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Madeira

Companies licensed to operate within the scope of the International Business Centre of Madeira (IBCM) are Portuguese companies for all intents and purposes, subject to Portuguese commercial and tax legislation, which are granted tax benefits as stipulated in the Portuguese Statute of Tax Benefits and in other applicable legislation. As such, it is important to know which taxes are applicable in Portugal; we have summarized them very briefly here. For more information please contact us or consult Pricewaterhouse Cooper’s online Tax Guide.

Stamp Duty
Corporate Income Tax (IRC)
Value Added Tax - VAT (IVA)
Personal Income Tax (IRS)
Property Tax (IMI)
Municipal Tax on Real Estate Transfer (IMT)


Stamp Duty
This is the oldest tax in Portugal and its origins date back to the 17th century. This tax applies to a broad range of economic operations.

Law 150/99 approved the Stamp Duty Code and it has been successfully amended since then.

It should be mentioned that companies established within the International Business Centre of Madeira on the basis of licenses issued up until the end of 2014, benefit from exemption from Stamp Duty until end 2020.

Characteristics of the Tax

Stamp Duty applies to a series of legal acts, contracts, documents and situations that are listed in the General Stamp Duty Table (see annex).  Given the heterogenic nature of the tax, it is necessary to consult the table in order to check whether a particular legal act is subject to this tax. It may cover multiple situations, such as rental agreements, successions and endowments, cheques, credit securities, gambling, loans, the granting of credit, guarantees and interest, among others.

The entities that have an economic interest in the act shall pay the tax. If there is more than one interested party, payment shall be shared by all the parties proportionally. In certain situations where there may be doubt, the law provides for an objective presumption of who is the interested party.

All legal acts that are subject to VAT are not simultaneously subject to Stamp Duty.

The tax applies to acts that are practiced on national territory. By law, payment of the tax also covers:

  • Documents, acts or contracts issued or signed outside of Portuguese  territory under the same terms they would otherwise have been issued or signed on Portuguese territory, if submitted here for any legal purposes;
  • Credit operations undertaken and guarantees pledged by credit institutions, financial companies or any other entities, regardless of their nature, headquartered abroad, undertaken by affiliates or branches abroad of credit institutions, financial companies or any other entities headquartered in Portuguese territory, to any entities, regardless of their nature, domiciled in Portugal, the domicile being considered the head office, affiliate, branch or stable establishment;
  • Interest, commissions and other instalments charged by credit institutions or financial companies headquartered abroad or by affiliates or branches abroad of credit institutions or financial companies headquartered in Portugal to any entities domiciled in Portugal, the domicile being considered the head office, affiliate, branch or stable establishment of the entities that participate in the transactions;
  • Insurance policies covering risk that occurs in Portuguese territory.

Generally speaking, it is payable when the act that is subject to the tax takes place. Settlement and payment of the collected tax is generally made by official entities or official bodies that intervene in the act, such as notaries, or in the case of acts originating from credit or insurance operations, the entities that issue the loan or insurance policy.


Corporate Income Tax (IRC)
The IRC is regulated by Decree-Law 442-B/88 dated 30/11, which entered into effect on 01/01/89. The Corporate Income Tax is levied on the following entities, per the table below:

Legal persons with head office or permanent management on Portuguese territory who perform a commercial, industrial or agricultural activity (commercial companies, cooperatives) Total Income / Profit
Legal persons with head office or permanent management on Portuguese territory who perform a commercial, industrial or agricultural activity (associations, foundations, civil societies without legal personality) Overall Income (sum of the income of the categories in accordance with the IRS rules)
Legal persons who are non-residents of Portuguese territory who perform their activity via a permanent establishment (branches) Profit attributable to the permanent establishment located on Portuguese territory
Legal persons who are non-residents of Portuguese territory without a permanent establishment Those will pay withholding tax on income earned in Portugal

 

 Rates

  Mainland Madeira
Resident entities and permanent establishments of non-resident entities 21% 5% (IBC)

21%

Resident entities characterized as a small or medium enterprises, on the first €15,000 of the taxation base 17% 17%

Tax calculation

Taxable profit of entities whose main activity is of a commercial, industrial or agricultural nature is quantified on the basis of net income for the year calculated in accordance with the accounting standards, accrued by the positive changes in assets minus the negative changes in assets not reflected in that result, the adjustments provided for under the Corporate Income Tax Code are accrued or deducted.

An additional tax, in the form of a State Surcharge is also applicable to the part of taxable profit that exceeds €1,500,000; or, in the case of taxpayers with a head office, permanent administration or stable establishment in the Autonomous Region of Madeira, in the form of a Regional Surcharge, whose rates vary according to taxable profit.

Some municipalities may annually decide to implement a surcharge up to a maximum limit of 1.5% on taxable profit, subject to and not exempt from corporate income tax. In the municipality of Funchal, where NEWCO has its head office, the Municipal Surcharge rate is 0.5%, and taxpayers whose turnover during the previous year did not exceed €150,000 are exempt.

It should be mentioned that the companies established at the International Business Centre of Madeira on the basis of licenses issued up until the end of 2014, benefit from exemption from Municipal Surcharge with respect to income obtained within the scope of the IBCM and taxed at a rate of 5% (corporate income tax). Companies 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 and the Municipal Surcharge for each taxation period.


Value Added Tax - VAT (IVA)

The Value Added Tax (VAT), as regulated in Community Directive 77/388/EEC and respective subsequent changes, was approved by pursuant to DL 394-b/84 of 26/12 and came into force on 1/01/1986.

