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Madeira: Country and Foreign Investment

Executive Summary

This page was last updated on 30 June 2021.

Madeira is well placed off the EU and Africa

Madeira (the more formal name, the Madeira Islands, is rarely used) is a small group of islands 970 km south-west of Lisbon and 690 km west of Morocco. It has an area of  314 sq. km and a population of around 254,000 people (December 2017) - which represents a decline of 14,000 from the 2011 census. The islands are visited by more than 1.5 million tourists a year.

The capital, Funchal, in the south-east of the main island, has an international airport which is well connected to European cities. The time zone is GMT. Madeira is part of Portugal and therefore part of the EU; the language is Portuguese, although some English is spoken. The legal system is based on the Napoleonic Code and is therefore a civil law system.

Madeira has its own government and hence a good degree of autonomy from Portugal, though most legislation including that on taxation is Portuguese. The economy is based on tourism, fishing, farming and financial services. As a peripheral and poorer region of the EU, there is considerable EU funding to support development, which can assist inward investment. The currency is the euro.

Taxation in Portugal is on the high side. However, with EU agreement, the Portuguese government  created the Madeira International Business Centre (MIBC) on Madeira which until 2001 offered offshore status and very low taxes to manufacturing, service and financial companies, as well as a shipping registry. This scheme was extended in 2007.

The Free Trade Zone, in the International Business Centre, has been quite successful, unlike some such ventures. VAT applies in Madeira at a slightly lower rate than for the rest of Portugal.

Portugal has meticulously developed Madeira's offshore economy. Given that the EU has approved every stage of the process, Madeira's tax advantages had faced little threat from the harmful tax practices initiative until recently. Portugal has a large network of double tax treaties, and these can be used alongside the MIBC to greatly reduce the tax paid for many types of trading and commercial activity. In addition, Madeira is covered by the full array of EU legislation against money laundering  and is not known to be a target of criminal activity.

Under-reporting of Madeira's public deficit over a number of years led to a debt burden of more than €6.3bn, and a bailout from the Portuguese government totalling €1.5bn in early 2012, meant that Madeira's government had to agree to implement spending cuts and tax increases. Corporate income tax was raised from 20% to a rate of 25%, putting it in line with the rest of Portugal. Personal income tax rates on Madeira were also aligned with those on the mainland. VAT was increased from 16% to 22% from April, 2012, the number of public sector workers is to be reduced and those that are left will see a reduction in their 13th and 14th month salary payments.

 

 

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