs.pt

It is important to enhance that the income obtained by entities licensed to operate in the Madeira IBC shall only benefit from the tax exemptions/reductions foreseen whenever: (i) the income is attributable to duly licensed entities, (ii) from operations included within the scope of the licensed social activity (iii) carried out with non-Portuguese residents, excluding those resulting from activities with other entities licensed to operate within the IBC. Contrarily, the income derived from activities with residents in Portugal is taxed in accordance with the standard CIT standard rate. This limitation of the fiscal benefits to external sourced income implies that the respective beneficiaries must give proof of their non-residence status in Portugal. Consequently, in certain situations established in the law, it is necessary to obtain and keep a document as proof of non-residence of the transaction’s counterpart. This document is a certificate of fiscal residence or an equivalent document issued by the authorities of the country where the counterpart is resident for tax purposes. A last note to mention that the regime of the Madeira IBC continues to be significantly competitive, granting the lowest corporate tax rate of the European Union (“EU”) and one of the lowest corporate tax rates worldwide. In fact, companies operating herein are not characterized as “offshore” and are totally entitled to benefit from almost all Double Taxation Treaties (“DTT”) entered by Portugal, as well as from the EU Directives applicable to tax

• matters. Furthermore, companies operating in the Madeira IBC are normally excluded from the

so-called “black list” of jurisdictions with low taxation that most States choose to disclose. 9 – 33 | www.mcs.pt

PARTICULARITIES OF THE IV TAX REGIME

As previously mentioned, the so-called IV Tax Regime for new companies licensed from 2015

• nwards is very similar to the III Tax regime described above.

The main differences are: New Exemption on withholding tax on the payment of dividends The IV Tax Regime re-introduces a tax exemption on the payment of dividends to shareholders (individuals or corporate entities) except if such person or entity is resident in the Portuguese black listed jurisdictions of tax havens. This benefit is limited to the profits, which were subject to the reduced corporate tax rate of 5%, or for the part not subject to the referred reduced corporate tax rate, if such profits derive from operations carried outside of Portuguese territory, with entities not resident in the referred blacklisted jurisdiction. New Tax limits to tax benefits a) The new regime also introduces a general limitation to the tax benefits. Companies under this regime will be subject to any one of the following three annual maximum limits to their tax benefits: i. 15,1 % of Annual Turnover ii. 20,1% of Gross Added Value (GVA) iii. 30,1% Annual with labor costs We believe that these limits to the tax benefits should be sufficient to accommodate nearly all types of business activities in Madeira, independently of the margins and profits being made. 10 – 33 | www.mcs.pt

b) The new law also clarifies that all other taxes which could apply to companies in Madeira such as stamp tax, municipality taxes, property transfer tax, state surcharge tax, etc., are 80% exempt.

PARTICIPATION EXEMPTION REGIME

Exemption on capital Gains and Inbound dividends a) Capital gains or capital losses obtained by entities resident in Portugal, including those licensed to operate in the Madeira IBC, as well as dividends or reserves received, are exempt from CIT provided the following conditions are verified: b) Minimum direct or indirect participation of 10% (through share capital or voting rights); c) A one year holding period (although, in relation to dividends, this period may be satisfied after the income is received); d) The entity distributing the dividends (or which participation is sold) should not be tax transparent; e) The entity distributing the dividends (or which participation is sold) should be subject to and not exempt from (i) Portuguese CIT or (ii) a similar tax referred to in the EU Parent- Subsidiary Directive or (iii) similar tax, provided that the applicable legal rate is not lower than 60% of the Portuguese standard CIT rate (i.e. 12.6%). However this requirement is not mandatory when: (A) at least 75% of the profits derive from an agricultural, industrial

• r commercial activity, or from the rendering of services, which are not predominantly

targeted to the Portuguese market; (B) the activity of the non-resident entity does consist

• f passive income (ex: banking, insurance, finance etc...);

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e) The entity distributing the dividends (or which participation is sold) should not be located in a Portuguese blacklisted jurisdiction. Exemption from withholding tax on distribution of dividends (outbound dividends Dividends distributed by entities licensed to operate in the Madeira IBC may benefit from exemption of withholding tax under the Parent Subsidiary Directive (2011/96/EU). Additionally, such exemption also applies to dividends distributed to parent companies resident in countries that entered into a Double Taxation Treaty (“DTT”) with Portugal with a clause of exchange of

