Madeira Geography
Madeira
is a group of islands with a surface
area of 314 square miles spread across
an area of 5,000 square kilometers and
forming part of an archipelago located
in the Atlantic Ocean between Africa
and the Azores. The islands are on the
same latitude as the Moroccan city of
Casablanca, are approximately 700 kilometers
from the coast of northwest Africa,
and consist of Madeira, Porto Santo
and several small deserted islets. The
capital city is Funchal, on Madeira.
The
climate is sub-tropical and rainfall
is plentiful. Madeira is covered in
lush green vegetation with the temperature
ranging from 17°C to 24°C in
the summer and averaging 13°C in
winter. The islands experience micro-climates
which lead to distinct climatic variations
between one area and another. Thus in
May and June the west coast experiences
plenty of sunshine whereas an enveloping
cloud known as "el capacete"
often blocks out the sun over Funchal
bay.
The
airport of Santa Caterina on Funchal
has daily flights to Lisbon, taking
90 minutes, and connections to many
other European cities. Madeira uses
Greenwich Mean Time, plus one hour in
summer.
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Madeira Population, Language
and Culture
Madeira was discovered by Portuguese explorers
in the 15th century and was subsequently
colonized by farmers from the Algarve
region of southern Portugal. In the Portuguese
constitution of 1821 Madeira was recognized
as part of metropolitan Portugal.
The
population is about
245,800
making Madeira one of the European Union's
most populated regions with an estimated
average population density of 195 persons
per square mile. The Islands are largely
Roman Catholic and as with most traditional
societies the church exercises a strong
influence over organs of government and
the cultural life which largely revolves
around religious and harvesting festivals.
The
official language is Portuguese, but English
is quite widely spoken, particularly in
business. Madeirans tended to emigrate
in search of work until recently, when
the trend has somewhat reversed. The global
Madeiran diaspora is supposed to be near
1m. The Madeiran life-view was traditionally
somewhat melancholy, although tourism
and EU money infusions have tended to
flatten out this idiosyncracy, like so
many others.
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Madeira
Relationship with the EU
Madeira is part of Portugal and is fully
integrated into the European Union. However,
a number of special local regimes which
are accepted by the EU combine to make
Madeira a particularly advantageous location
for many types of company with business
activities in the EU. See the Free
Trade Zone below; also see Offshore
Business Sectors and Offshore
Legal and Tax Regimes.
Madeira
was declared an outermost region of the
European Union both by the declaration
on the outermost regions of the Community
attached to Final Act of the Treaty of
the European Union and subsequently by
the Treaty of Amsterdam. Both of these
treaties provided for the possibility
of regional aid schemes that included
special tax incentives to stimulate economic
and social development.
Although
Madeira's Free Trade Zone legislation
represents a temporary regional aid scheme
enacted by the Portuguese Government under
the authorization of the European Commission
pursuant to Article 92(3)(a) of the Treaty
of Rome, the report of the Primarolo Code
of Conduct Committee in 2000 included
Madeira's Free Trade Zone on a list of
66 'harmful tax practices'.
The
EU asked Portugal to review the tax regime
in Madeira, and in December 2000 the government
enacted a Tax Reform Act which moderated
the existing tax incentives and somewhat
reduced banking secrecy in Madeira.
During
2001 there were some doubts about the
EU's willingness to continue its approval
of the MIBC (Madeira International Business
Centre) but a newly-elected Portuguese
government in 2002 emphasised its support
for the MIBC, and at the end of 2002 the
EU approved the continuation of the MIBC
regime, although with modifications.
Companies that, between 1 January 2003
and 31 December 2006, applied for and
obtained a proper licence to carry out
their activities within the MIBC benefited
from a reduced rate of corporate tax of
1% in 2003-2004, 2% in 2005-2006 and 3%
in 2007-2011. However, companies are obliged
to create a certain number of permanent
jobs. Companies that create more than
five jobs will have access to the regime
without further conditions. Those that
create between one and five jobs will
be eligible only if they undertake a minimum
investment of EUR75,000 during the first
two years of operations.
