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Employing in Portugal

At a glance

Employment in Portugal

The Portuguese labour market operates in a relatively peaceful work environment. Portugal, as a member of the European Union, embraces similar employment law systems as its EU partners, and has incorporated into its laws a set of European directives on labour relations that better regulates employment relationships. The legal framework for employment in Portugal heavily supports equal treatment of foreign employees who work on Portuguese soil, ensuring the same rights and duties apply for foreign nationals as well as Portuguese employees.

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Payroll & Tax in Portugal

Complying with local payroll and tax requirements is essential for a company doing business in Portugal. Issues such as tax rates and withholding and social security are all essential in ensuring a seamless human resources operation. Many companies will consider outsourcing these administrative tasks to a GEO (Global Employment Organization)

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Immigration / Work Permits in Portugal

Foreign workers are required to have the proper visas and work permits in Portugal, as established by immigration laws.  Work permits must be secured for employees, and sponsored by a locally licensed and incorporated entity, which can be a problem for companies just entering the Portuguese market.

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Incorporation

There are three broad forms of incorporation available to foreign companies in Portugal. Each of these business forms have distinct advantages and disadvantages, as well as differing scope of business activities, registration requirements and minimum capital requirements. In most cases it will depend on the degree of commitment a company has to Portugal and the planned business activity.

When setting up a company in Portugal, you have the following options:

  • Limited Liability Company
  • Partnerships
  • Branch Office/Representative Office
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GEO Solutions or DIY Employment in Portugal?

Companies entering Portugal must make a decision whether to use their own resources for a Do-It-Yourself (DIY) approach, or to use a Global Employment Organization to handle payroll and employment responsibilities.  A GEO or Portugese Employer of Record solution makes it faster, easier and cheaper to deploy staff if they don’t have a Portugese entity established that can run payroll.

A DIY approach will typically be delayed until there is a properly incorporated company ready to run payroll and may be a costly option.  Shield GEO can deploy foreign staff in 4-6 weeks and local staff in 48 hours. Additionally Shield GEO is responsible for all compliance issues related to the employment.

Using Shield GEO Employer of Record Services in Portugal

Payroll Portugal
Management Fee for Employer of Record Services / Monthly Payroll Costs

Please contact us for a quote

Notes

Shield GEO pays the employee on a monthly basis, typically on the last working day of the month although we can adapt to your preferred schedule. Income tax and social security (where applicable) are deducted at source and paid to the local tax authorities.

 
Grossed income Tax Rate (%)
0 - €7,000 14.50
€7,001 - €20,000 28.50
€20,001 - €40,000 37.00
€40,001 - €80,000 45.00
€80,001+ 48.00

From 2014, a solidarity tax of 2.5% applies for income from €80,001 – €250,000, and an additional 5% solidarity tax applies for income exceeding €250,000.

An extraordinary surcharge also applies for any income exceeding the minimum wage of €6,790.

Tax Returns Supplied

Yes

Corporate Income Tax Rate

Companies doing business in Portugal are subject to a number of corporate income taxes (IRC), including:

  • Portuguese corporate tax: 21% (Expected reduction to 17-19% in 2016)
  • A state surcharge (surtax) ranging from 3% to 7% of taxable profits depending on levels of profit
  • Municipal surcharge: Up to 1.5% depending on municipality
  • Combined tax rate: Maximum of 31.5%
  • Small and medium-sized entities: 17% for first €15,000 of taxable profit

It must be noted that the tax rates applicable to foreign companies are levied at the same rates on the Portuguese-source income. Investment income derived by non-resident entities and are subject to a privileged tax regime in their home country has a tax of 35%.

Long term capital gains in Portugal are taxed at the standard Corporate Tax rate. Stamp duty is also levied for most transactions, ranging from 5 to 10% depending on asset type and location.

Payroll Tax

None

Sales Tax

The Value Added Tax (VAT) in Portugal is known as the Imposto Sobre o Valor Acrescentado (IVA). The standard rate is 23%.

A reduced tax rate applies, varying from 6% for foodstuffs, water, publications, electricity, transport and hotels, and up to 13% for catering, petrol and certain foodstuffs. No VAT applies to financial services/insurance, medicines, education and training.

A vehicle or road tax called IUC also applies in Portugal.

Withholding Tax

Portugal has entered into double taxation treaties with 52 countries. The withholding tax applicable are as follows:

  • Dividends: 25% (35% for residents of a listed tax haven. 0% for residents of a tax treaty jurisdiction who have met domestic participation exemption regime conditions)
  • Interest: 25% (35% for residents of a listed tax haven. Reduced rate under a tax treaty.)
  • Royalties: 25% (35% for residents of a listed tax haven. Reduced rate under a tax treaty.)
  • Technical service fees: 25% (35% for residents of a listed tax haven. Reduced rate under a tax treaty.)
Other Tax

Stamp Duty: Variable duty rates apply for type of transactions regarding real estate acquisition, leases and transactions. For residential property valued at over €1 million, a 1% stamp duty applies.

Real Property Tax: A municipal level tax is levied on property sales and transfers.

Inheritance/Estate Tax: Stamp duty for gifts and inheritances apply at a 10% rate, and is exempted if the heir is spouse, descendant or ancestor.

Environmental Tax: A series of new environmental taxes will be introduced in 2015 as part of the Environmental Tax Reform.

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