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.
Portugal also has particular regulations, especially those pertaining to the regulation of collective labour matters, such as collective employment contracts.
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.
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.
|Management Fee for Employer of Record Services / Monthly Payroll Costs||
Please contact us for a quote
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.
|Income Tax Rates||
Residents of Portugal are subject to tax on their worldwide income, while non-residents are subject to personal income tax for any income generated within Portugal. They are considered residents of Portugal if:
Various types of income tax applies:
|Tax Returns Supplied||
Foreign companies operating in Portugal may find it challenging to deal with the complexities of the country’s tax system. The primary concerns for a foreign company that needs to comply with tax laws in Portugal are: Individual income tax for employees in Portugal, social security costs, VAT, withholding tax and corporate taxes.
|Remote Payroll ?||
A remote payroll in Portugal is where a foreign company, i.e. a non-resident company, payrolls a resident employee in Portugal. This applies to both local and foreign employees. One option for a non-resident company to payroll its employees (local and foreign) in Portugal is to use a fully outsourced service like a GEO or PEO which will employ and payroll the staff on their behalf.
|Local Payroll Administration ?||
In some cases, a company will register their business in Portugal under one of the forms available but prefer to have another company administer its payroll. This can be accomplished through a payroll provider. It is important to note that the company, as the Employer of Record, is still fully responsible for compliance with employment, immigration, tax and payroll regulations. But the payroll calculations, payments and filings can all be outsourced to the payroll provider.
|Internal Payroll ?||
Larger companies with a commitment to Portugal may wish to run their own local payroll for all employees, foreign and local. In order to accomplish this, they will have to complete the incorporation, register the business and then hire the necessary staff. There will be a need for in country human resources personnel who have the background needed to manage a Portuguese payroll and can fulfil all tax, withholding tax and payroll requirements.
This approach carries significant cost and requires some knowledge of local employment and payroll regulations. The company will need a local accounting firm and potentially legal counsel to ensure full compliance with Portuguese employment laws.
|Fully Outsourced Payroll & Employment ?||
Companies can outsource the employment and payroll of their staff in Portugal to a GEO, like Shield GEO. This is possible for both foreign workers and Portuguese nationals. This is the easiest, fastest and safest way to payroll staff in Portugal.
Shield GEO manages all aspects of payroll for workers in Portugal, including taxes, withholding, social security payments and other statutory requirements. Shield GEO becomes the Employer of Record and employs the staff on behalf of the client.
Staff are paid monthly with tax and social security deducted at source and paid to local authorities. Shield GEO will invoice the client monthly in advance of the payroll date. The invoice consists of the Total Cost of Employment (Base salary + Employers Statutory Contributions + Additional statutory contributions) and a Management Fee. Shield GEO provides the employees with payslips.
Read more about outsourced payroll and employment through Shield GEO.
|Corporate Income Tax ?||
Companies doing business in Portugal are subject to a number of corporate income taxes (IRC), including:
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.
|Income Tax Rate ?||
|Payroll Tax ?||
|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:
|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.
|Time to prepare and Pay Taxes ?||
|Time required to start a Business ?||
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. If you have yet to complete the incorporation process you can use an outsourced management company or GEO Employer of Record to sponsor the employee for the necessary permits.
The process of hiring a foreign national in Portugal involves obtaining both a work permit (Autorização de Trabalho) and an entry visa for Non EU citizens, while Nationals of an EU country simply require a Residence Permit (Cartão de Residência). Portugal is also part of the Schengen Area, which allows free transit between Schengen countries with a Schengen visa.
For a foreign company to begin hiring employees, the company is not required to have a local entity incorporated to employ local workers in Portugal, although certain registration duties must be adhered.
The process is as follows:
1. Registration of the foreign entity with the relevant authorities
The foreign entity must obtain a Portuguese tax number within the National Registry of Collective Bodies (Registo Nacional de Pessoas Colectivas, “RNPC”). Supporting documents must be submitted to prove its legal existence in the home country of the foreign entity.
The company must register with the Portuguese Tax and Customs Authority (Autoridade Tributária e Aduaneira). A tax representative must be appointed for the foreign company who must be a Portuguese resident.
The company must register with Social Security (Segurança Social). If no local entity has been incorporated for the foreign company, the employee must act as the company’s representative for their social security. It is common for foreign companies to hire accounting services and payroll firms to comply with tax and social security duties.
Incorporation of the company is not a required step, although it does require the above steps to be carried out, in addition to obtaining a Validation Certificate (Certificado de Admissibilidade) issued by RNPC, registering a company name at the Commercial Registry and submitting a Start of Activity Declaration to the Tax Office among other mandatory formalities. The process of incorporation is designed to be streamlined as one stop shops, with the Create a Company in an Hour scheme (Empresa na Hora) administered by Centro de Formalidades das Empresas (CFE) who will facilitate the process.