• information. Hence, the conditions that must be met for the exemption to apply are the

following: a) The beneficiary of the dividends must be resident (i) in another EU Member State; (ii) or in a State within the European Economic Area (EEA) which is bound to a cooperation respecting exchange of information and assistance in the collection of taxes similar to that in force in the EU; (iii) or in a country that entered into an agreement on avoidance of double taxation with Portugal with a clause of cooperation respecting exchange of information and assistance in the collection of taxes similar to that in force in the EU). b) The beneficiary of the dividends should be subject to and not exempt from a tax as referred in article 2ºnd of the Parent-Subsidiary Directive or a similar tax, provided that in the cases of item (a) (iii) above the legal rate applicable to the entity is not lower than 60%

• f the Portuguese standard CIT rate.

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c) The beneficiary of the dividends has a minimum direct or indirect participation holding in the company distributing the dividends of 10% (through share capital or voting rights) for a 12 months holding period prior to the distribution. Evidence that the above requirements are verified must be provided prior to the distribution, namely those mentioned in items a) and b), through a declaration confirmed and certified by the tax authorities of the country of residence of the entity receiving the dividends. In the absence of such exemption, dividends distributed are subject to a withholding tax of 25% (or 35%, if paid to an entity resident in a blacklisted jurisdiction). Dividends distributed to individuals are subject to a withholding tax of 28%. Such dividends can also benefit from the reduced rates foreseen in the DTTs entered into by Portugal.

PATENT BOX REGIME

Following other EU jurisdictions, Portugal has also introduced a Patent Box regime. All proceedings arising from the assignment or licensing of patents, industrial designs and models, subject to registration, enjoy a 50% exemption from corporate income tax, as long as they result from R&D activities developed or contracted by the Company.

PARTICULAR CASES

Payment of Commissions Commissions related to the intervention in any contracts paid by companies licensed to

• perate in the Madeira IBC may be subject to withholding tax at a rate of 15%. The amounts

withheld should be 13 – 33 | www.mcs.pt

delivered to the tax authorities until the twentieth day of the following month in which they have been paid. However, if the non-resident counterpart is resident in a country with which Portugal has entered into a double taxation treaty, it will be possible to avoid the withholding tax. Autonomous Taxation Payments (other than under the concept of dividends) made by companies licensed to operate in the Madeira IBC to entities resident in blacklisted jurisdictions, exempt and not subject to a tax identical or similar to the CIT or when the legal CIT rate applicable to the entity is lower than 60% of the Portuguese standard CIT rate may be subject to an autonomous taxation of 55% in case the company is not able to prove that the operations were substantial and real and the amounts involved are not considered to be extraordinarily high or of abnormal character.

DOUBLE TAXATION TREATIES

Madeira, being part of Portugal, benefits from full membership of the EU, namely from all the EU Directives in tax matters. Likewise Madeira benefits from Portugal’s double taxation treaty network, which currently exceeds 70 treaties. 14 – 33 | www.mcs.pt

DOUBLE TAXATION TREATIES DIVIDENDS INTERESTS ROYALTIES Algeria 10% / 15% 15% 10% Austria 15% 10% 5% /10% Barbados (not yet in force) 5% / 15% 10% 5% Belgium 15% 15% 10% Brazil 10% / 15% 15% 15% Bulgaria 10% / 15% 10% 10% Canada 10% / 15% 10% 10% Cape Verde 10% 10% 10% Chile 10% / 15% 5% / 10% / 15% 5% / 10% China 10% 10% 10% Colombia 10% 10% 10% Croatia (not yet in force) 5%/10% 10% 10% Cuba 5% / 10% 10% 5% Cyprus 10% 10% 10% Czech Republic 10% / 15% 10% 10% Denmark 10% 10% 10% East Timor (not yet in force) 5% / 10% 10% 10% Estonia 10% 10% 10% Ethiopia (not yet in force) 5%/10% 10% 5% Finland 10% / 15% 15% 10% France 15% 10% / 12% 5% Georgia (not yet in force) 5%/10% 10% 5% Germany 15% 10% / 15% 10% Greece 15% 15% 10% Guinea Bissau 10% 10% 10% Hong Kong 10% / 5% 10% 5% Hungary 10% / 15% 10% 10% Iceland 10% / 15% 10% 10% India 10% / 15% 10% 10% Indonesia 10% 10% 10% Ireland 15% 15% 10% Israel 5% / 10% / 15% 10% 10% Italy 15% 15% 12% Japan 10% / 5% 10% / 5% 5% Korea (R.O.K.) 10% / 15% 15% 10% Kuwait 5% / 10% 10% 10% 15 – 33 | www.mcs.pt

