investing in portugal 201

Transcription

INVESTING IN
IP O R T U G A L
2013
Diogo Viana, Partner
Belion Partners LLP
January 2013
INVESTING IN PORTUGAL 2013
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© Belion Partners 2013
Contents
Disclaimer ......................................................................................................................................... 7
About this guide ................................................................................................................................ 9
About the author ............................................................................................................................... 9
About Belion Partners ..................................................................................................................... 11
Portugal: key facts ........................................................................................................................... 13
Competitive advantages and disadvantages .................................................................................... 15
Ease of doing business ................................................................................................................. 15
Global competitiveness ranking ................................................................................................... 15
Strengths ................................................................................................................................. 15
Weaknesses............................................................................................................................. 16
Other factors ............................................................................................................................... 17
Positive factors ........................................................................................................................ 17
Negative aspects...................................................................................................................... 20
Is now the right time to invest in Portugal?...................................................................................... 21
The most promising sectors ............................................................................................................. 22
Doing business in Portugal............................................................................................................... 25
Legal & institutional framework ................................................................................................... 25
Agencies supporting foreign investors ..................................................................................... 25
Types of business entities ........................................................................................................ 25
Establishing an entity ............................................................................................................... 27
Mergers ................................................................................................................................... 29
Financial services ..................................................................................................................... 29
Internet domain registration.................................................................................................... 29
Bank account opening & operation .......................................................................................... 29
Intellectual property ................................................................................................................ 29
Dispute resolution ................................................................................................................... 30
Closing down a business .......................................................................................................... 30
Regulatory matters & compliance ................................................................................................ 31
Time involved in tax-related compliance .................................................................................. 31
Tax identification number ........................................................................................................ 31
Invoicing .................................................................................................................................. 31
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Accounts reference date .......................................................................................................... 31
Legal reserve ........................................................................................................................... 32
Consolidated accounts ............................................................................................................. 32
Filing of annual returns ............................................................................................................ 32
Advance rulings ....................................................................................................................... 32
Accounts of the branch’s parent and branch profits ................................................................. 32
Advance corporation tax .......................................................................................................... 32
Taxation of business .................................................................................................................... 33
Effective rates of taxation ........................................................................................................ 33
Taxation of corporate profits ................................................................................................... 33
Taxation of dividends & capital gains/losses ............................................................................ 34
Withholding tax on payments to non-resident entities............................................................. 35
Other relevant taxes on business ............................................................................................. 35
VAT.......................................................................................................................................... 36
Anti tax avoidance legislation................................................................................................... 36
Government incentives................................................................................................................ 38
Tax incentives .......................................................................................................................... 39
Contractual interest-free loans or grants ................................................................................. 40
Job creation and training incentives ......................................................................................... 42
EU incentives ........................................................................................................................... 42
The labour market ....................................................................................................................... 43
Fixed-term employment agreements ....................................................................................... 44
Working hours ......................................................................................................................... 44
Discipline and dismissal ........................................................................................................... 44
Employees’ rights to information and consultation .................................................................. 45
Living in Portugal ............................................................................................................................. 47
Quality of life & cost of living ....................................................................................................... 47
The good and the bad things .................................................................................................... 47
Quality of life indexes .............................................................................................................. 48
Cost of living ............................................................................................................................ 48
Legal & institutional framework................................................................................................... 51
Tax identification number ........................................................................................................ 51
Tax representative ................................................................................................................... 51
Banking.................................................................................................................................... 51
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Residence permits for non-EU nationals .................................................................................. 51
Compliance.............................................................................................................................. 52
Taxation of individuals ................................................................................................................. 52
Liability to income tax .............................................................................................................. 52
Taxable income and tax rates................................................................................................... 52
Non-habitual resident status .................................................................................................... 53
Withholding tax on payments to non-residents........................................................................ 54
Other relevant taxes on individuals .......................................................................................... 54
Resources / useful links ................................................................................................................... 55
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Disclaimer
This is a brief guide aimed at providing a general
overview of current conditions in Portugal for companies
or individuals that may be contemplating the possibility of
making an investment in this country.
