Damalion Portugal desk
Doing business in Portugal
Portugal is a country located on the West and Southwest sides of the Iberian Peninsula in southwestern Europe. The country covers an area of 92,072 square km and is spread out into 308 municipalities, which are subdivided into over 4,000 parishes. The majority of foreign investors thinking of expanding their reach and opening a business in Europe choose Portugal over other countries. This is because Portugal is well connected to the rest of the European Union and its standards and law are aligned with those in the EU in terms of commercial and business matters. The country has trade relations with the United States, Brazil, and Africa. Public financial support is also available to lucky companies planning on innovating, provided by Portuguese agencies.
Advantages of Doing Business in Portugal
Tax incentives, a knowledgeable workforce, and a gateway into the EU, in addition to the benefits outlined below, are among the advantages that entrepreneurs and investors find when doing business in Portugal.
- The World Bank rates Portugal 39 out of 190 countries in its ease of doing business index 2020.
- In addition to its economic stability, the Portuguese market offers extra stability.
- The workforce in Portugal is highly qualified whilst costs for hiring employees are lower in comparison to other EU countries.
- The business environment is desirable for entrepreneurs in all business fields, and a significant advantage is its openness towards foreign investors and employees.
- Portugal enjoys a high quality of life and several entrepreneurs enjoy the climate.
- Portugal top five of the safest countries in the world, only exceeded by Iceland, New Zealand, and Austria.
- It is also peaceful, developed, and democratic
- Additionally, tax incentives for investment have gained greater relevance in the country. And many incentives are primarily aimed at encouraging investment, favoring sustainable growth, and company investment.
Portugal is a semi-presidential republic with three sovereign branches of government: executive, legislative, and judiciary. The president is the head of the state, who represents the Portuguese state. Executive authority is exerted by the government headed by the prime minister. The legislative power is exerted by the parliament, which has a single chamber, and the government. And Independent judges denote the judiciary power. The Portugal judicial power is vested in the Supreme Court, district courts, appeals courts, and Constitutional Tribunal.
On the other hand, the legal system in Portugal is comparable to other European countries, in which its civil law system is based on the Roman law tradition and written law. It is combined by the codification of the following laws:
- Constitutional laws, Rules and principles of general or common international law,
- Ordinary laws,
- Acts with equivalent force to laws, and
- Regulations, i.e., normative instruments of a lower grade than laws,
- Also, its EU membership has had a strong influence on its legal system, as a significant part of its commercial laws is based on EU law and international treaties.
- Additionally, the Portuguese legal system is based on non-discrimination concerning the national origin of investment, and foreigners are authorized to invest in all economic areas open to private enterprise. There are, however, restrictions regarding certain activities – industries centered around massive infrastructure in Portugal.
Portuguese is welcoming of direct foreign investments. But, there are specific sectors that are either limited to Portuguese nationals or subject to further government authorization. Some of the industry sectors that may be prohibited to foreign investors are as follows:
- water management,
- public telecommunications,
- maritime transportation, and
- air transport
Eliminating the acquisition of a Portuguese company, the most common way of investing in Portugal is to establish one of the following types of legal entities:
Sole Proprietorship (Empresário em Nome Individual)
This is a business run by a single person who has unlimited responsibility for all losses and debts
- The Individual owner can sell both services and products.
- The individual owner is not obliged to have a minimum of capital to start the business.
- A sole Proprietorship does not require a business contract.
- Sole proprietors not carrying on trade activity, but who develop profitable financial activity, may adopt a name, with the same rules as the firm’s sole trader.
- there are some advantages for sole proprietors, such as a tax exemption from social security fees for the first year.
Single Shareholder Limited Liability Company (Sociedade Unipessoal por Quotas)
This type of entity takes the form of a sole proprietorship but may be operated either by a person or a partnership that holds the whole business capital.
- These require a minimum of two partners
- the liability of a shareholder is restricted to the amount of capital, which cannot be less than € 5,000.
- Shareholders must pay a minimum of €100 per share and these are all attainable for debts covered by business assets.
- The company will also need to create a separate bank account and hire an accountant.
Individual Limited Liability Establishment (Estabelecimento Individual de Responsabilidade Limitada)
This symbolizes the establishment of autonomous business assets or a special allocation of those assets to the establishment, through which a single individual operates his activity.
- There is a legal difference between proprietor assets and business assets.
- For this category, the share capital must be at least €5,000.
