The home of Cristiano Ronaldo is best-known for its natural beauties, like Cape Girão.

Yet, avid investors love Madeira for other reasons: its trust regime.

As we have said, madeira is an autonomous region of Portugal. When Portugal joined the CEE (today EU) it agreed with the European Commission that Madeira would offer tax benefits to attract international investment. This gave birth to the International Business Centre of Madeira (IBCM).

Along with this, the Portuguese government created another amazing, and somewhat hidden benefit: a trust regime.

And if you know a bit about asset protection, you are probably wondering how, if Portugal is not a common law jurisdiction, can you establish a trust?

That is a fair question to ask. Portugal is a civil law jurisdiction, meaning its regular legislation does not regulate trusts. Thus, the government came up with a Decree-Law that authorized a trust regime with a creative solution that would not hinder the civil law regulations: When a settlor creates a trust and registers it in Madeira, they must designate the law that will regulate the trust (which can be changed in time without prior authorization).

The settlor must designate the jurisdiction that will regulate the trust in the trust deed and can change the law that will establish the interpretation and administration of the vehicle.

Therefore, for example, you can protect your assets by using Nevis’ trust law and settling it in Madeira, giving you the perfect balance between the best trust law in the planet and Portugal’s network of double tax treaties.

Portugal is tough against offshore jurisdictions, but if there is no income deriving from its blacklisted jurisdiction and the main purpose of the trust is succession and asset protection, Nevis is your best choice.

If you want to play safe, our experts regularly work with the UK or Cyprus trust legislation. 

This is an excellent benefit for those who want to protect their assets because it makes the Madeira trust a solid and flexible structure at once.

Limitations

• Trusts are not allowed to execute financial activities. Yet, all non-financial income distributed to the beneficiaries is entirely tax-free if the beneficiaries are a) corporate entities licensed within the IBCM or b) non-resident companies of individuals if they are tax residents in whitelisted countries.
• Portuguese residents cannot use the Madeiran trusts. 
• Trusts cannot own immovable property in Portugal.
• All properties and income must derive from foreign sources if the trust wants to receive tax benefits of the IBCM. 
• If you receive trust income from Portugal, it will be taxed over the trustees because the Portuguese law does not recognize the concept of a trust and does not make a distinction between legal and beneficial ownership from a tax perspective. Yet, there is an exception for IBCM companies. Their income is not consider to arise from Portuguese sources for tax purposes meaning it is not taxed.