Under the new legislation all companies licensed before 31 December, 2000, will continue to be tax exempt until 31 December 2011. Companies licenced during the years 2001 and 2002 will be obliged to pay a corporation tax rate of 1% of profits. For those licenced between 2003 and 2004 a rate of 2% will be levied on profits, going up to a 3% rate for companies granted licences between 2005 and 2006. All licences will be operational until 2011 when the tax rates will be revised.

Financial institutions must be approved by the Bank of Portugal and licensed to operate within the Free Zone. Licenses granted in 2001 and 2002 will attract tax rate of 7.5% of profits; licences granted between 2003 and 2004 will attract a 10% tax; while 12.5% tax will apply to licences granted between 2005 and 2006.

The above rates will also apply to established credit institutions and other financial firms licensed before
1 January 2001 and will continue until 31 December 2011. All other taxation exemptions including withholding tax on dividend payments, will continue to be in force until 31 December 2011.

Since the establishment of the original Free Trade Zone in the 1980s, the concept has broadened out. As well as boasting the presence of an International Business Centre, the Free Trade Zone can now provide a multitude of services for manufacturing and financial companies alike. The International Services Centre allows for service companies associated with the Free Trade Zone to establish themselves anywhere in Madeira and take advantage of the Free Trade Zone's exemptions. There is also the Offshore Financial Centre, which provides an equivalent regime for banks, trust management and other financial sector companies. Madeira also offers The Shipping Register, which provides for ships and shipping companies.

By the end of 1999 over 4000 entities had been licensed under the Free Trade Zone Legislation (including 50 within the financial center alone). Nearly 5,000 jobs have been created directly and indirectly and new companies are being set up at the rate of around 3 per day. With the new tax exemption rules established this figure will, no doubt, continue to grow.