THE “CHAMELEON” TRUSTS?

By means of the Decree-Law 352-A/88, the Portuguese Government authorised the establishment of Trusts exclusively devised to off-shore activities within the institutional framework of the Madeira International Business Centre (IBC).

The terms and conditions of such trust regime created in a “non Anglo-Saxon (Common Law)” jurisdiction, alongside the tax benefits granted to the Madeira IBC, made the Madeiran Trusts and its legal and tax regime unique.

As Portugal is a non Anglo-Saxon (Common Law) jurisdiction it does not possess internal legislation to regulate Trusts which existence - within Portugal – is strictly limited to the Madeira IBC. The solution for this legal “omission” was indeed creative: in accordance with the applicable Decree-Law which allowed for the creation of Madeiran Trusts, the Settlor shall expressly designate the law that will regulate the Trust. Furthermore, and if desired, it is possible to substitute the chosen law at any time during the Trust’s existence.

This prerogative constitutes an important benefit, its usefulness being rapidly perceived. Any material change in the elected Law, will allow that the Trust Deed is simply amended and another Law preferred to regulate the same. If, on the other hand, the Trust would be actually located in said (initial) jurisdiction this would mean that the Trust would have to be re-domiciled (if permitted) or extinguished.

It can be said that the Madeira Trust Regime assumes a kind of ‘chameleon’ or ‘hybrid’ nature, permitting that, at any time, the best suitable Law is elected to regulate the Trust, changing it if or when it becomes necessary or convenient.