Archive for January, 2019

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The new Tonnage Tax Regime in Portugal

In on January 31, 2019 by NEWCO

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This year promises to be a year of change in the maritime transport sector of Portugal.

For decades the International Shipping Register of Madeira (RIN-MAR) was the only competitiveness factor that Portugal could leverage to invigorate the Portuguese merchant marine fleet. Despite all the obstacles and difficulties that it has faced, both in terms of legislation and operations, RIN-MAR has been able to prevent restriction of the number of commercial vessels to fly the Portuguese flag to the dozen or so ships registered in the Portuguese Conventional Register.  The operational and fiscal advantages granted to vessels and their crew registered with RIN-MAR, together with the tax regime available within the scope of the International Business Centre of Madeira for maritime transport companies have kept Portugal on the map as regards countries that should be considered by national and international shipowners, and they have resulted in a gradual increase in the number of ships that fly the Portuguese flag to a total of 523 commercial vessels registered with the RIN-MAR at the start of 2019.

It is expected that the legislative changes introduced over the course of 2018 will bring new vigour to this sector, adding to the advantages of the IBCM that will continue to be available, at least until end 2027.

Introduction of the tonnage tax in Portugal

In fact, in 2018 the European Commission approved the creation of a new tonnage tax regime for Portugal, together with the publication of Decree-Law 92/2018 of 13 November, which implemented a special regime that determines taxation base in accordance with ship tonnage, a specific tax and contribution regime for crew members, along with a simplified register of ships and vessels.

Under this Decree-Law, companies with their head office or permanent management in Portugal that are in the business of transporting goods or passengers or involved in some related activities can benefit from the special regime that determines the taxation base.

Tax calculation

Under this special regime, the taxation base is calculated by applying the following daily values to each eligible vessel:

Net tonnage Daily taxation base per 100 net tonnes
Up to 1,000 net tonnes € 0.75
Between 1,001 and 10,000 net tonnes € 0.60
Between 10,001 and 25,000 net tonnes € 0.40
Greater than 25,001 net tonnes € 0.20

There is expected to be a 50% and 25% reduction in the taxation base determined during the first two years of business, along with a 10% to 20% reduction for vessels with a net tonnage greater than 50,000 net tonnes that fulfil some environmental requirements.

The taxation base that is thereby determined shall be subject to the general tax rate stipulated in the Corporate Income Tax Code, which is currently 21% on mainland Portugal, 20% in Madeira and 16.8% in the Azores. Specific conditions have been determined for deducting costs and losses, carrying forward tax losses and calculating the special payment on account; however, opting for this regime does not hinder application of the Corporate Income Tax Code in relation to other matters, namely with regard to general rules related to transfer prices, autonomous taxation, settlement and payment rules, among others.

Taxation and contribution regime of crew members

Similar to the benefits granted to crew members of ships registered with the RIN-MAR, this legislation seeks to provide personal income tax exemption and a special contribution regime for crew members of ships or vessels registered in the conventional Portuguese register or in another Member State of the European Union or EEA and which are used by entities that opt for this special regime for determining taxation base.

Such crew members shall be covered by the general social security regime and shall be entitled to parental, unemployment, illness, occupational illness, disability, old age and death benefits, subject to a contribution rate of 6% (4.1% paid by the employer and 1.9% by the crew member).

In order to benefit from personal income tax exemption the crew member must remain aboard the ship at least 90 days during each taxation period.

Eligibility and application requirements

Payers of corporate income tax may opt for the tonnage tax regime if their head office or permanent management is located in Portugal and their main commercial activity is related to maritime transport of goods and people and they legally exercise it, and the simplified regime for taxation base determination does not apply to them.

The regime only applies to income from activities performed using ships that fly the flag of an EU or EEA member State, ships that are strategically and commercially managed from an EU or EEA Member State (presupposes control and risk of the maritime activity) and that are used to perform the activities listed in the legislation, namely the transport of goods and passengers and some additional activities, such as the sale of products for onboard consumption, the supply of services directly related to the activity, returns on short term investment of working capital, advertising and marketing of advertising spaces onboard ships, shipbrokerage, strategic, commercial, technical, operational and crew management, among others.

Shipowners and charterers can benefit from this regime, including those who have ships registered outside the EU under certain conditions.

Fifty percent (50%) of the crews must be made up of members who are Portuguese, from EU and EEA Member States, or countries whose official language is Portuguese.

Duration of the regime and period for remaining within it

The tonnage tax shall be valid for 10 years and it may be renewed for identical periods, provided that the European Commission authorises the renewal. The minimum period for remaining within this regime is 5 years and the option may be selected at the start of the activity or by the end of the taxation period during which the special regime is to be applied.

Tonnage Tax and the IBCM and RIN-MAR

Taxpayers who opt for this special regime shall not receive any other tax benefits or incentives of the same type. As such, the reduced Corporate Income Tax rate provided for within the scope of the International Business Centre of Madeira (IBCM) shall not apply to income that is subject to this special regime.

Notwithstanding, companies that opt for this special regime may still benefit from all other tax benefits applicable to companies licensed within the scope of the IBCM. Here is a list of those companies: http://www.newco.pro/pt/regime-fiscal-madeira

Likewise, companies that opt for this special regime may also register their ships with the RIN-MAR, which is a reliable and efficient register that offers all the guarantees and security that shipowners seek.

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Relevant taxation updates for the International Business Centre of Madeira

In on January 24, 2019 by NEWCO

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Following the publication of the national and Autonomous Region of Madeira budgets, below we highlight the main measures that will impact the companies of the International Business Centre of Madeira (IBCM).