DOUBLE TAXATION TREATIES DIVIDENDS INTERESTS ROYALTIES Latvia 10% 10% 10% Lithuania 10% 10% 10% Luxembourg 15% 10% / 15% 10% Macau 10% 10% 10% Malta 10% / 15% 10% 10% Mexico 10% 10% 10% Moldova 5% / 10% 10% 8% Morocco 10% / 15% 12% 10% Mozambique 10% 10% 10% Netherlands 10% 10% 10% Norway 10% / 15% 15% 10% Pakistan 10% / 15% 10% 10% Panama 10% / 15% 10% 10% Peru 10% / 15% 10% / 15% 10% / 15% Poland 10% / 15% 10% 10% Qatar 5% / 10% 10% 10% Romania 10% / 15% 10% 10% Russia 10% / 15% 10% 10% San Marino (not yet in force) 10%/15% 10% 10% Senegal (not yet in force) 5%/10% 10% 10% Singapore 10% 10% 10% Slovakia 10% / 15% 10% 10% Slovenia 5% / 15% 10% 5% South Africa 10% / 15% 10% 10% Spain 10% / 15% 15% 5% Sweden 10% 10% 10% Switzerland 10% / 15% 10% 5% Tunisia 15% 15% 10% Turkey 5% / 15% 10% / 15% 10% Ukraine 10% / 15% 10% 10% 16 – 33 | www.mcs.pt

DOUBLE TAXATION TREATIES DIVIDENDS INTERESTS ROYALTIES United Arab Emirates 5% / 15% 10% 5% United Kingdom 10% / 15% 10% 5% United States 5% / 15% 10% 10% Uruguay 5% / 10% 10% 10% Venezuela 10% 10% 10% / 12% Note that some restrictions may apply in certain treaties, for example the use of the US or Brazilian treaty with Madeira companies.

INTERNATIONAL SHIPPING REGISTRY (RIN-MAR)

GENERAL INFORMATION

RIN-MAR was created in the decade of 1980 as a part of the International Business Center of Madeira as many other European countries did, to prevent the flagging out of vessels from the Portuguese Conventional Registry to other less burdensome and more cost effective open shipping registries. RIN-MAR was considered, in September 2014, the fourth largest international shipping register of the European Union, reaching the largest number of vessels since its creation and the third in terms of tonnage. The main statistical data provided by RIN- MAR’s Technical Commission at the end of 2015, is the following:

*79 Ownership registration + 13 Flagged out (bareboat) + 180 Flagged-in (bareboat)

NUMBER OF SHIPS AVERAGE AGE GROSS TONNAGE CREW 272* 11,38 6 895 500,00 5166 17 – 33 | www.mcs.pt

RIN-MAR allows for the registration of all type of commercial vessels (except fishing boats), commercial and pleasure yachts and oil rig platforms. Companies, forms of partnerships, branches, agencies and legal representatives may apply to register a vessel in RIN-MAR. All reputable Classification Societies acknowledged by Portugal are entitled to undertake surveys and other services in respect of vessel registration, namely:

• Lloyds Registry of Shipping (LRS)
• Bureau Veritas (BV)
• Det Norske Veritas (DNV)
• Registro Italiano Navale (RINA)
• American Bureau of Shipping (ABS)
• Germanischer Lloyd (GL)
• Rinave Portuguesa (RINAVE)

