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Offshore Trusts Report: Madeira

Legal Framework and Formation Rules and Fees

Madeira is a civil law jurisdiction, subject in general to Portuguese law, and the trust thus does not exist as such. Portugal has not ratified the Hague Convention on the law applicable to trusts and their recognition. Nonetheless when the Free Trade Zone Legislation of Madeira was enacted provision was made for the creation of offshore trusts.

Decree Law No 352/88 & Decree Law No 149/94 deal with the registration and management of offshore trusts whereas Decree Law 264/90 concerns authorization by Government of trust corporations and branches. There are no unit trusts in Portugal or Madeira.

Portuguese residents cannot use Madeira offshore trusts. The law forbids a trust to hold immovable property situate in Portugal and to have either a settlor or a beneficiary who is a Portuguese resident. All trust property should be based outside Portugal and all trust income should be derived from non-Portuguese sources if the favorable taxation regime governing entities licensed to operate under the Free Trade Zone Legislation of Madeira is to apply.

For a Madeira trust to be valid it must satisfy the following criteria:

  • The trust must pass the 3 tests of certainty of intention, certainty of objects and certainty and identification of the beneficiaries;

  • The settlor, the trustees, the beneficiaries and the assets settled by the trust must all be identified in the trust deed;

  • The trust period must be specified.

  • A power to accumulate income must be specified in the deed;

  • The trust deed must stipulate a foreign proper law governing the validity, interpretation and administration of the settlement;

  • The trust deed must set out the trustees powers of investment, the rights and obligations of trustees and the relationships between trustees and beneficiaries including any personal liability arising.

Trusts that are created in or transferred to Madeira may emigrate without prior authorization by exchanging the law governing the trust with the law of the foreign jurisdiction to which the trust is going to migrate. The trust deed can reserve the right to change the proper law governing the validity, interpretation & administration of the trust at any future point in time. A Madeira offshore trust is brought into existence by the execution of a notarial trust deed in front of a public notary.

There are a number of provisions that protect trust confidentiality:

  • Although an offshore trust must be registered in the private Trust registry located in the Madeira free trade zone neither the trust deed nor the names of beneficiaries and settlor need be registered;

  • A trustee who is opening a bank account on behalf of a trust does not need to disclose the names of the beneficiaries to the bank although the bank may require such details for the purposes of its internal controls;

  • The exchange of information agreements contained in double taxation treaties only allow for the disclosure of information relating to drugs or weapons trafficking;

  • European Union directives as transposed on the Islands do require the local authorities to co-operate in matters relating to drug trafficking, weapons trafficking and money laundering but do not require the local authorities to cooperate with foreign investigators in matters of tax evasion;

  • Disclosure of the details of a trust is only allowed pursuant to a court order (See Article 11 of Decree Law No 264/90). An unauthorized breach of the confidentiality provisions contained in article 11 will result in criminal sanctions.

Trust companies must be audited annually and must retain a statutory auditor on their board of directors. They must keep books of account relating to the trusts being administered.

A trustee company pays an annual license fee of around EUR2,400, at the time of writing.

Where trust income arises in Portugal it is taxable in the hands of the trustees as if the trustees were both legally and beneficially entitled to the income. The reasoning behind this principle is that Portuguese law does not recognize the concept of a trust and so does not recognize the distinction between legal and beneficial ownership for the purposes of taxation. By way of exception income arising through investments made through companies licensed to operate under the Free Trade Zone Legislation of Madeira is not considered to have arisen within Portugal for tax purposes.

   

The Report

Offshore Trusts Guide: Introduction

The History of Offshore Trusts
Development of Professional Competence in the Jurisdictions
What Future for the Trust?
The New Age of Transparency
The Swiss Association of Trust Companies
The Society of Trusts and Estates Practitioners

Offshore Trusts Guide: Jurisdictions

Bahamas

Bahamas: Legal Framework and Formation Rules and Fees
Bahamas: 2006 Private Trust Companies Legislation

Barbados

Barbados: Legal Framework and Formation Rules and Fees
Barbados: Supervisory and Licensing Regime and Fees

Bermuda

Bermuda: Legal Framework and Formation Rules and Fees
Bermuda: Supervisory and Licensing Regime and Fees

British Virgin Islands

British Virgin Islands: Legal Framework and Formation Rules and Fees
British Virgin Islands: Special Trusts Act 2003
British Virgin Islands: The Trustee Act 2003
British Virgin Islands: :Supervisory and Licensing Regime and Fees
British Virgin Islands: New Laws on Private Trust Companies
British Virgin Islands: New Private Trust Company Regulations

Cayman Islands

Cayman Islands: Legal Framework and Formation Rules and Fees
Cayman Islands: Supervisory and Licensing Regime and Fees

Cook Islands

Cook Islands: Legal Framework and Formation Rules and Fees
Cook Islands: Supervisory and Licensing Regime and Fees

Cyprus

Cyprus: Legal Framework and Formation Rules and Fees
Cyprus: Supervision, Licensing and Tax

Gibraltar

Gibraltar: Legal Framework and Formation Rules and Fees
Gibraltar: Legislation, Regulation and Supervision

Guernsey

Guernsey: Legal Framework and Formation Rules and Fees
Guernsey: Trusts Law 2007

Isle of Man

Isle of Man: Legal Framework and Formation Rules and Fees
Isle of Man: Supervisory and Licensing Regime
Isle of Man: Uses Clients and Tax Treatment

Jersey

Jersey: Legal Framework and Formation Rules and Fees
Jersey: Supervisory and Licensing Regime
Jersey: Trusts Amendment Act 2006
Jersey: Foundations

Liechtenstein

Liechtenstein: Legal Framework and Formation Rules and Fees
Liechtenstein: Regulation Supervision and Transparency
Liechtenstein: Characteristics of Liechtenstein Trusts
Liechtenstein: Foundations

Madeira

Madeira: Legal Framework and Formation Rules and Fees

Malta

Malta: Legal Framework and Formation Rules and Fees
Malta: The Trust and Trustees Act 2004

Mauritius

Mauritius: Legal Framework and Formation Rules and Fees
Mauritius: Characteristics of the 2001 Trusts Act
Mauritius: Additional Provisions of the 2001 Trusts Act
Mauritius: Tax Treatment

Monaco

Monaco: Legal Framework and Formation Rules and Fees

Nevis

Nevis: Legal Framework and Formation Rules and Fees

New Zealand

New Zealand: Legal Framework and Formation Rules and Fees
New Zealand: Review of the Law of Trusts
New Zealand: Taxation of Trusts

Panama

Panama: Legal Framework and Formation Rules and Fees
Panama: Requirements for Acting as Trust Company in Panama

Seychelles

Seychelles: Legal Framework and Formation Rules and Fees

Turks & Caicos

Turks & Caicos: Legal Framework and Formation Rules and Fees
Turks & Caicos: The Voidable Dispositions Ordinance

Vanuatu

Vanuatu Legal Framework and Formation Rules and Fees