In
January 2008, the Portuguese government
issued a decree that allows new companies
licensed from January 2007 to December
of 2013 to enjoy reduced corporate tax
rates of 3% between 2007 and 2009, 4%
between 2010 and 2012 and 5% between 2013
and 2020. Companies licensed to operate
within Madeira's International Business
Centre before the year 2001 continued
to benefit from a full exemption from
corporate tax until the end of 2011, as
well as from withholding taxes on dividends,
royalty payments and capital duty. As
of 2012, such companies fall under the
new regime which is valid until the year
2020.
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Madeira
Government
During
the fascist dictatorship of Salazar, Madeira
had little autonomy, but since 1976 Madeira
has been an autonomous region of metropolitan
Portugal with its own local Parliament,
legislature and elected officials who
are responsible for all matters of government
with the exception of foreign affairs
and international relations, these remaining
the exclusive domain of the central government
in Lisbon.
The
Portuguese central government exercises
control through a 'Minister of the Republic'
who is appointed and dismissed by the
President of Portugal. The Minister of
the Republic resides in Funchal, and when
regional Portuguese matters are being
discussed represents Madeira at the forum
known as the Council of Ministers. The
government of Madeira is headed by a President
who is appointed by the Minister of the
Republic. Usually the leader of the party
that wins the election is the individual
to be appointed President.
Madeira
has enjoyed great political stability,
with the same party in power since 1976.
Madeira
is a civil law jurisdiction. Private law
is derived from the Napoleonic code.
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Madeira Economy and Currency
The 4 pillars of the Madeiran economy
are farming, fishing, tourism and offshore
financial services. The increased economic
prosperity resulted in an unemployment
rate of 6% (2008) which was extremely
low by Portuguese standards,
To
cater for the labour demands that increased
economic prosperity brought about, the
government set up the Centro Regional
de Formacao Profissional whose objective
was to train young Madeirans for the skills
required in the new developing market
place.
Fishing
and farming are the traditional industries
of Madeira, with wine production having
been a particular success recently. Tourism
followed the advent of democracy in 1974
and was given added impetus by Portugal's
accession into the European Community
in 1986. 1990-3 saw an estimated USD370m
of grants to Madeira resulting in a construction
boom.
The
official currency is the Euro. In September,
2002, Moody's assigned an Aa3 foreign
currency issuer rating to the Region of
Madeira based on the region's buoyant
economy, its improving financial performance
and manageable debt burden.
Moody's said at the time that its rating
took into account the rapid pace of growth
recorded by the local economy, which enabled
the region to partially catch up with
EU and domestic GDP per capita and achieve
very low unemployment rates.
In
September, 2011, Moody's downgraded the
long-term issuer rating of Madeira from
B1 to B3. 'Concerns over the region's
poor governance and management as well
as weak budget execution' where given
as the main reasons for the decision.
Unreported costs and debt rescheduling
agreements not reported by Madeira's regional
government since 2003 have had a combined
impact of EUR1.1 billion in the 2008,
2009 and 2010 deficits.
GDP
per head in 2009 was EUR20,761.
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Madeira Entry and Residence
As part of the EU, Madeira freely admits
citizens of EU member states. EU workers
must obtain a residence card but are not
required to have work permits. Non-EU
workers are required to have both a residence
visa and a work permit. Companies employing
more than five workers must limit foreign
workers to 10% of the workforce. Companies
can request exceptions to this limit if
the foreign workers have special technical
expertise. EU and Brazilian workers are
not considered foreign for the purpose
of calculating the 10% limit.
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Madeira Business Environment
Madeira is not a traditional volume-based
tax haven with elaborate laws and procedures
designed to protect secrecy. The financial
center was set up with the full approval
of the European Community and the tax
incentives have been structured in such
a manner as to avoid Madeira being perceived
in the negative way that many traditional
tax havens are currently viewed.
