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tax and accounting obligations and responsibilities
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| Companies based in Madeira must keep accounting records in Portuguese and use the Official Portuguese Chart of Accounts, which is based on the French Chart of Accounts.
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An accountant is responsible for all record books. This accountant must be a certified member of Câmara de Técnicos Oficiais de Contas [the official Portuguese accountants’ society).
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Portuguese law also requires that all accounting documents are kept at the company's registered office.
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All transactions of companies based in Madeira must be duly reported in the accounts with the originals of the supporting documents.
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Our clients must send us all the original supporting documents every month (bank statements, invoices, receipts, contracts and any other document or information relative to any operation implemented) relative to all transactions undertaken by the company, before the deadline for submitting the tax return terminates (see point 2).
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If we do not receive these documents we shall assume that no corresponding business activity was carried out during the period and the respective accounting returns will be issued and submitted accordingly.
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Non-compliance with the statutory deadlines referred to above or any amendments that imply the correction of already submitted tax returns, will generate heavy fines payable by our clients.
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Financial year The financial year coincides with the calendar year. It can only be changed by authorisation of the Minister of Finance.
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Accounting The accounts of a company may not be more than 60 days in arrears, which signifies that any transaction made by a company has to be reported in the accounts within that time period.
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Invoices Invoices must be issued within five days of the date of supply of the goods and services.
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VAT returns VAT returns have to periodically completed and submitted (monthly for companies with a turnover greater then EUR 498,797.90 and quarterly for all others) to the tax authorities, even by companies with no reported business activity.
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| Deadlines for the submission of quarterly VAT returns: 1st quarter – 15 May; 2nd quarter – 15 August; 3rd quarter – 15 November; 4th quarter – 15 February of the following year.
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| Deadlines for the submission of monthly VAT returns: 1st day of each month. The return for the month ending two months beforehand must be submitted on or before the 10th of each month (e.g. the return for the month of May must be submitted on or before 10 July).
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Approval of Accounts for Financial Year In general, the accounts must be approved by the shareholders on or before 31 March. Pure holdings (SGPS) must approve their accounts by 30 April.
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Income Statement The income statement (form no. 22) relative to the previous year must be submitted to the tax authorities by 31 May. The annual statement, which contains more detailed information, has to be submitted by the end of June.
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Deposit of Accounts After the accounts have been approved they must be deposited in the Companies’ Registry Office within 90 days.
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Social Security Social Security contributions for the previous month must be reported and paid before the 15th of each month.
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Special Advance Tax Payment (PEC) From 2006 onwards, PEC must be paid during the month of March, or in two instalments - one in March and one in October.
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| Companies’ invoices must comply with specific accounting rules and the physical invoice cannot simply be produced by a word processor. Invoices must be issued by a computer invoicing programme – in which case the same must contain the expression Processado por computador [computer processed] in Portuguese – duly authorised by the Portuguese tax authorities. Alternatively, invoices may be printed by a printing company recognised by the Portuguese tax authorities, provided that the invoices are sequentially numbered.
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The company has to be wholly identified in its invoices. Said information must include the company’s full business name, share capital, the address of the registered office, taxpayer’s number and its registry office number.
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Invoices must also describe the goods or services that were transacted as well as the respective sums involved and any other information necessary to calculate the corresponding VAT.
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If VAT exemption is applicable, this fact must be clearly stated in the invoice, with specific reference to the legislative instrument providing exemption.
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Non-compliance with the abovementioned rules leads to specific fines being levied. Consequently, to avoid such a situation, the invoices must be issued by newmadeira.
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| Each year, on completion of twelve months from the date of establishment of the company (not to be confused with the date of acquisition of the company) the respective annual operating fee is payable.
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Pursuant to current legislation, non-compliance with the obligations taken on in the application and subsequent licensing of the business, namely the non-payment in good time of outstanding fees, may lead to the cancellation of the corresponding licence.
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| From 2006 onwards, PEC must be paid during the month of March, or in two instalments, in the months of March and October, or, in the case of companies that have a financial year that does not coincide with the calendar year, in the 3rd and 10th months of the respective financial year.