In no way is it meant to constitute an investment offer or
to replace proper professional advice.
No person or entity in Belion Partners LLP shall be
responsible for any loss whatsoever sustained by anyone
who relies on this publication.
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About this guide
This guide was prepared by Belion Partners for its Clients and prospective Clients, hopefully
providing a comprehensive, if concise, overview of the conditions that prospective investors will face
in Portugal. It tries to avoid the “rosy picture” perspective that is prevalent among such guides and
to be as objective as possible. The overview is a snapshot of conditions as at January 2013, but it
should be noted that some reforms are under way, notably in respect of taxation and labour
regulations, it being the Government’s announced intention that such reforms will contribute to a
more competitive business environment.
About the author
Diogo Viana, the founder and managing partner of Belion Partners, is a seasoned entrepreneur,
investor and consultant. As an entrepreneur, he founded, developed and sold several successful
businesses, including a private bank, a tax planning and trust services international group of
companies and a marina investment consultancy. He has served on the board of directors of dozens
of companies from different countries and developed functional competencies in the fields of
corporate strategy, finance, tax, marketing, sales and project management. As regards sectoral
expertise, he gained relevant experience in IT web-based services, private equity, financial services,
professional services, real estate, tourism, international trade and agriculture. He studied at the
University of Lisbon (Law) and the University of London (Social Anthropology and Linguistics), having
graduated with honours from the latter.
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About Belion Partners
Belion Partners is a leading investment management boutique for the investor in Portugal. The firm
specialises in investments in real estate and unlisted companies by the corporate or the qualified
individual investor and its services include the planning, implementation and maintenance of the
most adequate corporate structure for the intended investment, as required by the Client.
It is a partnership of high-calibre executives and professionals who, unlike most consultants, have a
vast, hands-on, experience as business leaders. As C-level managers of major corporations, business
owners or top legal, financial and other professionals, besides the expertise that comes only with
experience, the partners have excellent connections at the highest levels of government and
business, which are often invaluable to Clients.
Naturally, the firm does not purport to possess top-level expertise in all fields, or licences to perform
all regulated activities. Therefore where a specific expertise or licence is required but not available
in-house, Belion Partners establish specific partnerships with leading experts and authorised
professionals on a project-by-project basis.
Investment management services include deal sourcing, valuation, due diligence and negotiation;
the management of real property and the monitoring of the performance of investee management
teams; and, when appropriate, the management of the exit process, as required by the Client. Belion
Partners will whenever possible accept to share the risk of the business with the investor, being
rewarded on a contingency basis; i.e., unlike consultants and employees, Belion Partners are willing
to accept direct responsibility for the success of their Clients’ projects.
Real property management spans residential, commercial and rural property and may take a variety
of formats in accordance with the investor’s needs.
The management of private equity investments includes acting as a non-executive director of the
investee business so as to ensure that the management team acts in conformity with the agreement
and the investor’s strategy.
Our fiduciary company services include the planning, registration, domiciliation, accounting,
regulatory compliance and local directors of the investor’s corporate structure, as required. These
services are provided in accordance with a competitive and transparent fee structure based on the
volume of work and not on time spent.
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Portugal: key facts
Population ..………………………………………………
Major cities
Land area (inc. Madeira and the Azores) ....
Coast line ………………………………………………….
Climate ……………………………………………………..
Language …………………………………………………..
Independence year ……………………………………
Government type ……………………………………..
International memberships ………………………
Legal system ……………………………………………..
Fiscal year …………………………………………………
GDP, 2011 …………………………………………………
GDP per capita, 2011 ………………………………..
Stage of development ……………………………….
