Doing Business in Portugal

Portugal lies at the western edge of continental Europe on the shores of the Atlantic Ocean. Sharing its eastern land border with Spain, Portugal has always been an international business destination and built a historic reputation as a trade hub for merchants from across the globe. Once the centre of an empire, today Portugal remains a highly developed economy with a GDP per capita higher than the majority of the EU27 countries, and a ranking of 38 on the WEF’s Global Competitiveness Report 2015-2016. Traditionally important industries in Portugal include agricultural produce (vegetables, nuts and fruit) forestry, and fishing, but the country is also one of Europe’s leading mineral producers, delivering significant quantities of copper, tin, tungsten and uranium to global markets. Emergent modern sectors in Portugal include electronics, automotives, textiles and chemicals, while aerospace, biotechnology and IT are becoming increasingly significant. Portugal is a member of NATO, the United Nations, and the OECD and, in 2018, was ranked 29 on the World Bank’s Ease Of Doing Business Survey. 

Why invest in Portugal?

Investors targeting Portugal should find plenty of reasons and opportunities to invest:

  • Business environment: Portugal was 29th on the World Bank’s Ease of Doing Business survey 2018 - thanks to an easy-to-navigate bureaucracy, a range of government incentive packages, and a support structure for new and existing businesses. The Bank of Portugal estimates the economy is expected to grow by over 2.8% in 2017 - with that rate expected to continue in 2018 and 2019. 
  • Financial incentives: The government of Portugal offers incentives to certain types of businesses - depending on the size of their investment and their potential to create jobs. In some cases corporation tax may be reduced by up to 15%, while companies which create a high number of jobs may see social security deductions reduced by up to 50%. Businesses which invest in R&D may also receive a 20% tax credit on purchased assets.
  • Emergent industries: Prominent sectors in Portugal include the automotive and aeronautic industries, renewable energy, biotechnology and IT - all of which have seen significant growth and investment over the past decade. Agriculture, mining, and business services also play an increasingly important part in the economy.
  • Infrastructure: Portugal has developed an excellent communication infrastructure, with some of the lowest broadband prices in Europe and 95% DSL coverage. Portugal’s location and its transport infrastructure are also advantages to business: thanks to air, land and sea connections to Europe and beyond, businesses from every sector enjoy excellent connectivity to international markets.
  • Workforce: Portugal’s workforce is consistently rated amongst the most qualified in the world, with around 30% of university graduates specialising in a STEM subject, and a high level of multi-language skill across the population.

Foreign Direct Investment in Portugal

The Government of Portugal welcomes inward investment and has a strong track record of encouraging and securing investment from Asia. All foreign and local investors are treated equally, and are both eligible for investment incentives. Some of the world’s most prestigious businesses currently invest in Portugal, including tech-giants like Microsoft, Apple, Siemens and IBM, and manufacturing entities including Volkswagen, Leica and Ikea. The government’s reformist agenda has helped encourage FDI in all sectors, while businesses benefit from highly-developed transport and communication networks, a transparent regulatory system, and integration with the EU single market. Portugal is working to reduce its tax burden on business - with corporation tax set to fall to 17-19% in 2017/2018 (down from a high of 29.5% in 2014). A range of financial incentives, including training expenses and further  tax relief, are also available for businesses setting up in Portugal.  

Registering A Company and Establishing an Entity in Portugal

If a company wants to set up a legal entity in Portugal and the legal representatives of the company are in Portugal, this is a process that can be done within one to two business days through the following website: http://www.empresanahora.pt

If the legal representatives cannot be in Portugal, the process will take longer, between 15 and 30 days and this process will require a POA.

The setup of the legal entity in Portugal includes the registration with the Tax Authority and the Social Security. There is also the option of Non-resident companies, which does not require any legal entity establishment; however there can be no commercial activity from this entity. This is for employment purposes only. This process will require POA, and a set of documentation that needs to be checked on a case by case basis.

Business Banking in Portugal

It is mandatory to make payments to the authorities from an in-country bank account. Generally, banks in Portugal are open to the public from 0830 to 1500 hours Monday to Friday, with some open on Saturdays.

Working Week and Working Hours in Portugal

The working week in Portugal is Monday to Friday. The working hours for commercial offices is typically from 0900 to 1800 hours.

