Madeira is part of Portugal and has full membership of the EU. This enables yacht purchasers to fully comply with EU legislation.
The International Shipping Register of Madeira (MAR) is internationally recognised as a credible and competitive option in comparison to other shipping registers. MAR maintains the high quality and safety standards of an EU register. MAR is not regarded by the International Transport Workers’ Federation (ITF) as a flag of convenience and is included in the Paris Memorandum of Understanding (MOU) White List.
As MAR is an EU Register it allows full access to navigation in EU waters without any types of restriction for either commercial or private yachts. In addition, its EU standing has the advantage of providing substance to the VAT status of yachts registered in Madeira that operate within EU waters.
Advantages Applicable to the Importation of a Yacht
There are a number of EU VAT rules relating to the importation of secondhand yachts. Portuguese VAT is applied to the lower acquisition price. This is due to the fact that these rules allow for devaluation suffered by the yacht (deemed market value). This can lead to a significant reduction in VAT.
Advantages Applicable to Commercial Yachts
Yachts commercially registered in MAR that are (i) used for navigation on the high seas and (ii) engaged in commercial/charter activities, benefit from several VAT exemptions:
- the acquisition price of the yacht;
- repair, modification and maintenance operations of the yacht;
- fuel and oil supply;
- the supply of goods for their provisioning; and
- the supply of equipment to be incorporated therein.
It is important to emphasise that these exemptions are subject to the absolute condition that the yachts are being operated commercially on a regular basis. It is therefore vital that when a yacht is used by the owner, a charter agreement is in place, showing the payment of a charter fee in line with market rates. It is also important that the use of the yacht by the owner is not excessive, or the tax authorities may question the commercial status of the yacht.
In addition to the tax benefits mentioned above, the following operational advantages are available to commercial yachts registered in MAR:
- There are no citizenship requirements for the crew.
- The crew is exempt from personal income taxes.
- The crew benefit from a flexible social security regime. Crew members are not obliged to contribute to the Portuguese social security regime, provided that an alternative pension scheme is guaranteed.
Advantages Available to Yacht Owning Companies
The MIBC, with its advantageous tax regime, provides a unique location for the establishment of yacht owning companies and offers a highly competitive package of tax benefits. Its reduced direct taxation, with effective corporate income tax rates ranging from 4% to 5% until 2020, combined with an exemption from withholding tax (providing the shareholders are resident in an EU jurisdiction) on payments of dividends, interest and royalties to non-residents of Portugal, makes it an attractive location for yacht operating companies.
Madeira companies also benefit from automatic VAT registration on incorporation and are instantly provided with a VAT registration number. This makes it easier for such companies to take advantage of the various benefits available.
Madeira yacht owning companies are exempt from the initial yacht registration fee and receive a 20% reduction in the annual yacht registration fee.
Withholding taxes on dividends can be eliminated by routing the investment in the Madeira company through an EU holding company such as Malta.
The International Shipping Register of Madeira (MAR) was established in 1989 as part of the Madeira International Business Centre (“MIBC”) “package” of taxation benefits. Vessels registered with MAR carry the Portuguese flag and are subject to the International Treaties and Conventions entered into by Portugal.
The key advantages of ship registration in MAR are detailed below:
- The register is of a high standard, has EU credibility, is not regarded as a flag of convenience and is included in the Paris MOU white list.
- There are no nationality requirements for ship-owners of vessels registered in MAR. They are not required to have their head office in Madeira. It is sufficient to have local legal representation with adequate powers.
- Only 30% of the safe manning must be “European”. This includes nationalities such as Polish, Russian and Ukrainian, as well as citizens of Portuguese-speaking countries. This requirement may also be derogated if duly justified. This allows for flexible manning.
- Crew wages are exempt from income tax and from social security charges in Portugal.
- The existence of a flexible mortgage system allows the mortgagor and the mortgagee, by written agreement, to choose the legal system of a particular country that will govern the terms of the mortgage.
- Competitive registration fees and there are no annual tonnage taxes.
- Eight International Classification Societies are recognised in Portugal. MAR can delegate some of its functions to these societies. This can be simpler and more convenient for ship owners.
- Temporary registration is allowed by law (bareboat charter: “In” and “Out”).
- Shipping companies licensed to operate within MAR benefit from a corporate income tax rate of 5% until 2027. They also enjoy automatic VAT registration and have access to the Portuguese double taxation treaty network.
Tax Advantages for Shipping Companies in Madeira
In addition, to the reduced corporate tax rates, Madeira shipping companies also enjoy exemption from withholding taxes on the distribution of dividends, exemption from withholding taxes on interest, royalties and service fees paid to non-residents, and exemption from capital duty, notary and registration fees. If certain requirements are met, shipping companies may also be exempt from capital gains tax when subsidiaries are sold.
Shipping companies can benefit from the Double Taxation Treaties with Portugal and Investment Protection Treaties signed by Portugal.
Portuguese Tonnage Tax
The Portuguese tonnage tax and seafarer scheme was approved by the European Commission on 6 April 2018, in line with EU State aid rules, in particular the Guidelines on State aid to maritime transport. The Portuguese measures enhance the competitiveness of the Portuguese shipping sector and, simultaneously, protect know-how and jobs in the EU maritime transport sector.
The tonnage tax is not a tax but rather a means to determine relevant taxable income.
Entities liable to corporate income tax, carrying out eligible shipping activities, with a registered head office or place of effective management in Portugal, may opt to be taxed under the tonnage scheme.
Ships registered with MAR qualify for the tonnage scheme. MAR is the fourth largest EU international shipping register. Madeira is an integral part of Portugal, with companies registered there enjoying a number of tax benefits, guaranteed until at least the end of 2027.
INAC is the regulatory authority for civil aviation in Portugal. Portugal has an excellent reputation within the aviation sector.
Key Advantages and Features of the Portuguese Aircraft Register
- There are no nationality requirements for aircraft owners to register an aircraft with INAC. Registration charges are extremely low, and the registration process is rapid (average 10 days).
- Portugal has pioneered fractional aircraft ownership registration and INAC officers are experienced in this field.
- INAC is a secure mortgage register – due to its international reputation and safety standards it is on the banks’ and financial institutions’ white list of aircraft registries.
To obtain an Air Operator Certificate (AOC) from INAC the licence applicant must have its principal place of business in Portugal and must be at minimum 50% owned and controlled by an EU member state or by an individual from an EU member state.
Air operators with a valid AOC granted by INAC are entitled to deduct the VAT on the: fuel supply, maintenance, lease, transfer, and repairs to the aircraft. They are also entitled to deduct VAT on the acquisition, maintenance, repair and transfer of equipment incorporated into the aircraft or used in its exploitation. This is provided that 50% of the aircraft’s flights are international.
Portugal Office Information
Dixcart Portugal Lda is a company incorporated in Portugal and registered in Madeira under the provisions of the International Business Centre Legislation, which allows individuals and companies to undertake activities from Madeira whilst enjoying tax exemptions.