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A Top Asset Protection Jurisdiction in the EU: Madeira Trusts

calendar 6/23/2020 8:00:00 AM
author Admin System

Madeira is an otherworldly island in the Northwestern coast of Africa, about 400 miles west of Morocco. For years, it has been a top Atlantic cruise destination because of its breathtaking sights.

The home of Cristiano Ronaldo is widely known for its natural beauties, such as Pico Ruivo and Cape Girão.

However, we are here to talk to you about a different kind of Madeiran beauty: Trusts in Madeira.

Madeira is an autonomous region of Portugal. Its distance from mainland Portugal has always granted the island with relative independence and cultural autonomy from the rest of Portugal.

When Portugal entered the C.E.E. (today E.U.), and to introduce economic diversification to the Island, it was agreed that Madeira could offer, duly authorized by the European Commissioner for Competition, some tax benefits to companies in order to attract international investment. This was the birth of the International Business Centre of Madeira (IBCM).

The incentives mainly target corporate tax to attract investment into the area. That has been a way many small island economies have found to develop into reliable financial and investment jurisdiction.

The IBCM is made of three main areas: The Industrial FTZ, the International Shipping Register, and the International Services.

This means Madeira has become a hub for varied economic activities such as trading, marketing, consulting, telecommunications, holding of shares and intellectual property, manufacturing, yacht registration, and much more.

Even better: the FTZ comes with full EU compliance and support, which gives it a robust legal framework.

Nevertheless, we're not here to talk to you of the IBCM per se but of a particular feature that you may not know of and which is one of the most underrated benefits of the IBCM.


The establishment of a Madeira trust.

If you know at least a bit about trusts, you may think: well, if Portugal isn't a common law jurisdiction, such as the UK, most Caribbean islands, and Hong Kong, how in the world can I establish a trust?

That's a fair question.

As Portugal is not a common law jurisdiction, its internal legislation doesn't regulate trusts. That means the government had to come up with a Decree-Law to authorize such asset protection vehicles.

However, the government also established a creative solution to regulate trusts. When creating the trust, the settlor must designate the law that will regulate it and even change it at any time during the trust's existence.

Moreover, to transfer a trust to Madeira, you don’t need prior authorization. You’d only need to exchange the law to the law of the foreign jurisdiction from which the trust will migrate. The settlor has to designate the law that will regulate the trust when he incorporates it and the trust deed can reserve the right to change the law that will regulate the validity, interpretation, and administration of the trust.

This means, for example, you can protect your trusts by using Nevis’ trusts law but setting it in Madeira, which gives you the perfect balance between the strength of Nevis’ trusts law and the access to Portugal’s network of double tax treaties and the EU jurisdiction.

If there’s no income deriving from tax havens and its main purposes are succession and protection of assets, then Nevis law can be a top choice.

If you wish to follow a more conservative strategy, our experts also recommend the UK or Swiss law as the base of your trust for asset protection purposes.

This is a magnificent benefit for those interested in protecting their assets as it makes Madeiran trusts robust yet flexible at the same time.

As in the top trust jurisdictions, Madeiran trusts are wholly exempt from taxation on dividends they receive from shares, royalties, or any interest earned from deposits – if received and/or transferred from/to white list countries.

However, they are not allowed to execute any financial activities. Still, all non-financial income the trustee distributes to the trust's beneficiaries is fully tax-free if these beneficiaries are 1) corporate entities that have a license operate within the IBCM or 2) non-resident corporate bodies or individuals - if tax residents in white list countries.

That means Portuguese residents cannot make use of the Madeiran offshore trusts. Furthermore, the law forbids a trust to own immovable property in Portugal or have settlor or beneficiaries that are Portuguese residents.

Thus, all properties of a trust have to be based outside Portugal, and its income must derive from foreign sources if it wants to receive the tax benefits of the IBCM – except if received and/or transferred from/to blacklisted countries.

Where you receive trust income in Portugal, it is taxable over the trustees as if the trustees were fully entitled to the income. The reasoning is simple: the Portuguese law does not recognize the concept of a trust andnit does not recognize the distinction between legal and beneficial ownership regarding taxation.

Remember: the establishment of trusts is an exception of the law created especially for Madeira, that's why it's best to avoid income arising from Portugal.