Basic Facts about Portugal

General Information

Portugal is Europe’s westernmost country, bordered by the Atlantic Ocean to the west, and sharing an eastern land border with Spain - the longest in continental Europe. Over the course of the 15th and 16th centuries, Portugal built a historic empire, pioneering global exploration and establishing itself as an international trade hub with merchants arriving by sea from Europe, Africa and the Americas. Today, Portugal is a presidential republic, with a transparent governmental system, and is a founding member of NATO and the European Union. With territory covering the Iberian Peninsula, Portugal has a mountainous northeast, with flatter central and coastal regions. Portugal experiences a Mediterranean climate, with mild or warm temperatures year round, and hot summers which attract tourism from every corner of the world.

Full Name: Portuguese Republic

Population: 10.7 million (UN, 2011)

Capital: Lisbon

Primary Language: Portuguese

Main Religion: Christianity

Monetary Unit: Euro

Main Exports: Textiles and clothing, wood products, electrical equipment

GNI per Capital: US $21,880 (World Bank, 2010)

Internet Domain: .pt

International Dialing Code: +351

Hello Ola

Good morning Bom dia

Good evening Bom noite

Do you speak English? Falas ingles?

Good bye Adeus

Thank you Obrigado

See you later Ate logo

Dates are usually written in the day, month and year sequence. For example, 1 July 2015 or 1/7/15. Numbers are written with a period to denote thousands and a comma to denote fractions. For example, 3.000,50€ (three thousand Euros and fifty centimos.

Income Tax & Social Security in Portugal

The tax year in Portugal runs from 1st January to 31st December. A company is required to have a legal entity established in order to process a payroll. If the legal representatives of the company are in Portugal, this is a process that can be done within one business day.

If the legal representatives are not, or cannot be, in Portugal, the process will take longer - between 15 and 30 days. This process will require POA. The setup of the legal entity includes registration with the Tax Authority and the Social Security authority. Below are links to relevant departmental websites:

Tax department: www.portaldasfinancas.gov.pt   

Social Security: http://www.seg-social.pt/inicio

Income Tax in Portugal

Monthly income tax contributions in Portugal are paid on the 20th of the following month. From 2013 there is an extra tax (Social Tax) of 3.5% applied on the net salary minus the minimum national salary.

Social Security in Portugal

Monthly social security contributions are paid on the 20th of the following month. Tax year end – 15th April

Reporting Tax in Portugal

In Portugal, tax must be reported to the Portuguese Tax Authority. While employers have monthly withholding and reporting obligations, all employees should submit an annual tax return to the tax authority:

  • Between 15 March and 15 April for employment income and pensions
  • Between 16 April and 16 May for all other income

An employee’s tax contribution depends on residency status: ‘resident’ taxpayers must pay tax on worldwide income, while ‘non-residents’ pay tax only on income sourced from Portugal. To register as a taxpayer, a ‘tax registration form’ should be completed and submitted to a local tax office.

Further notable tax reporting dates include: 

  • Submission of declaration of income and deductions to employers by 20 January (art. 119 CIRS)
  • Submit statistical report “Relatório Unico” by 15 April (deadline may vary)
  • Submit Holidays report by 15 April

New Employees in Portugal

When an employee is hired in Portugal, Social Security must be informed within 24 hours of employees starting work.

If the new starter is a European Union citizen, they will be required to provide the following:

  • A copy of the working Contract
  • Passport
  • A legal document from their country (Dni, Citizen Card, Etc.).

If the new start is a citizen from any other country outside the EU, the request for the working permit must be done in their own country in the Portuguese Embassy or Consulate.

The authorities will require an original copy of the working contract and the employing company will have to provide accommodation for the first 30 days. Usually the initial work permit is valid for 6 months and any subsequent permits will be valid for 12 months. The employee can only start working in Portugal after having obtained the working visa permit.

Leavers in Portugal

All payments due to a leaver should be done on the last working day. It is a practice for some companies to pay on the last business day of the last working month. Notification must be made to the Social Security, usually on the last working day or within the following 24 hours. If the employee has any judicial payment being retained from their salary it is required to communicate also to the court or to the Tax Authority.

Payroll in Portugal

Employers in Portugal must ensure they comply with payroll rules and regulations. Income tax in Portugal is withheld at source, along with social security contribution, and paid to the Portuguese Tax Authority. Payroll administration can be handled in-house, or fully or partially outsourced to a third-party. When setting up payroll, employers should be aware of Portugal’s progressive income tax rate, which ranges from 14.5 - 48%, along with necessary deductions for social security. Both employer and employee contribute to statutory social security, which includes schemes for unemployment and healthcare.

Employers in Portugal must issue their workers with payslips (it is permissible to issue payslips online) with details of their remuneration - and keep payroll reports for at least 5 years. Given the complexities of the tax landscape, it is possible for foreign businesses to engage a global payroll provider in order to deliver tax and payroll compliance for their employee population in Portugal.

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