- The capital must be completely released at the date of the incorporation deed.
- Also, only the assets associated with the business’s economic activity will be liable for any debts.
Public Limited Companies (Sociedade Anónima – S.A.)
This is one of the most sophisticated options since it includes more regulations and legal requirements.
- There must be at least five shareholders (who can be natural or legal persons), domestic or foreign.
- The minimum capital required for S.A. is € 50,000, and capital is divided into shares and the shareholders’ liability is restricted up to the value of its shares.
- The company must register its onset of activity and must also be registered in the commercial registry.
- In most cases, S.As must have a structure with a general meeting, a board of directors, and a statutory auditor.
Private Limited Liability Company (Lda.)
The Private Limited Liability Company is the most popular legal structure in Portugal and tends to be smaller companies and generally have lower nominal capital than an SA.
- It must have at least 2 shareholders. It is also possible to set it up with only one shareholder.
- The liability of the shareholders for the company’s debt is limited.
- There is no minimum capital required but the amount of capital is fixed by the shareholders.
- It must be registered in the commercial registry before announcing the start of the activity to the tax authorities.
- It must also have a general meeting, while the management structure can be organized to fit the company’s requirements.
- It might also require a statutory auditor under certain circumstances
General Partnership Company (Sociedade em Nome Coletivo)
This is an unlimited liability entity in which the partners have unlimited liability
- It requires a minimum of two partners
- The law does not establish a compulsory minimum amount of initial capital, since partners have unlimited liability.
- each partner is unlimitedly liable for the company’s social obligations.
- The company’s name must include the name of some, all, or at least one of the partners.
Limited Partnership Company (Sociedades em Comandita)
This is a legal entity in which at least one member is liable to unlimited personal liability for the partnership’s duties but the other partner’s liability is limited to the amount of capital subscribed by each of them.
- It requires a minimum of two partners who run the business.
- It also requires a minimum investment of €50,000.
- This type of entity can assume two different forms: simple partnership or partnership limited by shares.
- The company’s name must include the name of at least one general partner.
- Investors and entrepreneurs can also set up a branch of foreign companies in Portuguese.
Portugal’s banking system is one of the most developed in the world. Presently, there are more than 150 banks in the country, running private national retail banks, public and cooperative banks, mobile banks, and international banks. Offshore banking is also an alternative for expats in Portugal. These are situated outside the bank holder’s country of residence and commonly offer benefits such as lower taxation and cross-border services.
Portugal’s banking system is unique and advanced. And many of their banks are connected to its Multibanco system. This makes accounts accessible easily, and account holders may use a Multibanco debit card in ATMs all over the country and for buying most goods. As a resident or non-resident of Portugal, you can open a bank account with ease. And this is great news for expats and foreigners.
Opening A Portuguese Bank Account
The process of opening a Portugal bank account is relatively straightforward.
Expats just have to visit a bank branch in Portugal with specific documents, including proof of identity and address. The documents required may vary between banks, so it’s best to check with the chosen bank first.
Some banks also have the choice of opening up an account online for non-residents, as mobile and online banking services in Portugal are generally available, and Portugal is leading the way in boosting the efficiency and ease of payments.
What you can do with a Portugal bank account
Banking in Portugal for entrepreneurs and investors is important, as it makes it easier to handle investments, make purchases, and finish applications while avoiding transaction fees. Aside from this, most banks in Portugal offer a variation of services to individuals and businesses, including:
- current accounts,
- loans and overdrafts,
- mortgages and insurance,
- savings and investments accounts,
- online and business banking, and
- services modified to expats and foreign residents.
Whatever is best for you, there will be a bank in Portugal to handle your needs. If you are looking to move to Portugal, it is important to understand the banking system so that you are prepared to manage your finances and know which option is the best for you. Contact your Damalion expert now and let us help.
Portugal has become a nation that’s high on the list of places to immigrate to in Europe. It boasts an outstanding reputation and is regarded as one of the world’s most globalized and peaceful countries, with a high quality of life and a very Human Development Index ranking.
If you are moving to Portugal, you have to obtain Portuguese residency, which allows you to live, study, work, or retire in the country.
Attaining a Portuguese residency could be worth it in the long term as you will end up with a Portuguese passport, which would authorize visa-free travel to over 171 countries in the world. The procedure for getting Portugal residency is different and dependent on your situation.
And it generally involves one of the following:
Residency by work/ employment in Portugal
This means emigrating to Portugal, then living and working in the country with an authorized work visa. After immigrating to Portugal with a Portuguese work visa, you will someday have to change it to a residence permit.
