Archive for January, 2016

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Madeira’s 4th Tax Regime: an interview with Francisco Costa, Chairman of the IBC concessionaire

In on January 27, 2016 by NEWCO

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Established in the 1980s as an instrument for regional economic development, the International Business Centre of Madeira (IBCM) currently accounts for some 12% of all direct foreign investment in Portugal, having generated approximately 120 million euros in tax income in 2014.

After some legislative changes that resulted in a significant loss of competitiveness by the IBCM in relation to other competing jurisdictions, the European Commission approved and published on 1 July 2015 the so called 4th Regime of IBCM tax benefits, allowing the licensing and incorporation of new entities within the institutional scope of the IBCM, with effects that are retroactive to 1 January 2015, and application of benefits until 31 December 2027.

The new regime has kept its previous structural outline, including one of the lowest corporate tax rates in the European Union, namely 5%, and exemption from taxation on shareholder dividends, along with some other benefits that make it even more competitive.

In order to better understand the jolt that this new regime has provided and what it means for the future of the IBCM, we interviewed Francisco Costa, the main person behind the Free Zone of Madeira and current Chairman of the Board of Directors of S.D.M. – Sociedade de Desenvolvimento da Madeira, S.A, the entity that, as concessionaire, is responsible for managing, administrating and promoting the IBCM:

  • This year, the European Commission approved a new tax regime for the IBCM. What does this approval mean for the IBCM and Madeira?

With the European Commission’s agreement, a new tax regime was in fact created for the IBCM, namely the 4th Regime, which came into force as of last July with clear rules and broad deadlines for admitting companies and producing effects for enjoying tax benefits. Conditions have thus been created for re-establishing trust in the stability and proper functioning of the IBCM.

  • Portugal has faced volatile political and economic cycles that have impacted the tax regimes in force. What impact does the EC proposal have in terms of guarantees of security for investors?

As you know and contrary to what happens in many competing jurisdictions, the successive tax regimes of the IBCM have always been assessed and authorized or agreed to in advance together with the European Commission. This fact has been correctly understood by investors and businesspersons as being an additional guarantee in terms of security for all operators.

  • What is in store for the IBCM after 2027?

Right now it is too soon to say. However, given the IBCM goals as an instrument of modernization, development and sustainability for this small and peripheral island economy of Madeira, which has permanent limitations, it is not difficult to believe that some form of continuity with corporate efficacy will therefore be found and adopted.

  • Approval of this regime takes place during a phase in which all international taxation activity is being questioned and re-assessed. Let us take for instance the BEPS project. How does the IBCM fit into this current international context?

The IBCM has always been regulated in accordance with the best practices that are in force internationally at a particular moment in time. The positive assessments that it has always obtained in terms of OECD and EU Council plans prove this, and indeed this could not be otherwise, given the prior authorization processes from the European Commission, which are a fundamental characteristic. The same solution will certainly occur in the face of the new international initiatives.

  • Substance has become increasingly important for companies that re-structure their operations internationally. What is Madeira’s capacity to respond to foreign investors’ needs for substance?

This is true. I am convinced that all official entities with responsibilities in this area will do everything they can to guarantee the best possible conditions for international companies to operate, and to supply the local resources that are necessary for this.

  • Which IBCM sectors have been the subject of most interest from foreign investors?

Over time, there have been fluctuations in the business areas of greater interest to operators in accordance with the realities of international markets, which as we know are always changing and evolving. However, the dominant trend has been for the International Services and Navigation sectors to be the activities that are most popular in the Industrial Free Zone.

  • The new regime provides for registration of aircraft within the scope of the IBCM. When will this be operational and how will it be developed?

Indeed, the responsible authorities intend to develop this new area of activity soon in ways that are effective and competitive with the good international aircraft registries currently available in some other jurisdictions.

Download our Brochure Why Madeira to learn more about this jurisdiction.