The
type of clients that Madeira attracts
are those who wish to have access to the
single market of the European Union and
who are prepared to comply with the regulations
emanating from Brussels and Lisbon. Unlike
other offshore jurisdictions, supervision
remains very strict, in fact exactly the
same supervision as applies to mainland
Portuguese companies. Madeira tends to
be a more expensive financial center than
some since it is used by sophisticated
international groups who seek the assistance
of international tax lawyers and advisers
before implementing their structures
The
allocation of a VAT number to a Madeiran
company means unrestricted access to the
European single market. A company licensed
to operate under the Free Trade Zone legislation
(see below) pays
22% VAT from April, 2012 (16% previously).
As
a result of heavy government investment
telecommunications are excellent.
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Madeira Import of Foreign
Capital
As with all European Community territories
there are no formal exchange controls
in Madeira, although substantial transactions
need to be reported to the Central Bank
of Portugal, which regulates the banking
sector. Inward investment to the banking
and financial sector requires the Central
Bank's approval.
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Madeira Investments
by Foreigners
Madeira
is part of Portugal, which sees foreign
investment as an essential part of its
overall strategy to modernize the economy.
A key objective of the government's 1994-1999
Regional Development Plan was to boost
international competitiveness through
increased foreign investment in transport,
telecommunications, energy, agriculture,
fisheries, and tourism.
Under
a simple post facto registration regime
for foreign investment established in
1995, foreign investors need only register
with the Foreign Trade, Tourism, and Investment
Promotion Agency (ICEP) within thirty
days from the day they make their investment.
The regime is designed to obtain administrative
or statistical information and applies
to all foreign investors, EU and non-EU
alike.
Portugal
applies some percentage limits to ownership
of entities in certain sectors, including
air transport, television and telecommunications.
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Madeira Free Trade Zone
In
the 1980s a deep sea port was constructed
at Canical, 19 miles from Funchal, where
only a fishing village had existed before
and it was here that an industrial free
trade zone was established. The industrial
free trade zone now measures some 296
acres in size. A large number of companies
engaged in such diverse activities as
foodstuffs, tobacco, metal works and electrical
appliances have set up there.
Since
the establishment of the original Free
Trade Zone, the concept has broadened
out. With the active assistance of the
Portuguese government, and the compliance
of the EU, the Madeiran authorities have
constructed an offshore sector known as
the International Business Centre (MIBC).
This consists of four sections:
- The
Free Trade Zone, which came first,
and was intended for use by manufacturing
companies;
- The
International Services Centre, which
has no exact location, but allows
service companies associated with
the Free Trade Zone to establish themselves
anywhere in Madeira and take advantage
of the Free Trade Zone's exemptions;
- The
Offshore Financial Centre, which provides
an equivalent regime for banks, trust
management and other financial sector
companies; and
- The
Madeira Shipping Register, which provides
for ships and shipping companies.
The
principal attraction of operating within
the International Business Centre is that
all entities licensed to operate there
are entitled to highly attractive fiscal
exemptions and reliefs offered under the
Free Trade Zone legislation. See Offshore
Legal and Tax Regimes for further
details.
Goods
and raw materials imported into the Free
Trade Zone are free of import duty, and
manufactures exported from the zone are
duty-free in the single market except
in respect of that part of their value
that can be attributed to non-EU origin.
The zone is therefore ideal for 'screwdriver'
assembly plants for imports into the EU.
The zone also has some exemptions from
EU import quotas.
A
further attraction of locating a factory
in the industrial free trade zone is access
to special subsidies provided by European
Community structural funds. Currently
the European Community will refund up
to 50% of the training costs of apprentices
in certain trades and up to 50% of the
purchase costs of energy-saving technology.
By
the end of 2003, over 5,000 entities had
been licensed under the Free Trade Zone
Legislation (including 50 within the financial
center alone). More than 5,000 jobs had
been created directly and indirectly at
that point.
After
a hiatus in the formation of new companies
during 2001 and 2002 while the EU investigated
Madeira's MIBC, a new regime was approved
by the EU at the end of 2002; but it does
not provide for the inclusion of new financial
services companies.
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