Portugal & Madeira
Companies formation in brief
Portugal law provides for the establishing of entities of various organizational and legal forms but, from the practical perspective, registration of a limited liability company - the most popular corporate instrument among foreign investors in Portugal, is the most effective choice.
A limited liability company may be established in Portugal as a public limited liability company (Sociedade Anonima - S.A.)†or a private limited liability company (Sociedade por Quotas - Lda.).
A public limited liability company (Sociedade Anonima) is established by at least five shareholders (physical and legal persons - residents of any countries) and is characterised as follows:
* minimum capital is EUR 50.000;
* 30% of the capital to be paid at the time of registration, and payments of the remaining 70% of shares may be delayed but not more than for 5 years;
* both registered and bearer shares may be issued. The bearer shares must be paid up;
* registered shares may be converted into bearer shares and vice versa under the Portugal law and a specific company's charter;
* company is managed by the Board of Directors;
* company may issue ordinary shares and preference shares.
Preference shares, accordingly, are divided into the following two types:
* shares providing no voting rights at the general meetings but guaranteeing dividends to shareholders (at least 5% of the shares nominal value). The issue of more than 50% of shares in this form is prohibited by the law;
* shares to be bought back by the company after a certain period (paid up shares only). A holder of such shares, in addition to regular dividends, receives an amount equal to their nominal purchase value, and in some cases, the charter may provide for paying a share premium to the holder.
A public limited liability company has to form a reserve fund equal to 20% of its charter capital, and until the fund is fully formed, at least 5% of the company's profit has to be allocated to it each year.
The public limited liability company's prospectus and charter are to be approved by the Registrar of Companies.
A private limited company (Sociedade por Quotas) is established by at least two shareholders (physical and legal persons - residents of any countries) and is characterised as follows:
* minimum capital is EUR 5,000;
* entire capital is paid up at the time of registration;
* only registered shares may be issued;
* The company may be managed by one director
In Portugal, a private establishment (Estabelecimento Individual de Responsabilidade Limitada - EIRL) with sole owner (physical or legal person resident of any country) may also be incorporated; it is characterised as follows:
* minimum capital is EUR 2,000;
* entire capital is paid up at the time of registration;
* company bears unlimited liability for its debts and liabilities while the owner is not liable for the companyís debts;
* company is managed either by shareholder or by director hired by the shareholder.
Except for certain sectors of the economy, such as defence and public services, Portugal has not restricted foreign participation in a local company, but regardless of the organizational and legal form chosen, the founder has to observe a number of organizational procedures, namely:
* filing an application with the Registrar of Companies (Registo Nacional de Pessoas Colectivas) to obtain an authorisation to use the companyís name;
* placing in advance the minimum required share capital in a local bank account;
* registering the company with the tax authorities and notifying the Financial Department that the tax card is received;
* Registering the company with the Social Security Administration;
* filing an application with the ministry of employment (MinistÈrio de Emprego e Seguran?a Social) to register employment contracts of foreign staff if the company intends to employ non-residents. Some activities may need to be specifically authorised in respect to the work schedule, etc.;
* registering in the commercial register (ConservatÛria do Registo Comercial) of the region where the companyís office is located;
* publishing the companyís charter in the official and local newspapers;
* registering accounting books and minutes book with the tax authorities and the commercial register.
A foreign company may also carry out normal entrepreneurial activity in Portugal through its †branch which is not a separate legal entity, may not assume any legal responsibility but has some advantages, namely:
* branch is released from paying interest and dividend tax upon profit repatriation from Portugal;
* management of branch, compared to a typical company, is simplified;
* branch's costs and losses are covered by the parent com[any;
* branch registration is not required to be certified by notary.
It should be borne in mind that since, for registering a branch, a foreign companyís by-laws need to be translated into Portuguese and published in both local and official newspaper, opening a branch may become an expensive process.
All companies in Portugal have to provide an audit report on results of their activities each year. Any company has to appoint a public auditor if, within two years from the date of registration, two of the following three conditions are met:
* its annual balance sheet is Ä900í000 or more;
* its annual turnover jointly with other profits is at least Ä2í000í000;
* its average staff number for the year is at least 50 people.
Portugal has a unified tax rate for all companies.
All taxes are paid in advance on a quarterly basis 4 times per year.
