Madeira: A Portuguese Free City?

by | Nov 4, 2022 | Blog

Though Free Cities are in one way a universal idea, at the present they cannot just be built anywhere. Geopolitics, food and water supplies, trade routes, and other such variables represent just a few of the major considerations a Free City will need to consider and adapt around. Each location has its pros and cons. The more remote, likely the greater autonomy a Free City can achieve but also the more self-sufficient it must be. 

The current level of local political development is one of the major Free City trade-offs. On the one hand, an already developed city that wants to adopt certain aspects of the Free City model has an inherent advantage, as much of the infrastructure, human patterns, and amenities of life already exist and only need to be improved upon. On the other hand, starting from scratch allows a more genuine Free City to develop along the lines that approximate more harmonious market outcomes. Human behavioral patterns formulate intricate, beautiful, and life-enhancing structures and paths that would be impossible to plan for, including, for example, the right mix of housing and leisure businesses versus more industrial production. To the extent that a Free City can start from scratch, it can work to develop a city as a more complete unit that works well for the benefit of its residents.

The short dichotomy above highlights some of the major trade-offs we encounter at the Free Cities Foundation. In general, our response is that both sides of this spectrum represent something good and beautiful as well as an opportunity for Free City models. We readily admit that different models might work in different places and situations. 

We are often asked why we don’t build Free Cities in the US or Europe. Of course, we would love to see this idea expand and grow in these two regions, but we must work within the laws and regulations that currently exist. Unfortunately, most Free City models are not allowed in the European Union, which is generally antagonistic even to Special Economic Zones and other special jurisdictions.

Nevertheless, there are cases where policies conducive to Free Cities have been grandfathered in within the EU. One such case is the beautiful island of Madeira. Officially named the Autonomous Region of Madeira, it is one of two autonomous regions of Portugal along with the Azores. While the EU does not allow new Special Economic Zones, (perhaps a regulation to be reconsidered) before the European Union developed into what it is now, Portugal adopted within its constitution a possibility for the development of autonomous regions due to their distinct geography, economy, the social and cultural situation as well as historical aspirations for independence. These already existing zones have been grandfathered into the European Union regulatory landscape.

Madeira showcases the intriguing bond between decentralization and more choice for citizens. Given some of its unique characteristics, it makes sense for Madeira to operate independently in some regards from its “Host Nation” of Portugal. The challenges and issues faced by those in Lisbon are simply not the same as those faced by an island nearly 1000 kilometers away. It seems not only right but proper to allow decisions to be made closer to those who are impacted by them. In spirit, we might say that in some regards, Madeira is close to an example of one type of a Free City. 

Madeira possesses its own political and administrative structure and its own government. While the governance model is not terribly distinctive (consisting of an elected assembly and other political appointments) Madeira is implementing specific reforms and using the level of autonomy it legally possesses to improve its governance in ways that we at the Free Cities Foundation advocate. 

One such policy is the establishment of the International Business Centre of Madeira — more commonly referred to as Madeira Free Trade Zone. Given Madeira’s geographical location on the outskirts of the EU, it is entitled to derogate from some EU policies, and the Free Trade Zone is one such example. We can see this concession as another nod to the differences that exist between peoples, cultures, and geographical locations that call for more decentralization and options in the market for living together. 

The FTZ has used its status to lower taxes, create more incentives for business investment in Madeira, and has resulted in companies in the International Business Centre now comprising over 40% of Madeira’s corporate income tax revenue even at the reduced rates. 

Madeira has also targeted bitcoiners as another example of using its autonomy to draw economic activity toward the island. Given its subtropical climate and first-world amenities, Madeira is known as a beautiful tourist location. A number of bitcoiners possess newfound wealth and are looking to enjoy that wealth from a tropical paradise. Madeira is doing its best to compete for this economic activity.

While Madeira does not have the statutory authority to change legal tender laws on the island, it may be able to avoid Portugal’s planned imposition of a 28% capital gains tax on bitcoin. Given that bitcoin is a voluntary, international currency, this is arguably just as good as (if not better than) the status of legal tender, as no one is forced to use the currency they do not want, yet those that want to spend sats and evangelize bitcoin adoption across the island are free to do so without punitive taxes which often incentivize bitcoiners to hold onto their wealth for tax reasons alone. 

Keeping bitcoin on an equal tax footing with the euro would be a great first step in implementing the ideas of a Free City. Combined with the International Business Centre and the global attention that the bitcoin announcement brought, we anticipate more bitcoiners, more bitcoin, and more bitcoin companies finding their way to Madeira. This will no doubt create jobs, investment, and more prosperity for the island. 

All of this is thanks to the relative autonomy Madeira enjoys from the European Union which allows for the differences inherent in the places, people, culture, and geographies to implement their own small-scale improvements in governance. 

Now, imagine what could be achieved if more small-scale innovation was legally permissible — the sheer breadth of choices customers would have in the market for living together! 


This blog post is an amended version of an article originally published in Escape Artist Insiders Magazine in September 2022. Visit their website for more articles, information and advice on becoming an expat or digital nomad. A Portuguese translation of this article is available on the Settee website.