24 Jan 2019

Relevant taxation updates for the International Business Centre of Madeira

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.