Residency by family reunification in Portugal
Portuguese laws enable holders of a residence permit to be joined by their primary family members or dependents.
Residency through study in Portugal
Studying in Portugal is also a great way to get a Portuguese resident permit.
After the study duration, students are allowed a one-year job search permit to find paid employment in Portugal, by which he/she can change to worker status.
Residency through retirement in Portugal
Retiring in Portugal is another way to get Portuguese residency if you’re at that phase of life.
Residency by marriage in Portugal
By marrying a citizen of Portugal, foreign nationals can apply for residency and, eventually, citizenship.
Residency by investment in Portugal
This is the most popular in Portugal
Generally known as the Golden Visa Program, Portugal’s residency-by-investment scheme gives residency permits to people who invest in Portugal. The Portugal Golden Visa program is a residency-by-investment program for non-EU nationals. The residence permit enables visa-free access to Europe’s Schengen Area and it gives the right to live, work, and study in Portugal. It provides eligibility to apply for citizenship after five years as a legal resident. The Portuguese Golden Visa also provides a range of reasonably affordable investment options for individuals to choose from in obtaining a residence permit.
This investment can take many forms but, the easiest option is to buy a residential property in Portugal.
Properties should be valued at a minimum of €500,000, unless the property is over 30 years old or in a region of urban renovation, by which it only needs to be valued at a minimum of €350,000. In addition, if you are inclined to buy a property in a low-density population area, the mandatory value of the property could be reduced by 20%.
Other alternatives include:
- €500k investment in scientific research
- €5000k investment in funds (e.g., venture capital funds)
- €1.5 million transfer to a Portuguese bank account
- Investment in the culture, arts, or national heritage of a minimum of €250k.
- €1.5 purchase of shares in a Portuguese company
One of the benefits of obtaining residency through investment is that you do not have to immigrate permanently to Portugal. And as the main applicant, you may extend the Golden Visa to immediate family members.
With the help of professionals, the process of immigrating to Portugal can be smooth and straightforward. Just contact your Damalion expert now and let’s help.
Known for its quality of life Portugal also has a very decent tax system, which is one of the reasons why Portugal has quickly become a very prominent destination for expats from different countries.
Taxes in Portugal are charged by both the national and regional governments of Portugal. The most important including
- income tax,
- social security contributions,
- corporate tax and
- the value-added tax, which is all applied at the national level.
Taxes for residents and non-residents in Portugal
In Portugal, residents and non-residents are taxed differently. To be regarded as a resident for tax purposes in Portugal, an individual must have a permanent home in Portugal or reside in the country for 183 days of the year.
Portugal residents are liable to be taxed on their worldwide income. And is charged according to a sliding scale based on the individual’s global income. While non-residents are taxed only on income originating from within Portugal, usually at a flat rate.
Double taxation agreements in Portugal
Investors and business owners may be concerned about being simultaneously taxed in Portugal and their home country, but in many cases, tax treaties exist to prevent double taxation. As a tax resident of more than one jurisdiction, how much tax expats will pay, will depend on the Double Taxation Agreement (DTA) in place between Portugal and the second country. These agreements summarized who pays tax where and help countries track and prevent tax evasion. Portugal has DTAs with over 70 countries worldwide.
Portuguese (NHR) tax system
An expat living in Portugal can take advantage of the Non-Habitual Residency (NHR) tax system in Portugal.
This is a unique income tax scheme for foreign citizens who intend to come to live in Portugal or for citizens who are living outside the country and wish to return.
The Non-Habitual Residency (NHR) tax system in Portugal offers many tax advantages to its recipients, these include:
- a personal income tax treatment over a decade;
- tax exemption on practically all foreign source income, and
- a 20% flat rate for specific Portuguese source incomes;
In order to qualify for the NHR regime, applicants must either be an EU/EEA/Swiss citizen or have the right to reside in Portugal through visa schemes.
Personal income tax rates in Portugal
Portugal Personal Income tax (Imposto sobre o rendimento das pessoas singulares – IRS) applies to the income of Portugal residents and non-residents who earn income in Portugal.
The tax is specified with reference to the income earned and the related rate is applied according to the applicable band and considering the deductions laid down by law.
Portugal’s personal income tax rates for individuals as of 2023, range from 14.5 to 48 percent.
In addition to employment income, Portugal acknowledges five other categories of income.
