Home to more than 10.3 million people, Portugal is one of the oldest nation-states in Europe and a founding member of the North Atlantic Treaty Organization (NATO) as well as part of the European Union (EU). Because of this, it is a country with a big and diversified consumer market and strong trade links for companies looking to expand into Europe.
Doing Business in Portugal
The most prominent industry in Portugal is agriculture (such as cereals, olives, and items grown in vineyards); however, their economy is becoming increasingly diversified. It has become a primary producer for cement, oil refineries, automotive and shipping machinery, electronics, textiles, and leather amongst other things.
While the country, along with most countries in the EU, suffered from the 2008 financial crisis, it has recovered with its economy moving steadily on an upward trajectory. This has mainly been attributed to its strong growth in exports. Another key driver in the Portuguese business environment is the growth of tech and entrepreneurship. Events such as ‘Web Summit’ and ‘StartUp Portugal’ have turned the country into one of Europe’s startup hubs. It is no surprise that companies like Google, Mercedes-Benz, and Farfetch have heavily invested in infrastructure in Portugal.
When doing business in Portugal, it is important to note that while business culture is formal, the Portuguese are very warm and hospitable. Corporate affairs are highly grounded in building strong relationships and a conducive working environment.
Portugal also offers a Golden Visa, which is a residence visa, for non-EU residents who make a significant investment in Portugal. It includes purchasing real estate or setting up a business to create employment opportunities.
Legal System in Portugal
Portugal follows a civil law system, based on Roman law. You can find the influence of common law when transacting and operating with foreign investors.
Business Entities in Portugal
When expanding to Portugal, you can set up your organization as a branch or one of two types of companies, which are considered legal entities.
Branches are entities without a legal personality and are dependent on the parent entity in your home country. Setting up a branch does not require a specific amount of capital to launch the subsidiary in Portugal. Branches must be registered under the Company National Registry and the Commercial Registry in order to perform business in the country.
Limited Liability Company (Sociedade por Quotas or Lda.)
If you are seeking a flexible option or have a small operation, setting up an Lda is the way to go. An Lda is limited by quotas. As such, shareholders are only responsible for their share of the paid-up capital. They are not liable for the company’s debt associated with other parties. It is important to know that an Lda can be set up by a single shareholder, two or more investors, or even a company.
There are no share capital requirements for setting up an Lda; however, the minimum capital can be no lower than €1 for a sole shareholder or €2 for more. The managing body of an Lda must comprise of at least one director, however no statutory auditor is required. The average time to incorporate is two weeks.
Public Limited Company (Sociedade Anónima or S.A.)
This type of business entity is the equivalent of a corporation in the United States. A minimum of five shareholders is required to set up this kind of business. The minimum share capital requirement is set at €50,000, with at least 30% of it to be fully paid up until the date of incorporation. The shareholder liability is limited to the capital subscribed by each investor in the business.
The management body of an S.A. can follow a two-tier structure composed of a board of directors (or a sole director) and an auditor. Meanwhile, the management body can take on alternative forms depending on the size of the S.A; and follow a three-tier structure consisting of a board of directors, a supervisory board, and an auditor. This setup is ideal for larger companies with long-term plans to stay in Portugal. The average time to incorporate is two weeks.
Taxation in Portugal
The taxable profit of a company is 21%. If a company is considered small or medium-sized, the tax rate is 17% for the first €25,000 and 21% for the taxable profit in excess.
A municipal tax may also be applied depending on where the company’s office is located. It can range from 0% to 1.5% on the taxable profit.
For companies, whose taxable profits exceed €1,500,000, they may be charged with State Surtax.
- 3% rate on taxable profit from €1,500,000 to 7,500,000
- 5% rate on taxable profit from €7,500,000 to 35,000,000
- 9% rate on taxable profit from €35,000,000 and more
Personal income tax is charged at a progressive rate ranging from 14.5% to 48%. Expats working in Portugal are taxed at a flat rate of 20% income tax.
Actual working hours
The maximum workweek in Portugal is 40 hours and the maximum working day is eight hours. Employees are granted a minimum of one-hour break per day to last a maximum of two hours.
The usual business hours are from 9 AM to 6 PM. Stores are regularly open from 9 AM to 8 PM, with some establishments open until 11 PM. Public institutions are open from 9 AM to 6 PM with a lunch break from 12:30 PM to 2 PM.
Employees in Portugal are entitled to an annual vacation leave of 22 days and 25 days for the banking sector, in addition to national holidays. Employers can grant more than the required minimum of 22 days; however, leaves will be accrued if not used.
On the other hand, employees who have fixed-term contracts with a duration of less than a year are entitled to two days’ leave for each month of work completed.
For the sick or injury leave benefits in Portugal, employees are eligible for up to 1,095 days of sick leave as long as they meet the required conditions. If the sick leave goes beyond 30 days within a 12-month period, the employment contract will be suspended. The employee will then receive sick pay of 55% to 75% of their salary depending on the length and nature of their illness. Benefits are compensated by Portuguese social security.
Public holidays in Portugal
Following is the list of Portuguese Bank and Public holidays:
January 1 – New Year’s Day
February 28 – Carnival
April 14 – Good Friday (moveable date)
April 25 – Liberation Day
May 1 – Labor Day
June 10 – Portugal Day
August 15 – Assumption Day
October 5 – Republic Day
November 1 – All Saints’ Day
December 1 – Restoration of Portuguese Independence
December 8 – Feast of Immaculate Conception
December 25 – Christmas Day
Portugal provides public health care. However, because of its accessibility, you may encounter problems in scheduling appointments as well as with the level of service available. Free health care comes with free essential medicines and appointments with doctors. For non-essential medicines, the health care contribution can range from 40% to 100% of the cost of the medication.
It is important to note that the Portuguese health care sector is undergoing extensive modernization to improve the quality and service delivery of both private and public healthcare.
INS Global in Portugal
INS Global has helped hundreds of companies expand all over the world. For more than 14 years, we have provided our clients with efficient service delivery, ensuring they always remain compliant, no matter where they wish to expand. If you intend on starting a business or expanding to Portugal, INS Global is able to provide you with the assistance you need. Whether you are looking to hire staff, recruit top talent or invoice clients, our experts can help you. Get in contact with us today and allow us to expand your business.