But we've mentioned that a trust can be established by a company operating in the IBCM. Does that mean its income is taxable? No. As an exception, income arising from investments made through companies licensed to operate under the IBCM isn't considered to have arisen within Portugal for tax purposes, if your investment hasn’t been actually made in Portugal.

So, you have a top trust jurisdiction that actually allows you to obtain income from the IBCM. And there's more! The fact that you can establish your law based on a foreign law adds an extra layer of protection for you.

Moreover, the jurisdiction has qualified professionals for trusts and other financial services, yet, it's cost-conscious as it's generally considered to be on the lower side of the EU cost standards.

Eight Benefits of a Madeira Trust

Specially designed for foreigners

Trusts don't exist within the Portuguese legal frame. They were specially created and designed for the IBCM and for foreigners to help them protect their assets and manage their wealth.

In fact, as they don't exist within the legal framework, the law demands them to state the foreign legal framework that will protect the trust. This gives beneficiaries the possibility to choose a jurisdiction of their liking that will offer them top security.

Lowest taxation in Europe

Yes, the whole purpose of establishing a trust is asset protection and tax optimization, so it's evident that a Madeiran trust must offer that. All (non-financial) income distributed from the trustee to the trust’s beneficiaries is fully exempt of taxation if these beneficiaries are corporate entities licensed to operate within the IBCM or non-Portuguese resident entities/individuals. Thus, you can safeguard your non-financial income of your IBCM company in a Madeiran trust.

Moreover, whereas other trust jurisdictions offer significant benefits for the beneficiaries of the trust, they put a significant financial burden on the side of the trustee, that’s not the case in Madeira, as the trustee must only pay a 5 % corporate tax rate.

As if that wasn’t enough, Portugal enjoys a double taxation treaty network of more than 60 agreements that will benefit your trust and your operations in Madeira.

Fully integrated with the EU financial system

Knowing the EU and for the benefits of the IBCM and the Madeiran trusts, you may think that Madeira might be a European pariah, but no! The IBCM and the trust decree-law are fully integrated, supported and harmonized with the EU. A Madeira trust gives you access to the EU financial system easily, meaning it can be your entryway for other asset protection, tax planning, and risk diversification strategies across Europe.

Far away from the blacklists

Most top trusts jurisdictions have been put into blacklists to prevent investors and high net worth individuals from using them as an asset protection strategy. That’s unfair, but it doesn’t change reality.

But that’s not the case with Madeira. This is a flexible trust jurisdiction that will allow you to take advantage of a top trust legal frame (such as Nevis’, as long as your income doesn’t come from a blacklisted jurisdiction) while it comes with full EU compliance and support. 

Privacy and confidentiality

Settlor and beneficiary names are not included in public records (under the above-mentioned limitations) and trustees must keep private all information regarding a trust. In fact, the trust deeds don't have to be filed, and a trust must only be registered if they exist for more than a year.


Ideal price-value relationship

Madeira is widely considered a low-tier jurisdiction regarding costs for establishing a trust. Still, it has plenty of solid service providers, an adept bureaucracy, and unmatched flexibility.

Sound banking system

The Portuguese banking system is solid and modern. Opening a bank account in Portugal isn’t difficult and, in some cases and thanks to our experts, it can be done remotely. We can help you to easily open a bank account for a Madeira trust in Portugal with just a few KYC requirements. That means you’ll obtain an additional advantage from your trust as it’ll be fully integrated into the Portuguese financial system.

Get advantage of the IBCM

You can establish a business and obtain income from your trust if the company operates in the IBCM. In general, the zone is a dynamic economic hub where hundreds of different business operate, which can help you establish your business and reap significant trade and tax benefits.

The features of a Madeiran trust

Now that we've given you a general introduction for Madeiran trusts, what else do you need to know?

You have pretty much everything in this little table we've made for you:

Name

A trust cannot have a name alike or similar to another legal entity in Portugal and the word trust must be present at the end of its name

Qualifications

To be valid it must be intended as a trust, its assets must be located outside of Portugal, and the beneficiaries cannot be Portugal residents

Deed

The deed establishes the purpose of a trust and the rules regarding its management and administration, and info such as:

  • How the income and assets will be distributed
  • The transfer of the assets from the settlor to the trustee
  • Period of existence
  • The identities of the settlor, trustees, and beneficiaries
  • The trustee's power to invest and the liabilities he will acquire towards the beneficiaries

Registration

Trusts must register in the FTZ registry. However, the names of the settlor and beneficiaries won't be included in public documents

Settlor

Only foreign, non-resident natural or legal persons can create trusts. All properties and assets of the trust must be located abroad

Trustee

It needs to be a Madeira company duly licensed under the IBCM

Beneficiaries

To obtain tax benefits all beneficiaries must be non-residents of Portugal, whether they are natural or legal persons, or corporate entities licensed to operate within the IBCM.

