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A Madeira Offshore Trust is an ideal structure so foreigners can transfer title to properties located outside of Portugal where all income derives from outside the country.
When the Free Trade Zone law was created for Madeira, it included provisions for creating offshore trusts. Decree Law No 149/94 and Decree Law No 352/88 dealt with registering and managing offshore trusts. In addition, Decree Law 264/90 authorized the creation of trust corporations and branches.
Foreigners can create offshore trusts and pay no taxes as long as all of the trust’s assets (properties) are located outside of Portugal and all income comes from other countries. In addition, neither the settlor nor any of the beneficiaries can be residents of Portugal.
Madeira is officially called an “Arquipelago Da Madeira” of Portugal located in a volcanic origin in the North Atlantic Ocean. They consist of small islands with limited autonomy regarding local matters yet they are an integral part of Portugal. As a result, Madeira obtained the “benefits” of full European Union (EU) membership.
Madeira companies are governed by the standard Portuguese Companies Code. However, companies based in Madeira obtain benefits from tax breaks granted by the Free Trade Zone legislation (amended in 2000).
A Madeira Offshore Trust receives the following benefits:
• Designed for Foreigners: Offshore trusts laws were created for foreigners.
• Tax Free: All income generated outside of Portugal are free from every tax. However, U.S. citizens and everyone paying income taxes on global income must reveal all income to their governments.
• Privacy: The settlor and beneficiaries names are not included in any public records.
• Confidential: Trustees are required to keep all information regarding a trust confidential.
Madeira Offshore Trust Name
Trusts cannot select a name exactly alike or resembling the name of any legal entities in Portugal.
The word “Trust” must appear at the end of its name to avoid confusion with other legal entities in Portugal.
Qualifications of a Trust
The law requires a valid trust to be intended as a trust, its assets are all located outside of Portugal, and all of the beneficiaries are non-residents of Portugal.
A trust deed establishes the purposes and objectives of the trust. Like a corporation’s articles of incorporation, the rules regarding the trustees in how they manage and administer the trust assets for the benefit of the beneficiaries are detailed. These include:
• How the income and assets will be distributed are also important matters covered in the trust deed.
• Because it is a deed, the assets are identified and title transferred from the settlor to the trustee (or trust depending on the law).
• The period of existence must be specified.
• The power to accumulate income and not immediately distributed to the beneficiaries must be specified.
• The identities of the settlor, trustees, and beneficiaries must be stated in the trust deed.
• The trustee’s powers to invest and the obligations towards the beneficiaries are included. The personal liabilities of the trustees towards the trust and the beneficiaries must be clear.
The trust deed must be signed in front of a pubic notary by the settlor.
Normally, trusts do not have to register with the government. However, since the offshore trust legislation is part of the laws creating the Madeira Free Trade Zone, offshore trusts existing for more than one year must register in the Free Trade Zone Registry.
Despite having to register with the government, the names of the trust’s settlor and beneficiaries are not included in any public documents.
Only foreign persons and legal entities can create trusts. Creators are known as “settlors”. They can be citizens of any other country and do not have to reside in Portugal.
All of the properties (assets) of the trust must be located outside of Portugal.
Only branches of foreign trust corporations licensed to operate under the laws creating offshore trusts or trust corporations established by these laws can become trustees.
In order to obtain complete tax exemptions, all of the beneficiaries must be non-residents of Portugal. Beneficiaries may be natural persons or legal entities residing outside of Portugal.
When registering an offshore trust with the Private Trust Registry in the Free Trade Zone of Madeira, neither the trust deed nor the names of the settlor and the beneficiaries do not have to be filed.
Trustees opening bank accounts on behalf of a trust do not need to disclose the names of the beneficiaries to the bank in spite of any bank’s internal controls requirements.
While European Union (EU) directives require co-operation regarding weapons, drug trafficking, and money laundering, they do not require co-operation with foreign investigators related to tax evasion.
Double taxation treaties with other countries only require disclosure of beneficiaries’ information concerning drug or weapons trafficking.
Otherwise, only a court order can force the disclosure of confidential information concerning criminal matters.
All income derived outside of Portugal is completely tax free. This includes corporate tax, income tax, capital gains, tax, wealth tax, gift tax, estate tax, inheritance tax, and stamp duty.
If taxable income should arise in Portugal, the tax is levied against the trustee because Portugal does not recognize a trust as a separate legal entity for tax purposes.
However, income derived from companies licensed under the Madeira Free Trade Zone laws are an exception as they are not considered Portugal tax entities. This follows other countries laws regarding Free Zones not being considered “in country income” for tax purposes.
Note: U.S. citizens and others subject to taxes on their worldwide income must declare all income to their tax agencies.
Audits and Accounting
Trust companies must be audited every year and appoint a statutory auditor on their board of directors.
Trust companies must maintain books and accounting records regarding every trust they administer.
The names of the settlor and the beneficiaries can be kept out of all public records.
A Madeira Offshore Trust enjoys these benefits: law created offshore trusts specially for foreigners, privacy, no taxation, and confidentiality.