Portugal payroll and tax overview.

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. A range of financial incentives, including training expenses and further tax relief, are also available for businesses setting up in Portugal.

Registrations 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. 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 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. Banks are generally open to the public from 0830 to 1500 hours, and closed on Saturdays and Sundays.

Working Week

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

Full Name: Portuguese Republic

Population: 10.34 million (INE, 2021)

Capital: Lisbon

Primary Language: Portuguese

Main Religion: Christianity

Monetary Unit: Euro

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

GNI per Capital: US $31,490 (World Bank, 2017)

Internet Domain: .pt

International Dialing Code: +351

The tax year 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 cannot be in Portugal, the process will take longer, between 15 and 30 days. This process will require a POA.

The setup of the legal entity includes the registration on the tax authority and the social security.

Below are links to relevant departmental websites:

Tax Department

Social Security

Income Tax in Portugal

Monthly income tax contributions are to be submitted by the 10th and to be paid until the 20th of the following month.

A More Favorable Tax Regime for Returnees

Regarding taxation/tax benefits, the Law on the Taxation of State Budget for 2019 (Articles 258 and 259) approved the "regime applicable to former residents'. This is a temporary tax regime that covers both Portuguese and non-Portuguese residents who want to return to the country, either foreign nationals who have lived in Portugal and who want to return to live in the country, which, having fulfilled certain legal requirements, will pay IRS only on 50% of the income from employment, business and professional activities.

In order to benefit from this scheme, the applicant must, in addition to other requirements (cumulative), have been a resident in Portugal before 31st December 2015. This scheme is aimed at candidates who have not resided in Portugal in the last three previous years (e.g. for those who returned in 2019, these years will be 2016, 2017 and 2018). The resident then has until December 2020 to resume residence under this regime.

Social Security in Portugal

Monthly social security contributions are to be submitted by the 10th and are to be paid until 20th of the following month.

Tax year end is on 15th April.

Reporting Tax in Portugal

• Submit annual declaration of income and deductions to employers by 20th January (art. 119 CIRS)
• Submit statistical report “Relatório Unico” by 15th April (deadline may vary)
• Publish Holiday Report by 15th April (art. 241, nr. 9 CT)

New Employees in Portugal

When an employee is hired, social security must be informed within 24 hours of the employee 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 of the working contract and the company will have to provide accommodation for the first 30 days. Usually, the initial work permit is for 6 months and any subsequent permits will be 12 months. The employee can only start working in Portugal after having obtained the working visa permit.

Leavers in Portugal

All payments due to the 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 until the 10th of the following month. 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.