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Companies that have been exempt from corporate income tax (IRC) for the whole of the previous financial year pay the minimum PEC permitted by law, i.e. EUR 1,125.00.
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Companies that generated taxable income in the previous financial year will pay PEC equivalent to 1% of the turnover for the referred to preceding year, with a minimum value of EUR 1,125.00 and, whenever this limit is surpassed, the tax will be equal to this minimum value plus 20% of the surplus over this base value, up to a maximum of EUR 63,000.00.
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| Companies based in Madeira have to prove that the entities with which they establish relations are non-residents.
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With regard to payments and income from day-to-day business activities (payments and income relative to the transaction of goods and services ) in the international services area, including SGPS holding companies, any form of proof will be deemed sufficient to demonstrate non-residency.
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In all other situations, proof of non-residency must be made through the submittal of one of the following documents:
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Certificate of tax residence or similar document issued by the tax authorities;
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Document issued by a Portuguese Consulate;
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Document issued by an official entity that proves residence.
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Note that the following payments must never be made without first receiving proof of non-residency by one of the means referred to in the previous paragraph:
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Dividends and advance payment of profits;
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Interest and other capital income;
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Royalties and other intellectual property income;
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Fees for brokering any contract;
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Provision of services implemented or used in Portugal, except those concerning transport, telecommunications and financial activities.
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In the event of non-presentation of proof of non-residency it is assumed that the operations were performed with entities residing in Portugal, therefore cancelling out the benefits granted to all the entities involved in the operation in question.
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Given that the status of non-resident of the entity with which the company in Madeira transacts is a necessary requirement for the attribution of applicable tax incentives, we only execute instructions received after receipt of the respective proof of non-residency.
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| Under Portuguese law, payments made by Madeira companies to entities residing in tax havens are not deductible for the purpose of calculating taxable profit, but are subject to a specific tax at the rate of 55%, unless the purchaser can prove that said charges correspond to operations effectively implemented in circumstances that are not abnormal and the amount involved was also not excessive.
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| Confidential or non-documented expenses are taxed at the rate of 70%.
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| Entertainment expenses, which are basically expenses related to receptions, meals, trips, excursions, and shows offered to clients, suppliers or any other entities, are taxed at the rate of 5%, irrespective of whether the company is exempt from corporate income tax or not.
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| The tax authorities may directly consult banking documents where the voluntary provision or authorisation to check the same has been refused.
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In this context, we advise all of our clients to solely perform bank transactions related to the licensed activities of their companies in Madeira, which should be duly reported and fully supported with documents by the company, as referred to above.
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| All transactions of companies in Madeira must be duly reported in one or more bank accounts exclusively assigned to the associated business activity. All transactions relating to capital contributions, loans or advance payments from shareholders must be made through such accounts. Other transactions from or to companies must also be made through these accounts.
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The payment of invoices or similar documents greater than EUR 7,500 in value must be performed using payment methods that allow the recipient to be identified, namely by current account cheque or bank transfer.
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Portuguese banks will always request a copy of the supporting documents for any transaction above EUR 12,500.
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We suggest to our clients, in order to comply with the requirements stated above, that all company transactions are duly documented and reported in the respective bank accounts.
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| The company must be fully identified on its letter writing paper, such as that used for invoices. The letter writing paper must contain the company name, share capital, address of the registered company, taxpayer number and company registry office number.
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| Public limited companies (S.A.) as well as SGPS (pure holdings)-type private limited companies (LDA) are required by law to have their accounts audited by a statutory auditor (ROC). Other private limited companies must audit their accounts whenever two of the following three conditions are met over two consecutive years:
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Annual turnover greater than EUR 3,000,000;
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Total balance sheet value above EUR 1,500,000;
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Total number of employees exceeds 50.