The six categories are Employment Income, Business/Professional Income, Investment Income, Rental Income, Capital Gains, and Pensions.
Social security contributions in Portugal
All employment income in Portugal is liable to social security contributions. The Social Security system in Portugal secures the basic rights of citizens and ensures correspondence in opportunities, giving measures of support such as unemployment allowances, and other financial support. The Single Social Tax rate corresponds to 34.75% of the gross salary of each worker. Out of this, the company will pay 23.75% and employees will pay 11%.
The corporate tax rate in Portugal
The corporate tax rate relevant to companies in Portugal may differ but this will depend on which part of the Portuguese territory the companies are domiciled.
The standard Corporate Tax (Imposto sobre a rendimento das pessoas colectivas – IRC) rate in Portugal is 21% for companies with a permanent establishment, irrespective of whether the company is resident or non-resident. But if the company is non-resident and doesn’t have a permanent establishment, the rate will go up to 25%.
If the company earns a taxable profit of more than €1.5 million, a state surtax of 1% – 9% will apply.
Small and medium-sized companies in Portugal can pay a reduced corporate tax rate of 17% on their first €15,000 of taxable profit.
Corporate tax in Portugal is calculated based on the business’s trading income, capital gains, and passive income.
Value Added Tax (IVA) in Portugal
VAT ( Imposto Sobre o Valor Agregado – IVA). Individuals will need to pay VAT if the individual runs a business with an annual turnover of more than €10,000 per year on taxable goods and services.
VAT in Portugal was established in 1986 and comes with three chargeable bands: A reduced rate of 6%, an Intermediate rate of 13%, and a Standard rate of 23%
Note: Separate, lower, VAT rates apply on the islands of Madeira and Azores.
Other taxes in Portugal
Property tax in Portugal
An important local tax in Portugal is the property tax (Imposto Municipal sobre Imóveis – IMI). This is charged to homeowners and is based on the area where the tax resident lives and the home worth of the how.
Inheritance tax in Portugal
Portugal has a positive inheritance tax as there is no inheritance tax applied to direct family members. But, there is a 10% stamp duty on Portuguese assets while inheriting or granting an estate to a spouse or children to exempt it from inheritance tax.
Dealing with taxes can be a little bit confusing and complicated, especially for self-employed individuals or non-EU resident business owners. But with the help of a tax expert, e.g., Damalion, it will be a simple process. Contact your Damalion expert now in order to handle your tax issues.
Intellectual Property (IP), refers to intangible assets that are owned by an individual or company. This license the owner the right to avert third parties from using them without their permission.
This can be imaginative like artistic and literary works, which is referred to as Intellectual Property. It can also be structured like designs and trademarks, which is referred to as Industrial Property.
Under Portuguese law, artistic, intellectual, and scientific creation is free and this freedom adopts the right to the invention, creation, and acknowledgment of the scientific, literary, or artistic work, including copyright legal protection.
The English term “intellectual property rights” comprises two different concepts in Portugal:
- Industrial property rights
The original artistic intellectual and scientific creation is a matter of copyright legal protection, and rights holders can exercise their rights, under national regulations, in countries where they solicit protection. Unlike industrial property rights, copyright legal protection is obtained by creating literary, artistic, or scientific work. No registration or deposit is required, which in turn makes the work apprehensible by senses in any way sufficient. Protection is automatic and exists from when the work is developed. But, it is advisable to register the work with the competent authorities, since this verifies its existence and ownership and makes it possible to implement these rights, namely regarding emphasis issues.
In Portugal, copyright and related privileges are regulated under the Copyright and Related Rights Act, authorized in compliance with various international treaties and EU directives governing the rights of authors and other “related rights”.
Software and databases are also insured by copyright in Portugal, but they are governed by different laws.
For a work to be insured by copyright, it must be a unique artistic literary, or scientific invention expressed in any way or form, that may be created in the future.
To avoid harmful copyright transfer agreements, companies may agree to work-for-hire contractual clauses that specify the original owner of the copyrightable content.
- personal or moral rights, which are not subject to a time limit, cannot be assigned or waived under any circumstance, and
- rights of an economic nature, established on the restricted right that is comprehended to the author to use and gain from the work, to enact its exploitation, and which may be appointed to third parties.
Industrial property rights
Industrial property rights can be insured at different levels. In all cases, rights over intangibles are prone to previous registration with the competent authorities.