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RIN-MAR GENERAL MAIN ADVANTAGES

i. Vessels registered in RIN-MAR may be owned and operated by a foreign company and no restrictions in respect to the nationality or residence of the owners or directors of the company apply. In case the vessel is owned by a foreign entity that entity must appoint a Portuguese representative to deal with compliance matters and be specially empowered to receive notifications and services of process in respect to the vessel(s); ii. The credits secured by a shipping mortgage are considered secured credits with the right to be paid with the product of the sale of the vessel with preference to other creditors of the same debtor. As privileged credits they rank on third place just immediately after (i) the costs and legal expenses made in the common interest of the creditors and (ii) the wages due to assistance and salvation; incurred in the ship’s last voyage or because of it; iii. A very flexible and competitive mortgage system applies, allowing the mortgagor and the mortgagee to choose, by written agreement in the mortgage document, the legal system

• f a particular jurisdiction to govern the mortgage. In the lack of such an agreement, the

Portuguese mortgage law shall be applicable; iv. Guarantee to the mortgagee of full payment of all credits secured by the mortgage in the event of sale to third parties of the mortgaged vessel. The third party is not able to sustain the value of the mortgaged property for an amount less than those credits; 19 – 33 | www.mcs.pt

v. Exemption or reduced stamp duty applies to contracts, acts and documents ( namely mortgages) whenever related to entities licensed to operate in the International scope of the IBCM, including vessels registered in RIN-MAR, depending on whether those entities (shipping companies) operate under the III or the IV Tax Regime of Incentives, as summarized below; vi. Exemption of registration fees and other registration taxes in acts related to the registration of the property, mortgages and other acts pertaining to vessels registered in RIN-MAR; vii. Competitive initial registration and annual maintenance fees for the vessels registered in RIN-MAR. Please refer to Annex I containing the official fees payable for the registration

• f vessels in RIN-MAR and other acts and diligences related thereto;

viii. Possibility of temporary registration in RIN-MAR of vessels under a bareboat charter, with the written authorization of the underlying register, the mortgagees and the ship

• wner;

ix. Relative flexibility of the crew nationality requirements: only 30% of the crew must have Portuguese, European or Portuguese speaking countries nationalities ( Brazil, Angola, Mozambique, Cape Verde, S. Tomé). There are no restrictions in the remaining 70% ; x. Application to MAR of all International Maritime Conventions ratified by Portugal. 20 – 33 | www.mcs.pt

SOCIAL SECURITY AND TAX BENEFITS

As far as social security and tax incentives applicable to shipping companies, vessels and crewmembers of vessel in RIN-MAR is concerned, we would highlight the following: i. Exemption to contribute to the Portuguese social security regime for shipping companies with vessels registered in RIN-MAR and their respective non-Portuguese crew members. These crew members shall nonetheless enjoy any type of social protection regime covering illness, professional illness and parenthood. ii. The wages of crews onboard of commercial vessels registered in RIN-MAR are exempt

• f individual income tax in Portugal.

iii. Madeira Shipping companies enjoy important tax benefits at the level of the Corporate Income Tax and stamp duty on financing agreements. (Please refer to section III of this Memo that applies to shipping and yachting companies incorporated in the IBCM). All reputable Classification Societies acknowledged by Portugal are entitled to undertake surveys and other services in respect of vessel registration, namely:

• Lloyds Registry of Shipping (LRS)
• Bureau Veritas (BV)
• Det Norske Veritas (DNV)
• Registro Italiano Navale (RINA)
• American Bureau of Shipping (ABS)

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• Germanischer Lloyd (GL)
• Rinave Portuguesa (RINAVE)

YACHT REGISTRATION

Yachts, either pleasure or commercial, are allowed to register in RIN-MAR. The formalities for registration differ one from the other but in all cases start with the lodging of an application form. Alike in Commercial Vessels the Technical Commission of RIN-MAR has the power to accept

• r deny the registration of a yacht based on technical and legal grounds.