It is an indirect tax that applies to goods and services provided in exchange for a price. The VAT mechanism allows for deduction of VAT paid on goods and services. Each economic operator pays the state the difference between VAT collected and VAT paid. VAT therefore runs through the entire economic system up until the end consumer who pays the full amount of the tax.

Since 1993, intra-Community transactions are subject to a special regime. Directive 91/680/EEC of 16/12 that was applied in Portugal pursuant to DL 290/92 of 28/12, replacing the previous concept of “import” by a new concept - “intra-Community transaction.” As such, import in the legal sense of the word began to be used to refer only to the entry of goods or services from third party countries or territories that are not part of the European Union’s tax system.

Rates

  Mainland  Madeira
Normal rate (most goods and services)  23%  22%
Reduced rate (includes food and other essential goods, etc.)   6% 5%
Intermediate rate (includes food and beverage services, etc.) 13% 12%

 

Personal Income Tax (IRS)

Personal Income Tax (IRS) was instituted via Decree-Law 442-A /88 of 30 November. Personal Income Tax (IRS) is applied to income earned by individual persons, within six categories, as described here in more detail.

Residents in Portugal are taxed on their total earned income (in Portugal and abroad) and non-residents are taxed on income they earn in Portugal (according to IRS categories). In 2009, a special, more attractive regime was created for non-habitual residents.


Property Tax (IMI)

IMI - Municipal Property Tax is a a tax that applies to the property value of real estate (rural, urban or mixed) located in Portugal, approved by virtue of Decree -Law 287/2003 of 12/12. It is a municipal tax that came into effect on 01/12/2003 and is collected by the respective municipalities, replacing the previous Municipal Tax.

Characteristics of the tax

IMI is payable by owners, beneficiary owners or superficiary owners of real estate property at 31 December of the respective year.

In the case of joint inheritance, IMI is payable on the estate represented by the head of the household.

Under the law, real estate property includes all units of territory, including the water, plantations, buildings and all constructions of any nature that they may be in or on them permanently, providing that they are part of the assets of an individual or legal person and under normal circumstances have economic value.

For the purposes of IMI, each independent unit that is part of the horizontal property regime is considered real estate property. The taxable value of real estate property is determined by an appraisal made in accordance with the IMI Code.

Rates

The following rates apply to the taxable value of all real estate property held by the taxpayer in Portugal:

  • Rural real estate: 0.8%
  • Urban real estate: 0.3% to 0.5%
  • Real estate owned by entities that reside in tax havens: 7.5%

For mixed real estate properties (consisting of a rural part and an urban part) the respective rate shall apply to the taxable value of each part.

The companies established within the scope of the International Business Centre of Madeira can benefit from IMI exemption on real estate property used for their start-up, in accordance with Decree-Law no. 165/86 of 26 June.


Real Estate Transfer Tax (IMT)

IMT (Real Estate Transfer Tax) was approved pursuant to DL 287/2003 of 12/12 and came into force on 01/01/2004, replacing the Sisa Conveyance Tax. This tax applies to the transfer of property rights or partial rights, applicable to real estate property, located on Portuguese territory, and in other cases that the law considers equivalent to real estate transfer.

The companies established within the scope of the International Business Centre of Madeira can benefit from IMT exemption on the acquisition of real estate property used for their start-up, in accordance with Decree-Law no. 165/86 of 26 June.

Companies 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 IMT on property intended as their business premises.

Characteristics of the tax

Generally speaking, IMT is payable by the person to whom the property has been transferred; however, there are rules for other situations.

Transfers of real estate property rights or partial rights and the establishment or extinction of various types of contractual relationships related to real estate property located on Portuguese territory as provided for by law. The initiative for settlement generally falls upon the taxpayers (purchasers) who can for such purposes submit a duly filled in declaration at any Tax Office.

Rates

IMT rates are as follows:

a) Real estate used for own and permanent residence:

  Rate %
Value (euros) Marginal Average (*)
From 92,407 0 0
From 92,407 to 126,403 2 0.5379
From 126,403 to 172,348 5 1.7274
From 172,348 to 287,213            7 3.8361
From 287,213 to 574,323 8 -
+ de 574,323 6 (single rate)

* Upper limit of the bracket


b) Acquisition of urban building or independent unit of an urban building exclusively used for housing, not covered by the above sub-paragraph:

  Rate %
Value (euros) Marginal Average (*)
From 92,407 0 0
From 92,407 to 126,403 2 0.5379
From 126,403 to 172,348 5 1.7274
From 172,348 to 287,213            7 3.8361
From 287,213 to 550,836 8 -
+ de 550,836 6 (single rate)

* Upper limit of the bracket

When, in relation to the acquisitions referred to in sub-paragraphs a) and b) above, the amount subject to tax is greater than €92,407, it is divided into two parts: one of them being equal to the limit of the higher of the brackets it falls under, subject to the average rate of this bracket; and the other part equal to the remainder, which shall be subject to the marginal rate of the bracket that is immediately higher.

c) Acquisition of rural real estate - 5% (general regime) or 1% (IBC regime)

d) Acquisition of other urban real estate and other acquisitions at a cost - 6.5% (general regime) or 1, 3% (IBC regime)

e) Acquisition by an entity residing in a tax haven - 10%.

CONTACTS

Contact us to find out more about these advantages

 

Madeira
Tel.: +351 291 210 200               
Fax.: +351 291 210 209
info@newco.pro

Malta
Tel.: +356 21 223 120
Fax.: +356 21 223 119
info@newco.pro

Madrid
Tel.: +34 654 201 029
info@newco.pro

Lisboa
Tel.: +351 213 430 500
info@newco.pro

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