Quick answer
Tipping isn't expected but is appreciated. Round up taxi fares to the next euro. In restaurants, locals leave 5–10 % only for genuinely good service; the bill never includes service unless you're in a tourist-heavy spot. Hotel housekeeping €1–2 per night is generous by Madeiran standards.
Context
Portugal as a whole has a low-key tipping culture and Madeira is no exception. There's no social pressure to tip and waiters won't chase you if you don't, wages aren't legally tip-dependent the way they are in the US.
Cash tips are preferred and reach the staff directly; tips added to a card payment often go to the business, not the server.
Tour guides and skippers on private trips (whale-watching, levada walks, dolphin boats) are the exception, €5–10 per person for a half-day is normal and welcomed.