Yachts are subject to inspections carried out by MAR’s inspectors or by Classification Societies by delegation. Inspections are made at the time of the registration of the yacht and as a condition thereof and subsequently every three years, for pleasure yachts and every year for commercial yachts. Dry dock inspections of commercial yachts are required every two years. The registration and maintenance of the yachts with MAR give rise to the payment of the respective fees to the authorities. Please refer to the fees applicable under Annex II to this Memo. The crew on board commercial yachts registered in MAR will be exempt from personal income taxes and will benefit from a flexible social security regime. In fact, non-Portuguese crew members are not obliged to contribute to the Portuguese social security regime, provided that an alternative pension scheme is guaranteed. 22 – 33 | www.mcs.pt

However, the crew may choose the Portuguese voluntary social security regime or any other type of protection scheme, public or private. On the other hand, Portuguese nationals or residents in Portuguese territory shall be mandatorily covered by the general Portuguese social security regime. A total contribution rate of 2,7% will be applicable, of which 2,0% shall be borne by the employing entity and 0,7% by the employee. There are no citizenship requirements for the crew on board the commercial yachts registered in MAR. VAT on acquisition of Non EU Yachts Normally, as the importation rarely occurs in Portugal, although it may be made by a Portuguese company, it would not be liable to Portuguese VAT as the yacht will not enter into Portuguese waters and shall not, assumedly, be subject to custom clearance in Portuguese/Madeira Territory. In so being VAT shall not be an issue in Portugal. The Portuguese tax authorities can, nevertheless, request an evidence of the VAT payment

• verseas in case of inspection.

VAT on the acquisition of EU yachts Should the acquisition of the Yacht be made via a Madeira /Portuguese company and the vessel be accounted as part of its fixed movable assets, the Regime of Intra-Community Supply of Goods should apply. In this case the Madeira Company should use the VAT reverse charge mechanism (it makes the declaration of both its purchase (input VAT) and the supplier’s sale (output VAT) in its VAT return. In this way, the two entries cancel each other from a cash payment perspective in the same return). 23 – 33 | www.mcs.pt

Chartering of Yachts The Portuguese flag, being a EU community flag, is permitted by the European laws and regulations to be used within EU in chartering services. Although these services should be allowed to all EU established owners irrespectively of the flag flown by their yachts, some EU member states tend to render difficult the chartering activities by non EU flagged vessels. The localization rules of the chartering contracts in Portugal are the same as those applicable in the majority of the European members States and VAT is a harmonized tax at the level of the Union. In so being short time yacht charters (those for a period not exceeding 90 days) are taxed at the country where the yacht is actually put at the disposal of the customer. As the charter normally does not start in Portugal no Portuguese VAT will be due.

INVESTMENT IN ANGOLA AND MOZAMBIQUE THROUGH MADEIRA

Today, Portugal enjoys an excellent relationship with all Portuguese-speaking countries such as Angola, Mozambique, Cape Verde, S. Tome & Principe, Guinea Bissau, East Timor and Brazil. Angola and Mozambique are today some of the fastest growing economies in Africa. There are several advantages of using Portugal as a gateway to invest in Angola and

• Mozambique. The countries share the same common language and history, similar legal and

fiscal regimes. 24 – 33 | www.mcs.pt

There are thousands of Portuguese companies operating in Angola and Mozambique and this has created an intense trading activity between the countries, and has promoted excellent shipping connections. Under the Portuguese Participation Exemption regime, dividends received from Angola and Mozambique are not taxed as long as they represent a minimum of 5% holding held for a two year period, and result from active income. Performing the investment through a company established within the Madeira IBC, has the additional advantage of benefiting from the 5% corporate tax, which in many cases can be effectively reduced by application of the Portuguese unilateral international tax credit for taxes withheld abroad. Therefore, for example, a Madeira company performing procurement activities and other services in Angola, will suffer a 5,25% Angolan withholding tax, which will trigger the tax credit relief in Madeira resulting in no taxation in Madeira. Angola does not yet have any Double Taxation Treaty. A treaty has been negotiated with Portugal but has not yet come into force. Portugal does have a DTA with Mozambique, Cape Verde, Guinea Bissau, and East Timor. 25 – 33 | www.mcs.pt

CHARACTERISTICS OF MADEIRA COMPANIES

TYPE OF COMPANIES There are two main types of Portuguese (Madeira) companies of particular interest for foreign investors:

• A private limited liability company (“Limitada” or “Lda”); and
• A stock company (“Sociedade Anónima” or “S.A.”).

