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Madeira

Council Directive 2003/49/EC dated June 3, 2003 on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States, is applicable to companies in Madeira.
Payment of interest and royalties between companies in the EU are exempt from withholding tax, provided that:

  • Both companies embody one of the legal forms of constitution provided for in the Appendix to the Directive;
  • Both are subject to Income Tax;
  • There is an existing association of capital between them >= 25%, or directly held by >= 25% by a third company, which complies with the two requisites stated above, so long as in either of the cases, the subsidiary is held for a minimum of two years.

Companies in Madeira comply with the first two requisites. If the 3rd is also fulfilled, it is possible for entities in other Member States to pay interest or royalties to the company in Madeira without automatic withholding at source.

Under article 15 of the Agreement between the EU and Switzerland, the exemption referred to above is also applicable in the relations between Madeira companies and Swiss companies, where the parent company has a direct minimum holding of 25% in the company distributing the profits for at least two years (or both companies are held by a third company with a direct minimum holding of 25%.), both companies are subject to income tax without possibility of exemption and both companies embody a limited liability company.

Regarding the payment of interest by Madeira companies to shareholders in other EU Member States, it should be noted that Portugal is subject to a transitional regime, meaning that until June 30, 2013, such payments are subject to a withholding tax at a rate of 5%.

Note that the payment of interest to third parties other than shareholders of Madeira companies, are exempt from withholding tax.

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