Madeira island is a part of Portugal and all island-based companies are established on the same basic principles as typical Portuguese companies are established on the mainland.
The offshore sector of Madeira economy is known as the International Business Center (MIBC) and includes:
* Free Trade Zone which is established predominantly for manufacturing companies;
* International Services Centre;
* Offshore Financial Centre which provides services to banks, financial and trust companies;
* The Madeira Shipping Register.
Free Trade Zone is located on a strictly delineated territory in the East of the island, in the area of Kanisal. Industrial and trading companies operating here are engaged in the manufacturing, assembly, packaging and warehousing of goods.
The Offshore jurisdiction (International Services Centre) is located on the entire territory of Madeira, and provides for the establishing and services, primarily, to holding, service and management companies, as well as to companies operating with intellectual property.
Offshore organizations can be established on Madeira in the following organizational and legal forms:
* Private Unlimited Company
* Stock Corporation
* Holding Company
* Shipping Company
An offshore company may be established in Madeira by sole shareholder (physical or legal person - resident of any country).
Director may be only a physical person, resident or non-resident of Portugal.
An offshore company must have a secretary, as well as a registered or larger (depending on the type of activity) office in Madeira. If all directors of the offshore company are non-residents of Portugal, its secretary must be a resident of Madeira ñ a physical or legal person.
Manufacturing companies established in the free trade zone are subject to taxation in Madeira at a rate of 5% from 2020 through 2027. For comparison, traditional companies pay taxes in Madeira at a rate of 21%. All manufacturing companies established in Madeira Free Trade Zone are required to create permanent jobs. And companies that create more than †five jobs have a preferential income tax rate without additional conditions. Companies that created between one and five jobs have a preferential income tax rate provided that during the first two years of operation, those companies will make a minimum business investment of EUR 75í000.
The Free Trade Zone provides the following advantages to offshore companies in Madeira:
* industrial and raw materials imported directly into the Free Trade Zone territory are exempted from any customs duties;
* goods produced directly in the Free Trade Zone territory and exported to the EU countries, provided that raw materials, components and assemblies for their manufacture are imported from those countries, are fully exempted from customs duties. Otherwise, only the part of a finished productís cost that relates to raw materials and components imported from outside the European Union (no heavy industry enterprises and other manufactures of environmental concern may be established in Madeira) is subject to customs duties;
* they are exempted from any taxes and duties existing in Portugal;
* no currency control.
Offshore holding companies in Madeira are divided into 2 classes:
1. Holding Company
2. Mixed Holding Company
Holding Company may only hold shares in other companies and may not:
* purchase its own shares;
* purchase debt obligations of companies which it does not participate in;
* issue loans to companies which it does not participate in;
* engage in any other business activity except for holding shares of other companies.
Mixed Holding Company may (and in practice is required to) both hold shares of other companies, and participate in any other business activity, other than banking and other financial activities to be licensed by the Central Bank of Portugal.
Offshore holding companies of both classes receiving income in Madeira from sources outside the EU are subject to taxation in Madeira at a rate of 5% in the period from 2020 to 2027. However, offshore holding companies of both classes receiving income in Madeira from sources in mainland Portugal are subject to taxation at the rates applicable in Portugal.
Although, in accordance with the law, offshore Mixed Holding companies receiving income in Madeira from sources in the EU are subject to taxation at a rate of 1.25%, most EU countries do not consider this type of companies to be subject to the EU Parent/Subsidiary Directive.
Dividends distributed by offshore holding companies of both classes to their non-resident shareholders are not subject to taxation in Madeira.
Each quarter all offshore companies submit profit and loss statements and each year - consolidated financial statements in the prescribed form, to their local financial administration. All reports, copies of meetingsí minutes, directorsí and shareholdersí registers and other documents are required to be kept at the companyís registered office in Madeira.
Public companies' financial statements are subject to mandatory audit (this requirement does not refer to private companies, unless the company's assets exceed EUR 700'000, or the company's staff is more than 50 people, or the company's net sales exceed EUR 1'400'000).
Offshore companies registered in Madeira may not be engaged in any commercial activity directly in Portugal, and the profits generated from offshore companies' transactions with Portuguese residents are subject to taxation at a rate applicable to typical Portuguese companies.
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