LDA COMPANY SA COMPANY Minimum Share Capital EUR 1,00 EUR 50.000,00 Share Capital represented by Quotas Shares (bearer

• r nominative)

Minimum n.º of Shareholders 1 1 or 5 Minimum n.º of Directors 1 1 or 3 Audit Body Only mandatory in certain circumstances Yes 26 – 33 | www.mcs.pt

INCORPORATION PROCEDURES a) Application for name approval is made through a National Company Registry (RNPC); b) Application for license to operate within the IBCM, obtained through “Sociedade de Desenvolvimento da Madeira” (“SDM” - the Madeira Development Company), from the Madeira Regional Government; c) Incorporation act by means of a private or notarial deed. Minimum share capital should be deposited with a local bank; d) Registration of the incorporation deed at the Commercial Registry Office of the Madeira Free Trade Zone; e) Publication of the incorporation registration in the local government gazette and in official

• nline publication website;

f) Declaration of initiation of activity with Portuguese tax authorities; g) Declaration of initiation of activity with Madeira Social Security. The incorporation of a company can take from 2-3 weeks. However, it is possible to incorporate a normal Portuguese company in 1 day through a Business Formalities Centre (CFE) respecting certain conditions. Such Company would be registered in the main Commercial Registry, following which, in order to operate within the IBCM the obtainment of a license would be required as mentioned in b) above, followed by registration in the Commercial Registry Office of the Madeira Free Trade Zone. 27 – 33 | www.mcs.pt

CERTIFICATES OF FISCAL RESIDENCE

Most of the corporate tax exemptions granted to Madeira companies under the terms summarized above are subject to the condition that the operations entered by the Madeira companies, from which their income derives, are done with non-resident entities. Moreover, the exemption of withholding tax on income paid out by a Madeira company shall only apply if the creditor of such income is not a resident of the Portuguese territory. The law establishes that the non-resident status of entities which are counterparts in the

• perations with Madeira companies must be proved by means of a certificate of fiscal

residence, or an equivalent document, issued by the tax authorities or any other official entity

• f their country of residence, or even a document issued by the Portuguese Consulate. Such

certificate must have been issued no more than three years before, or three months after, the date of the operation or of the receipt of the income. Should the expiry date of that document be less than the timing indicated above, such expiry date shall be considered. These documents must be kept in record for a period of 5 years. It is our understanding that, whenever a tax residence certificate proves difficult to obtain, a certificate of the Commercial Registry or a notarial certification duly legalized with The Hague Convention Apostille is appropriate for the purposes of the law. Should the company not obtain the above mentioned proof, nor keep it for the period as indicated above, the Portuguese Tax Authorities will assume that the operation has been carried out with Portuguese resident entities and, consequently, the income generated will thereby be subject to Portuguese taxation. 28 – 33 | www.mcs.pt

INTERNATIONAL BUSINESS CENTRE OF MADEIRA

GOLDEN VISA

With the objective of attracting foreign investment to Portugal, the Government has recently introduced a fast track visa permit for Non-EU Citizens called the Golden Visa, thus granting the holder free movement within the Schengen area. To apply for the Golden Visa, the non-EU nationals must perform an investment activity in Portugal which may consist on one of the following a) Capital transfers of at least one million euros; b) Creation of at least ten jobs; c) Acquisition of any type of real estate for an amount of at least EUR 500.000,00; d) Acquisition of real estate located in a rehabilitation urban area or at least 30 years old, including rehabilitation works in the overall amount of at least EUR 350.000,00; e) Capital transfer of at least EUR 350.000,00 to be applied in scientific or technological research activities by public or private institutions; f) Capital transfer of at least EUR 250.000,00 to be invested in artistic production, recovery

• r maintenance of national cultural heritage;

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g) Capital transfer of at least EUR 500.000,00 for the purchase of Portuguese mutual funds

• r venture capital geared to the capitalization of small and medium size companies.

The investment activity may be personally performed by the foreign citizen or through a company with head office in Portugal or in another EU Member State having a permanent establishment in Portugal. The Visa is valid for a period of one year counting from the date of issuance, and may be renewed for successive periods of two years, provided that the investment activity is maintained and the applicant makes evidence of having stayed in the Portuguese territory at least for 7 consecutive or unsequential days in the first year and 14 days, consecutive or unsequential, in the subsequent periods of two years.