  • Minimum Wage in Madeira

The monthly minimum wage for Madeira will now be €615, effective as of 1 January 2019.

  • Corporate Income Tax

Corporate Income Tax Rate

The general rate for corporate income tax in the Autonomous Region of Madeira has been reduced to 20% (previously 21%). For taxpayers whose direct and main economic activity is of an agricultural, commercial or industrial nature and who are classified as a small or medium enterprise, the applicable Corporate Income Tax Rate for the first €15,000 of the taxation base is 13% (previously 17%), while the rate of 20% applies to the remaining amount.

We point out that the tax rate applicable to the qualified income of the companies of the International Business Centre of Madeira will be 5% until end 2027.

Regional Surcharge

The additional payment on account for the Regional Surcharge shall now be made as follows: when greater than €35,000,000, it is divided into three parts: one equal to €6,000,000, to which a rate of 2.5% is applied; another, equal to €27,500,000, to which a rate of 4.5% is applied; and another, equal to taxable profit that exceeds €35,000,000, to which a rate of 8.5% is applied (previously 3%, 5% and 9%, respectively).

The companies that are established within the scope of the International Business Centre of Madeira as of 2015 shall be subject to a limitation of 80% with respect to the Regional Surcharge for each taxation period with respect to income obtained within the scope of the IBCM and taxed at a rate of 5% (Corporate Income Tax). As such, for these companies the applicable rates are 0.5%, 0.9% and 1.7%, respectively

Impairment losses on doubtful debt

Debt between directly or indirectly held companies with over 10% of capital held by the same individual or legal person shall no longer be considered doubtful debt and as such shall not be accepted for taxation purposes, except if the debtor has enforcement, insolvency or special rehabilitation proceedings pending, or extrajudicial company recovery proceedings pending under SIREVE (Extra-Judicial Company Recovery System), and cases in which the debt has been claimed judicially or in a court of arbitration.

Intangible Assets

The cost of acquiring intangible assets from entities with which there are special relationships is no longer excepted in equal parts for tax purposes during the first 20 fiscal years.

Capital gains obtained by non-residents

No longer benefitting from the exemption provided for under article 27 of the Portuguese Tax Benefits Law are capital gains resulting from the transfer of ownership of shares or similar rights in companies or other entities that do not have a head office or permanent management on Portuguese territory when at any time during the preceding 365 days the value of those shares or rights directly or indirectly results in over 50% of real estate properties or real rights over real estate properties located on Portuguese territory, with the exception of real estate allocated to an activity that is of an agricultural, industrial or commercial nature and does not consist of buying and selling real estate.

Corporate Income Tax – Special Payment on Account (SPA)

Taxpayers who do not make the payment by the end of the third month of the respective taxation period are now exempt from the special payment on account provided that they have fulfilled, in a timely manner, declaration obligations pertaining to submitting tax return form 22 and SCI during the two previous taxation periods.

This dispensation is valid for each taxation period and the Taxation Authority shall be responsible for verifying the taxation situation of each taxpayer.

  • PERSONAL INCOME TAX

Income from work or supply of services earned by non-residents

Personal income tax shall not be withheld from income from dependent employment or business and professional income rendered by non-residents to a single entity, up until the guaranteed minimum monthly wage.

The owner of the income must communicate to the payer entity, via written declaration, that he or she has not earned or does earn the same type of income from other entities residing on Portuguese territory or from permanent establishments of non-resident entities.

Tax regime applicable to former residents

A tax regime will be introduced in 2019 and 2020 with the aim of encouraging those persons who emigrated from Portugal to return. Under this regime, 50% of income from dependent employment (Category A) or business and professional income (Category B) that they earn after they return to Portugal is excluded from taxation. The following conditions apply to this regime:

  • The taxpayer may not have been a resident of Portugal during the three years that precede the return;
  • The taxpayer was a resident of Portugal before 31 December 2015;
  • The taxpayer has his or her tax situation settled; and
  • The taxpayer has not requested registration as a non-habitual resident.

This regime shall apply for 5 years (between 2019 and 2023 or between 2020 and 2024), terminating at the end of that period. During this period, withholding tax rates on any affected income shall only apply to half of the income paid or made available.

  • VAT

Telecommunications, radio broadcasting or television services and services provided by electronic means.

The supply of telecommunications, radio broadcasting or television services and services provided by electronic means, namely those described in annex D of the VAT Code, supplied to a person that is not the taxpayer and who is domiciled or established in another Member State, are taxed at the location of the head office of the supplier, as long as the latter has a head office or permanent establishment, or failing this, is domiciled only on Portuguese territory and the total value of the supply of services does not exceed €10,000 during the previous calendar year or the calendar year currently underway.

  • Tax Courts

Portal das Finanças (Taxation Authority portal) reserved area

Taxpayers who are obliged to a have an electronic mailbox and have not given notice of it can now be notified and summoned in the reserved area of the Portal das Finanças, as can representatives in tax proceedings, residents not residing in the EU or EEA who have not appointed a representative residing on Portuguese territory, and taxpayers who opt for electronic notifications and summons.

Suspension of enforcement

Enforcement proceedings shall be suspended while dispute resolution proceedings are underway in relation to a double taxation agreement, as long as a guarantee or a lien has been pledged in warrant of the total outstanding amount and the accrued amount.

Contact us if you have any questions regarding any of these matters and their impact on IBCM companies.

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