2. Obtaining a visa
For foreign nationals who are not from EU/EEA Member States or from the Schengen area requires a visa, which can be a Short Stay Visa, Temporary Stay Visa or a Residence Visa/Blue Card. The employment of foreign nationals is governed by Law no. 223/2007 and Decree no. 84/2007 which provide the legal framework for the hiring of foreign nationals.
The process for obtaining a visa is as follows:
The foreign national submits an application for a visa to the Portuguese Consulate of the employee’s country of residence, or at Portuguese Immigration Services (Serviço de Estrangeiros e Fronteiras, “SEF”) if they are in Portugal.
The relevant documents must be submitted with the application, including:
The employee is provided the visa to Portugal who is then legally allowed to enter the country.
Time: 2 – 3 months depending on visa
Cost: €25 – €200
3. Obtaining a work permit (Autorização de residência)
For workers who are intending to stay in Portugal for longer than six months, the residence card or work permit must be obtained for employees who are not from the EU/EEA region. A temporary permit is valid for 1 year and renewable for an additional 2 years. The permanent residence permit is indefinitely valid as long as it is renewed every 5 years.
It is more difficult to secure a work permit if the employee is from a non-EU/EEA country, unless they possess specialized skills or if there are no qualified Portuguese workers who may fill the position.
There are several types of residence permits, although most are functionally similar to regular work permit. They include:
The process for obtaining a work permit is as follows:
An application is submitted by the employee or by the employer on behalf of the employee at the regional directorate or the Delegation of the Portuguese Immigration and Borders Service (Serviço de Estrangeiros e Fronteiras, “SEF”).
The necessary documents must be submitted with the permit application, including:
The employee is provided the residency permit which allows him/her to work under the foreign employer in Portugal legally.
Processing time: Up to 60 days
Processing fee: Variable depending on type of visa, nationality of applicant, country of application and other circumstances.
4. Arrival procedures
Once the employee has been invited to work for an employer in Portugal and the visa and work permit has been obtained, the employee may travel to Portugal. Upon arrival, the employee must:
The Social Security and Tax departments will require:
Once the steps above have been adhered to and successfully completed, the employee may commence employment.
Once you get in touch with us, one of our consultants will take all the work off your hands, coordinate with our local partners to get all the required permits organised, provide the processing time, costs, document-checklist and keep you informed through the process. Contact us to know more.
|Category||Description of Visa|
|Short Stay Visa||
The short-term visa applies to foreign nationals if the purpose of the stay does not fall under any other visa category. For example, business visitors who will engage in non-work business visits, meetings or negotiations fall under this category.
This visa is granted for a period up to one year. It is renewable for up to 180 days, although the duration of a single uninterrupted stay must not exceed 90 days.
The short-term visa is intended to permit entry into Portugal for a limited time relating to activities like provision of services, professional training, independent activity or medical treatment.
Depending on the activity, the temporary visa may be granted for up to 6 months or one year for scientific or highly qualified research. It is normally valid for 4 months and may be renewed up to 2 years for multiple entries to Portugal, unless it is a professional activity in which case it extends up to the duration of the contract.
The approval of the SEF is required for this visa to be granted.
The processing time or decision time limit is a maximum of 30 days from application.
The residence visa is granted to non-EU nationals who are intending to engage in employment in Portugal or to provide a professional service in Portugal. The purpose of the residence visa is so that the holder may apply for a residence permit for extended work greater than 6 months.
There are several categories of residence visas depending on the type of contractual work, which includes the subordinate professional activity residence visa, exercise of an independent professional activity residence visa and the research or highly-qualified activity residence visa. The first type of residence visa has a quota imposed by the Portuguese Government, limiting the granting of the residence visa to foreign nationals who have employment contracts with Portuguese companies.
The residence visa is valid for two entries up to a period of 4 months stay in Portugal. It is renewable for up to 90 days. During the validity period, the holder must submit a request for a temporary residence permit. The applicant may also apply for family reunion for any dependants.
The approval of the SEF is required for this visa to be granted.
The processing time or decision time limit is a maximum of 60 days from application.
|Entry without Visa||
If the foreign national holds a residence permit or identity card, or is an EU national who has a residence card, a visa is not required to enter Portugal.
The Golden Visa Programme is a method for foreign investors from non-EU countries to obtain a fully valid residency permit in Portugal. The purpose of the Golden Visa program provides the national with full EU residency status for individuals as long as certain investment requirements are met. Investments must be made after 8th October 2012.