NON-HABITUAL RESIDENT TAX REGIME

Portugal has recently introduced a new tax regime for non-habitual residents with the aim to attract qualified expatriates to perform high-value-added activities, as well as to attract high- net-worth individuals who may invest in the country. The main idea behind this tax regime is that income generated in Portugal by a non-habitual resident, within certain conditions, will be subject to a flat 20% Portuguese Individual Income Tax (“PIT”) and all foreign sourced income, shall in principle, be exempt from taxation in Portugal, if certain circumstances are fulfilled. 30 – 33 | www.mcs.pt

To access the regime the non-habitual resident must become resident in Portugal, should not be considered resident in Portugal for taxation purposes in the five previous years, and require the registration as non-habitual resident when registering as tax resident in Portuguese territory or, if later, until the 31st of March, inclusive, of the year subsequent to that when tax residency was acquired. This regime is granted for a period of 10 consecutive years, renewable, provided the taxpayer is qualified in each year as a Portuguese resident taxpayer. If the individual does not qualify as a Portuguese resident taxpayer in one or more years during the 10-year period, he will not lose the possibility to be subject to taxation as a non-habitual resident if, in the following years until the 10-year period terminates, he may qualify again as a Portuguese resident taxpayer.

ABOUT US

Madeira Corporate Services, S.A. (MCS) (www.mcs.pt) is part of the On.Corporate Group, with offices in Lisbon, Funchal, Luanda and Maputo. MCS is the branch of the group specialized in the International Business Centre of Madeira (IBCM). MCS, established back in 1995, is today one of the leading management firms in Madeira. As a result of its position in the market, the quality of the services it has been providing for twenty years and full compliance with business ethics, MCS was awarded the Merit Certificate by the Concessionaire of the International Business Centre of Madeira, SDM - Sociedade de Desenvolvimento da Madeira, SA. 31 – 33 | www.mcs.pt

Part of a multidisciplinary group of companies, MCS provides all type of services to clients

• perating within the IBCM, available on a stand-alone or an integrated basis, mainly corporate,

management, human resources, accounting, auditing, administrative, shipping, tax and advisory, thus allowing its clients to focus completely on their core business. Therefore, MCS provides solutions of excellence, suited to each client’s specific needs in an integrated and proactive way. We have always understood the absolute need for a continuous legal assistance to our clients for operations carried out in the IBCM, and we have therefore entrusted all these legal matters to our associated law firm Teixeira de Freitas, Rodrigues e Associados (“TFRA”) (www.tfra.pt) based in Lisbon, which also has offices in Madeira and is highly focused on IBCM related

• matters. This legal assistance is important and essential in a sophisticated jurisdiction like

Madeira, used by reputable international clients. TFRA has partnerships in Brazil, Mozambique and S. Tome and Principe. In Angola (Luanda) TFRA has instead created a legal firm with local partners after a five years partnership with a local law firm. Due to the demand of our clients, the On.Corporate Group (www.oncorporate.com), specialized in accounting, auditing, human resources and management services, has branched out and is now present in Luanda (Angola) and Maputo (Mozambique). 32 – 33 | www.mcs.pt

CONTACTS

MCS

• Av. Arriaga N.º 77, Edifício Marina Fórum

6th Floor, Suite 605, 9000-060, Funchal, Madeira – Portugal Tel.: + 351 291 202 400 Fax: + 351 291 237 188 E-mail: management@mcs.pt

ON.CORPORATE

PORTUGAL – LISBON Avenida da República, 32 – 5.º Esq. 1050-193 Lisbon – Portugal Tel.: + 351 217 613 220 Fax: + 351 217 613 229 E-mail: geral@mcorporate.pt ANGOLA – LUANDA Masuika Office Plaza Rua Centro de Convenções S8, Bloco B, 4.º Andar A Talatona – Luanda geral@oncorporate.com Mobile +244 926 904 937 MOZAMBIQUE – MAPUTO Edifício Millennium Park

• Av. Vladimir Lenine 174 – 13.º Piso

Maputo – Moçambique Tel.: +258 847 223 836 geral@oncorporate.com www.oncorporate.com 33 – 33 | www.mcs.pt