Various intellectual property rights can occur over the same object, e.g., a logo can be insured by copyright, design rights, and trademark rights, if the statutes are met.
Do you require help with IP in Portugal? Contact your Damalion expert now.
LABOR AND EMPLOYMENT
Portugal is an ideal place for working, with its low cost of living, impressive beaches, and gorgeous weather. Before hiring in Portugal, it’s important to know about the employment rules and regulations that govern the employment relationship between employers and workers there.
The main sources of employment law in Portugal
Employment law in Portugal is legislated by international sources, notably European law, local law, collective agreements, individual agreements (e.g., contracts of employment); and, established practices that are not contrary to the principle of good faith.
Working hours for employees in Portugal
The normal working period in Portugal is a maximum of eight hours per day or 40 hours per week.
In Portugal, an employer may not discriminate against their employees on the basis of Gender, Age, Marital status, Family situation, Genetic heritage, Reduced work capacity, Disability, Chronic disease, Nationality, Ethnic origin, Religion, Political or ideological convictions, or Union affiliation
If an employer’s treatment of an employee is considered unlawful, an employee is entitled to compensation for material and non-material damage.
Employment contracts in Portugal
An employment contract is a contract whereby an individual undertakes, in return for payment, to work for another individual or individuals under its/their administration and guidance.
The employment contract includes the situations for the provision of the service, in terms of the rights and responsibilities of the two parties involved.
Types of employment contract in Portugal
Employees employed under fixed-term contracts work for a certain duration.
The fixed-term employment contract duration and time of termination are previously specified by the employer and/or worker on the rationale of an event or term.
A part-time contract is applicable for employees who work less than a full-time schedule. The part-time work contract exists when the weekly work period is less than the full-time in the same circumstance.
Uncertain term employment contract
This is a temporary contract, but its termination is dependent on a precarious or unknown term at the outset.
Provision of Services contracts
A Provision of Services contract is applicable for self-employed workers or independent contractors. In these cases, it is self-employed workers or service providers who are required to pay taxes.
This is an employment relationship in which a temporary work company employs and remunerates a worker, temporarily, placing the worker in another entity. The law does not specify a minimum duration limit for the temporary employment contract.
Termination of an employment contract
Employers may terminate an employment contract based on Unlawful disobedience of orders, Violation of the company’s employee rights and responsibilities l, Repeated provocation of conflicts with colleagues, Negligence to fulfill the job’s duties, and Abnormal reduction in productivity, among other situations.
The employer must give notice of the employee’s discharge with a statement of misconduct.
Employee benefits in Portugal
There are a few statutory benefits that an employee is privileged to in their employment contract, with some differences, depending on whether the employee works in the private sector. Here is an assessment of some of those benefits.
- Portuguese employees are permitted 22 working days of fully paid vacation every year.
- An employee is privileged to pay sick leave, which is three days of paid leave at 100% of their normal pay.
- In Portugal, female employees who are pregnant are entitled to 30 days of leave before their child’s predicted due date and six weeks of essential leave following the child’s birth.
- Fathers are privileged to paternity leave, which is 20 days, five of which must be used instantly following the child’s birth.
- If a parent has a challenged or chronically ill child and provides them with vital assistance, they may take leave from six months to four years.
- Pensions and social security contributions are mandatory in Portugal and are regulated by the Ministry of Labour, Solidarity, and Social Security.
- Employees have to carry workers’ compensation insurance to safeguard against occupational injury.
There might be complexity in hiring abroad but hiring in Portugal through a partner, e.g., Damalion, could help you avoid common mistakes and hurdles. Our team has expert knowledge on the necessities for hiring globally, from securing work permits to categorizing workers to payroll to benefits, your Damalion experts you’re you covered.
In addition to providing several business solutions, including entity management, taxation, accounting, payroll support, and many more across major Portugal states, Damalion assists foreign legal entities in setting up a business in Portugal.
If you wish to learn more about our services and how we can assist you in entering Portugal’s marketing successfully, contact us today. Our Damalion Portugal Desk will answer you shortly.
So, are you thinking of entering the Portugal market?
Your Damalion experts are here for you. We can assist in setting up a business in Portugal.
Our Damalion experts are professionals who are skilled in providing several integral business solutions, including compliance, entity management, accounting, taxation, payroll support, and many more across Portugal.
If you wish to learn more about our services and how we can assist you in entering the Portugal market, contact us now.
Our Damalion Portugal Desk will answer you shortly.
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