Confidentiality

The trust deed and the names of the settlor and beneficiaries don't have to be filed. Trustees opening bank account representing a trust must disclose the beneficiaries' identities.

That means only the identity of the beneficial owner is provided, not his or her financial information.

Taxes

The trust itself is fully tax-free on dividends received from shares, royalties or interest received on the deposits.

The trustee is taxed at a 5 % corporate tax rate. If the income is generated domestically, it will be 21 %

Audits

Trust companies must be audited each year and appoint an auditor on their board. They must keep books and accounting records on every trust in their power


Who are we, and what can we do for you?

In Mundo, along with NTL Trust, we have 25 years helping investors and high net worth individuals around the world do business freely and protect their assets.

NTL Trust is the oldest trust providing company in Nevis and, since then, we haven't stopped offering expanded services for our clients across the world to help them live freely. That's our core value: freedom. What we want the most is to see you live, work, invest, and protect your assets, your legacy, and your family.

NTL has its own head office in Panama and specializes in trust and other asset protection vehicles for family offices, high net worth individuals, and lawyers and intermediaries that whish to offer these services for their clients.

In Portugal, NTL has a top expert team for all main corporate and financial services within the IBCM to help you set up and manage your trust and have top asset protection.

We have a fantastic team of experts and lawyers in Madeira ready to give advice in all aspects of trust law and finding a tailor-made solution for you.

The fact that Madeiran trusts are governed by the foreign law of your choosing means you can pick St. Kitts & Nevis trust laws. We are the most experienced trust providers in Nevis, meaning you will have the best team to advise you. We love Nevis as a trust jurisdiction because it will protect your trust against claims, creditors, spouses, and business partners thanks to its robust legal framework.

If you wish to follow a more conservative strategy with rock-solid international reputation, our experts are also acquainted with using the Swiss and British trust law as the base for your Madeira trust.

The legal services we provide to our clients are generally divided into two separate areas:

  • Assistance with the setting up of a Madeira trust, duly licensed and established under the Madeira International Business Centre in Portugal.

  • Acting as a trustee, for which they are duly licensed to operate within the Madeira International Business Centre in Portugal, in accordance with what is established in the trust deed.

That means they handle all the main operations of the fund and the steps you need to take to establish it. They usually only need the following standard KYC documentation to help you set up your trust:

  • Clear certified copy of the main page of passport;
  • Proof of residence – certified copy of utility bill, e.g., gas, electricity, water, fixed phone line, not older than three months after issued;
  • Proof of occupation/profession - Statement from current employer issued on the relevant company letterhead, stating title or position within the company, period of employment, etc.;
  • Curriculum Vitae;
  • Bank Reference Letter;
  • Proof of source of funds/bank statements/ last Annual Tax Return, etc.

And that's it!

Moreover, we can also help you open a bank account for a Madeira trust in Portugal. Requisites vary from bank and it depends on the KYC. Our experts usually recommend a bank account that matches the law the trust is subject to. Generally, we can help you open the bank account remotely. All you’d need to do is go to the Portugal Embassy of your country to recognize your signature, and that would be it!

The perfect structure

Making your Madeira trust subject to Nevis Law gives you the benefit of the best legal international asset protection regime (St. Kitts and Nevis) combined with the reputation of Europe and access to Portugal’s broad network of double taxation treaties.


Only a structure like this can help you avoid all claims by creditors, wives, and business partners while giving you unyielding asset protection. Why? Because the claim will have to be made to a Nevis court, which is incredibly tough because Nevis laws don’t recognize any claim against a trust if the claim was made two years after the trust creation.

In Mundo, we can help you protect your legacy and optimize your taxes. You may be one email away from protecting your assets and your loved ones. You just have to contact us.

Want to know the details of our Madeira trust services? Enquire now!



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