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| Any manager of a company in Madeira, residing or not in Portugal, is obliged to register with the local Social Security as well as contribute to the Portuguese Social Security scheme through 31.25% of the respective salary, subject to a minimum contribution equal to the contribution corresponding to the Portuguese minimum wage. Managers that are not remunerated and prove that they are registered with and contributing to another compulsory social security system are not required to register and contribute to the same end in regard to the Portuguese system. Exemption is obtained in such cases through the submittal of a certificate from the social security office of the manager’s country of residence declaring that the same contributes to the respective compulsory social security scheme (form E 101).
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Companies licensed after 01 January 2001 must possess at least one employee or manager contributing to the Portuguese social security scheme, so as to comply with substantiality requirements.
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| In the event of loss of half of the capital of a company, this situation must be notified in all contracts, correspondence, publications, notices and generally in all of the company's external business dealings, by means of indication of the equity capital value according to the most recently approved balance sheet.
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In addition, a general assembly must be convened in order to implement one of the following measures: wind up the company, reduce the share capital to a value that is not less than the company’s net worth, supplementary capital contributions from shareholders to cover the capital shortage or any other corrective measure.
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| According to the Portuguese transfer price rules, which follow the OECD’s guidelines on transfer prices, operations between related parties must always be transacted at full market price.
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In the context of transfer price regulation, operations between an entity residing in Portugal and another entity residing in a territory on Portugal’s list of tax havens must be considered to be operations between related parties, even if no shareholding or control relationship exists between the two parties.
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Only transacting entities with net sales and other income greater than EUR 3,000,000, must possess a duly organised “tax documentation process” , with components capable of proving market parity in operations with related parties and the methods used to ascertain transfer prices.
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| If there are objective indicators that a company is no longer in business even though it legally remains in existence, the State can order that the process of administratively liquidating and winding up the company commence.
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Legislation establishes that companies not submitting accounts for two consecutive years can be compulsorily wound up. If the tax authorities inform the appropriate registry service of the lack of effective business activity of a company or the compulsory declaration that the company has ceased trading, according to the provisions of tax legislation, the company will also be subject to a compulsory winding up procedure.
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| List of countries, territories and regions with favourable tax systems:
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| Andorra |
Guyana |
Pitcairn Island |
| Anguilla |
Honduras |
French Polynesia |
| Antigua & Barbuda |
Hong Kong |
Puerto Rico |
| Dutch Antilles |
Jamaica |
Qatar |
| Aruba |
Jordan |
Solomon Islands |
| Ascension |
Queshm Islands |
American Samoa |
| Bahamas |
Kiribati |
Western Samoa |
| Bahrain |
Kuwait |
St. Helena Island |
| Barbados |
Labuan |
St. Lucia |
| Belize |
Lebanon |
St. Kitts and Nevis |
| Bermuda |
Liberia |
San Marino |
| Bolivia |
Liechtenstein |
St. Pierre and Miquelon |
| Brunei |
Luxembourg1 |
St. Vincent and Grenadines |
| Channel Islands2 |
Maldives |
Seychelles |
| Cayman Islands |
Isle of Man |
Swaziland |
| Cocos (Keeling) Islands |
Northern Marianas Islands |
Svalbard Islands |
| Cyprus |
Marshall Islands |
Tokelau Island |
| Cook Islands |
Mauritius |
Tonga |
| Costa Rica |
Monaco |
Trinidad and Tobago |
| Djibouti |
Montserrat |
Tristan da Cunha |
| Dominica |
Nauru |
Turks and Caicos Islands |
| United Arab Emirates |
Christmas Islands |
Tuvalu |
| Falkland Islands |
Niue Island |
Uruguay |
| Fiji Islands |
Norfolk Island |
Republic of Vanuatu |
| Gambia |
Sultanate of Oman |
British Virgin Islands |
| Gibraltar |
Pacific Islands |
US Virgin Islands |
| Grenada |
Palau |
Arab Republic of Yemen |
| Guam |
Panama |
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| 1Only in relation to 1929 holding companies. |
| 2Alderney, Guernsey, Jersey, Great Sark, Herm, Little Sark, Brechou, Jethou, Lihou. |
This list is vitally important to Madeira companies given that there is a lot of anti-evasion legislation applicable to operations with entities resident in these territories.
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