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We want to tailor our information to your needs

In on January 26, 2016 by NEWCO

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3 key concepts to help you grasp international taxation in 2016

In on January 20, 2016 by NEWCO

Question marks

When NEWCO was created in 1990, the world of international taxation was relatively simple. Many companies did business through tax havens that helped keep their true shareholders or beneficiaries completely anonymous and there was no taxation of their income, costs were low and procedures were minimal. Some high taxation jurisdictions had concluded that tax competitiveness was vital to the growth of their economy and offered low tax rates for certain business activities or made “secret” agreements with companies that led to an extremely low or non-existent tax rate as pertains to their active operations. Businesses and States were relatively free to do what they wished in order to attain their goals.

Two decades and many scandals later, the sector has changed radically. Tax havens are still exempt from taxation, but they agree to provide information on the real beneficiaries of companies that are domiciled there, via agreements for exchanging information (or other similar arrangements). Bank confidentiality has been reduced. Jurisdictions cannot define their taxation regimes without following the rules of international organizations such as the European Commission and the OECD, which have been getting better at defending countries against harmful taxation practices over the years. Taxation administrations have become increasingly sophisticated in identifying and preventing what are considered to be abusive tax practices, while tax evasion has become well established as a crime. Meanwhile, companies have become more concerned with the impact that their taxation decisions have on their reputation and not just on their financial profitability.

In the midst of many uncertainties stemming from all the developments in this sector, we have no doubt that in the future, 3 key concepts must be at the core of companies’ tax planning strategies:

  1.  Transparency

It is not only States’ taxation administrations that increasingly demand more information regarding the operations of companies and their beneficiaries; the general public too wants to know how companies are contributing to the community through adequate and proportional payment of taxes. Compliance procedures are a growing burden, not only in terms of costs, but also in terms of resource consumption. In a globalized world in which information exchange agreements have multiplied and in which States and financial institutions demand more and more information, it is recommendable to choose jurisdictions that comply with transparency and information exchange regulations, creating linear structures that allow for a broad range of operations and versatility of resources.

  1. Substance

This is the ever-present word in the current world of international taxation. As regards the BEPS (the OECD base erosion and profit shifting action plan) measures, in the comments pertaining to model conventions, jurisprudence and anti-abuse standards, it is impossible to think of a new structure without discussing adequate substance; however, there is no clear definition for “adequate substance.” There is no uniform rule or standard model for all situations; however, there is no doubt that there must be a strong correlation between the activity and the revenue that is generated, and that the entity must be equipped with all the resources (human, financial and physical) that are necessary to develop the activity in question. And one must also keep in mind, of course, the importance of the actual administration of the company genuinely being conducted in the jurisdiction where the company is established and whose tax regime it wishes to benefit from.

  1. Anti-abuse

As tax administrations gain a better understanding of taxpayer behaviour and become more sophisticated, anti-abuse rules will begin to increase, along with their application both individually and at the corporate level. Anti-abuse rules are legal norms stating that business dealings or legal acts practised with a manifest abuse of legal forms and which result in the elimination or reduction of taxation that would otherwise be payable by taxpayers, are illegal in the eyes of Taxation Authorities. They can be general in scope and are normally harder to apply because of their subjectivity or specific nature. They vary from country to country, although many, such as those pertaining to transfer prices and to controlled foreign corporations (CFC rules), are used more and more internationally. In many cases, they are actioned when jurisdictions that are traditionally not very credible are involved and there is an underlying assessment of the economic and management motivation behind the operation, along with the amount of substance allocated to the entity that benefits from certain tax advantages, which brings us back to the two concepts referred to above.

What is certain is that as the rules of the game are established, as the fiscal competitiveness of countries becomes an instrument of economic development, and as more and more operations become dematerialized and borders come down, companies have more alternatives to intelligently and transparently structure their international organizations with benefits for all their stakeholders.

And there’s a reason why NEWCO only works with transparent, credible and efficient jurisdictions, such as Madeira and Malta. Both jurisdictions provide the legal, institutional and economic framework that our clients need in order to effectively manage their international operations.