Some examples of qualifying investments in Portugal are:
– Transferring more than €1,000,000 in funds to Portugal
The Golden Visa application has a processing fee of €514.80, a cost of €5,147.80 for the visa itself, and €2,573.90 for the renewal of the visa.
Once the application has been submitted to SEF, it may be processed within a few months.
When setting up a company you may want to consider these factors:
The Portuguese government is highly supportive of foreign investments into the country, with several incentives and tax benefits provided for large-scale investments into Portugal. Portugal provides significant financial incentives, tax relieves and aids for foreign companies investing in particular sectors as well.
There is no discrimination against foreign investments in Portugal, where foreign companies are free to invest in almost any economic sector in Portugal.
The process of incorporation for foreign entities is very similar to that of local businesses, where initiatives have been implemented to expedite the process of incorporation to under one hour for most cases using One Stop Shop services.
You may also want to consider the following when making your decision:
Location will be another factor. Separate cities and regions may have different rules, costs and availability. It is always recommended to seek advice from relevant professionals, such as business or legal advisors, accountants and others depending on your needs.
Regional language may be an important consideration. The official language in Portugal is Portuguese which is largely spoken throughout the country, with some differences in dialects between regions. The main foreign languages spoken in Portugal are English, French and Spanish. 32% of citizens in Portugal have some level of understanding of English.
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:
This article provides a general guideline for foreign businesses on entering Portugal for business purposes. In particular, it looks at some common pathways to establishing a business presence in Portugal, generally through a limited liability company, partnership or a branch/representative office. In addition, various economic, tax and regulatory factors are provided throughout as a source of useful information to assist those who will enter the Portuguese economy. The guide also looks at some immigration requirements such as obtaining appropriate visa status.
The limited liability company structure of incorporation can be private or public.
1. Private Limited Company
The Private Limited Liability Company (Sociedade por Quotas, “LDA”) is recommended for entities that wish to establish an enterprise on a small scale in Portugal, with low initial capital investment and expenses. It is the most widely used type of incorporation in Portugal due to its convenience for small enterprises and its more simplistic administrative and supervisory structure.
The LDA must be established by at least two founders with a minimum share capital of €5,000. Each shareholder’s liability is limited to that of their contribution.
The management of the LDA is assured by a single director who is appointed through the general meeting of shareholders, who are the supreme authority in the Portuguese LDA.
In the Portuguese LDA, shareholders do not own shares, but instead they own “quotas”. Quotas represent the capital in the company, and are described in the Articles of Association. Transferring these quotas do not require a public deed, as a private document is sufficient.
The LDA company once incorporated are not subject to an annual audit if they have satisfied two out of three requirements during the two preceding years:
2. Public Company
The Public Company or Corporation (Sociedade anónima, “S.A”) is more suited to those incorporating a medium or large enterprise with high levels of investment capital and has a more complex administrative and supervisory structure. This is most appropriate for entities seeking to raise large levels of finance to fund expansion. This method of incorporation also allows the listing of shares on the Portuguese Stock Exchange.
The S.A must be established by at least five shareholders with a minimum share capital of €50,000. Each shareholder’s liability is limited to that of their contribution.
The management of the LDA is assured by a board of directors who are appointed through the general meeting of shareholders and are supervised by the Supervisory Board.
There are two types of shares: certificate and bearer shares, which can take one of two forms of representation: held or scriptural shares.
The S.A once incorporated must be subject to an annual audit.
The incorporation process in Portugal is designed to be highly efficient and fast via the “One-stop shop” service provided by certain Portuguese agencies. These agencies provide an “On the Spot Firm” (Empresa na Hora) service which expedites the company set-up process in under an hour through a single service, assuming all documents are present. The steps are as follows:
1. Register the name at the National Registry of Collective Entities (Registro Nacional de Pessoas Colectivas, RNPC)
A newly formed company must have its name checked with the RNPC to ensure it is not in used in the register. If the name is available, it may be reserved for a period of 48 hours for a fee. Selecting from the RNPCs list of pre-approved names in the database is also an option. Once the name has been successfully processed, the company is given the name approval certificate.
2. Open a bank account
A bank account must be opened by the founders with a deposit for the minimum required share capital for each member.
3. Obtaining the Certificate of Registration
The founders must request a Portuguese Tax Identification Number from the National Registry of Collective Entities, a current extract of the entry in the Commercial Registry and the minutes of the inaugural meeting of incorporation. The On the Spot firm may facilitate this process and provide a standard memorandum and articles of association once the documents have been submitted.
It is possible to receive the certificate of incorporation, corporate identification card, the Social Security number, the deed and business registration certificate all at once through the On the Spot process, otherwise it must be submitted to the relevant authorities no later than 15 days from incorporation.
4. Registration of employees
The entity must register all employees at the Centros de Formalidades das Empresas (CFE) or the Business Registry Offices 24 hours before they commence activities or no later than 10 days after the declaration of starting the business.
The employer must also register the employees with the Portuguese Social Security services in the area within 24 hours of the employment agreement’s entry into force. Failure to follow these procedures of registering the employee will result in a fine ranging from €75 – €4,800.
5. Notifying the Labor Inspectorate
The employer must provide the business name, tax number, copy of the company incorporation announcement, the company activity description and headquarter address to the Labor Inspection Office (Inspecção-Geral do Trabalho). This may be submitted through the One Stop Shop who will deliver it on behalf of the business.
6. Registration of insurance
The last step is to register for the employee’s accident compensation insurance with a private insurer for all employees and managers who receive a regular salary. The insurance is underwritten by a private insurer and can be done after the business has begun activities.
1-2 days if carried out through a One Stop Shop.
2-3 weeks if incorporating manually.
€3340 on average including taxes, duties and fees.
In Portugal, a partnership arrangement occurs when there are two partners who will form the business entity in Portugal. Partnerships are prevalent for professionals, such as lawyers, economists and engineers. They are not often used as a method of incorporation in Portugal for most types of businesses as one or both partners are subject to unlimited liability. The partnership requires a notarized deed signed by both partners which outlines the contribution of each partner, how the profits will be distributed and the admittance process of new partners.
There are three types of Partnerships:
Limited Partnership (Sociedade Em Comandita Simples, “SC”)
A limited partnership is formed by at least two partners, where at least one is a general partner who takes on unlimited liability for the company’s obligations, while the others have limited liability. The general partner executes all decisions and may claim all profits, while the limited partner remains ‘silent’, has no decisional power or claim on profits, but is entitled to a return for their investment. The limited partner is only liable to the extent of their contribution to the business.
General Partnership (sociedadeem Nome colectivo, “SNC”)
A general partnership is formed by at least two partners where both have full liability of the company. Both partners are equally responsible for making decisions and may manage the company as they see fit. Both partners are entitled to the distribution of profits as outlined in the deed.
General partnerships have no minimum share capital requirements.
Limited Partnership with Share Capital (Sociedade em Comandita por Acções)
This is a third form of partnership which is similar to the limited partnership where there are both general partners and limited partners. There is a key difference in that the capital contributed by the limited partner must be divided in shares, essentially transforming limited partners to shareholders. The minimum share capital is €50,000 and the Partnership’s name must include the name of at least one general partner.
A branch office (sucursal) or representative office (escritório de representação) may be established by the foreign business that operates under the company name while carrying out regular business activities. Foreign companies may find this option attractive as it provides greater exercise of control over business operations, while business functions like accounting, HR and tax do not become burdensome. It is intended for those who do not intend to incorporate a fixed corporate structure.
Branches in Portugal are relatively easier to establish as there are no minimum share capital requirements as the initial capital investment is provided by the parent company. Branches are not considered as an autonomous legal entity and instead are extensions of a foreign company, so the liability for the obligations of the branch office rests with the parent company.
The incorporation procedure for a branch is similar to incorporating a regular Portuguese company, which has its own “Branch on the spot” service as well to expedite the process. The branch office name must be registered with the national Registry of Collective Persons (RNPC) and the business must be registered with the Commercial Register. The following documents are required for this process:
A Portuguese branch is subject to the same treatments as a local company. It must be registered with Social Security, the Labour Inspectorate and a private insurer similar to any normal incorporation process.
Time: Up to one week
Whether to incorporate in Portugal, and what sort of entity to setup are just two of the many choices companies must make when expanding into a new market.
If the company intends to have staff in Portugal they must also decide whether they will administer that employment internally or use a Global Employment Organization to handle payroll and Employer of Record responsibilities. A GEO Employer of Record solution is an attractive alternative where
The complexity of employment regulations in Portugal makes the use of a GEO advisable coupled with local legal counsel to ensure full compliance with employment laws, for example the drafting of local contracts for workers.
Shield GEO provides a comprehensive service in Portugal allowing companies to deploy their staff quickly with reasonable, clearly stated costs and timeframes. The company contracts directly with Shield to employ and payroll their staff on their behalf in Portugal.
Shield GEO then becomes the Employer of Record. Shield GEO assumes the legal responsibility for these employees, sponsoring them on work permits, complying with local employment law and running their monthly payroll. Using Shield GEO is the fastest and most cost effective way to deploy local and foreign workers into Portugal. Read more about outsourced employment through Shield GEO.
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