Download our brochures Why Malta and Why Madeira to learn more about each of these jurisdictions.

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Madeira, on the cutting edge of technological innovation: M-ITI project obtains international recognition

In on January 19, 2016 by NEWCO

MITI

The quality of technological innovation, developed by researchers at the Instituto de Tecnologias Interativas da Madeira (Madeira Institute of Interactive Technologies – Madeira-ITI) has once again been recognized internationally.

The project is known as “7 Stories” and it will be on show to the public until 25 March at the Deep Design Exhibition in Detroit, USA. “Pace, Place and Personhood” is an international event that brings together projects by designers, architects, artists and urbanists who stand out due to their creativity and because they challenge current notions of design.

“7 Stories” consists of a mobile application that works on smartphones and uses GPS and visual markers to place video and multimedia content in open spaces, bringing to the forefront the stories and traditions of Madeira. Its innovative approach is based on interactive storytelling and context-aware narratives for a broad audience with a particular focus on improving the user experience of tourists in Madeira.

This is one more success story from the Madeira-ITI, a non-profit innovation institute created on 23 July 2009 by the University of Madeira, Carnegie Mellon University (CMU) and Madeira Tecnopolo, working mostly in innovation in computer science, human-computer interaction and entertainment technology.

Since its implementation, the Madeira-ITI has generated over ten million euros in research proposals in collaboration with the industry and by attracting foreign investment, including the first ERA Chair aimed at creating in Portugal and Madeira a design and technology centre for global changes. This investment represents financing in the amount of approximately 2.6 million euros for a period of five years and has been undertaken by Chris Csikszentmihalyi. Considered a world leader in applying technologies to cultural and political contexts on a global scale, his aim is to promote research and innovation in the field of Design and Human-Computer Interaction.

The quality of the projects developed by M-ITI has led to other internationally recognized success stories that were highlights throughout the world in 2015. This is the case with the “rootIO” – a project developed for UNICEF with a budget of some 250,000 dollars (approximately 228,000 euros), which aims to give communities in Uganda a mixture of communications resources together on a single technical-social platform that will service around 150,000 people. There is also the “Yasmine Adventures” project, a digital story for Android smartphones, developed by Madeira-ITI for the Jewish Museum Berlin, which was the winner of the Grand Challenge of Norway, a major award in entertainment technology.

The success of the Institute is in part due to the excellence of its human resources, represented by 44 researchers and 33 professors with doctorates, from over 12 countries. The rate of employability for students who take the course is over 90%. There is also a close relationship with the region and local companies, particularly in terms of developing various projects that are relevant to society and have a significant economic impact, leading to the creation of successful technological start-ups with immense potential for internationalization.

Download our Brochure Why Madeira to learn more about the advantages of this region for the internationalisation of companies.

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Madeira government sets minimum monthly salary

In on January 8, 2016 by NEWCO

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The Regional Government of Madeira has approved the proposed Regional Decree-Law, which adapts to the region the amount of Monthly Minimum Remuneration set in mainland Portugal.

 

In line with what has been practised in the past, the Regional Government has approved an increase of 2%. Hence, as of the 1st of January 2016, the minimum monthly salary in Madeira will be of 540,60 euros.

NEWCO is fully available to provide any clarification with regard to the impact such measure may have on the companies within the International Business Centre of Madeira.

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Portugal updates the monthly minimum wage

In on January 4, 2016 by NEWCO

Euro

Decree-Law nr. 254-A/2015, of the 31st of December, has entered into force on the 1st of January 2016, increasing to 530€ the Minimum Monthly Guaranteed Remuneration applicable in Portugal.

The corresponding amount to be applicable in the Autonomous Region Madeira is expected to be published soon. As a rule, this Autonomous Region usually follows the minimum wage reference with an increase of 2%. Until such update is published, the relevant amount will be that of 530€.

NEWCO is fully available to provide any clarification our clients may need regarding the impact of such measure on companies operating within the International Business Centre of Madeira.

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