Telecommunications …………………………………
Approx. 10.6 m (61% urban)
Lisbon (2.8 m) and Porto (1.3m)
91,470 sq km
1,793 km
Maritime temperate
Portuguese
1143
Republican parliamentary democracy
EU, EFTA, OECD, WTO, NATO, UN and several others
Civil law
Calendar year
USD 238.9 b
USD 22,413
Highest (innovation driven)
State-of-the-art network with broadband, high-speed
capabilities
Currency …………………………………………………… Euro
Foreign exchange controls ……………………….. None
Accounting principles/financial statements Portuguese GAAP and IAS/IFRS
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Competitive advantages and
disadvantages
Ease of doing business
The Ease of Doing Business IFC / World Bank report ranks Portugal as the 30th easiest country in the
World for doing business in 2012 and 2013, among 185 surveyed economies, ahead of such
countries as The Netherlands (31st), France (34th), Spain (44th) or Luxembourg (56th). As regards the
best and worst topic rankings, this report places Portugal as 17th for trading across borders and 104th
for getting credit.
Global competitiveness ranking
The Global Competitiveness Report 2012–2013 of the World Economic Forum ranks Portugal as 49th
among 144 surveyed countries, with a score of 4.4 on a scale of 1-7. This is a fall by four places in the
ranking as compared to the previous year, which was mainly due to a deteriorating macroeconomic
environment as a result of the sovereign debt crisis, which, after Greece and Ireland, forced the
country in 2011 to recur to a bailout package financed by the EU and the IMF.
Strengths
Portugal’s main strengths, putting it among the top 25% of the 144 countries, according to The
Global Competitiveness Report 2012–2013, are as follows (ranking between brackets):
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Institutions
o Business cost of terrorism (18)
o Business cost of crime and violence (15)
o Organised crime (26)
Infrastructure
o Quality of overall infrastructure (11)
o Quality of roads (4)
o Quality of railroad infrastructure (26)
o Quality of electricity supply (26)
o Fixed telephone lines/100 pop. (27)
Health and primary education
o Infant mortality, deaths/1,000 live births (10)
o Primary education enrolment, net % (13)
Higher education and training
o Secondary education enrolment, gross % (16)
o Quality of management schools (22)
o Internet access in schools (26)
Goods market efficiency
o Number of days to start a business (10)
o Prevalence of trade barriers (9)
o Trade tariffs, % duty (6)
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Technological readiness
o Availability of latest technology (15)
o Firm-level technology absorption (27)
o FDI and technology transfer (22)
o Int’l internet bandwidth, kb/s per user (11)
Innovation
o Quality of scientific research institutions (22)
o University-industry collaboration in R&D (27)
Weaknesses
The overall ranking in The Global Competitiveness Report 2012–2013 is being pushed down mainly
by the following indicators, in relation to which the country is ranked among the worst 25% (ranking
between brackets):
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Institutions
o Wastefulness of government spending (133)
o Burden of government regulation (129)
o Efficiency of the legal framework in settling disputes (121)
Macroeconomic environment
o Gross national savings, % GDP (117)
o General government debt, % GDP (138)
Goods market efficiency
o Extent and effect of taxation (135)
o Agricultural policy costs (121)
Labour market efficiency
o Hiring and firing practices (131)
o Redundancy costs, weeks of salary (129)
o Pay and productivity (120)
Financial market development
o Soundness of banks (122)
As the Report puts it, “several of the structural reforms that Portugal has recently implemented are
directed to addressing all these weaknesses. Ensuring their proper implementation will be crucial to
increasing Portugal’s competitive edge and leveraging its traditional strengths in terms of high
quality infrastructure (11th) and the highly educated population (29th). However, as for Spain, cuts
in research and innovation and a drop in corporate innovation related investments could continue to
affect the capacity of firms to innovate (40th) and therefore the capacity of the country to transform
its economy and move toward higher-value-added activities.”
By order of importance, according to the Report, the most problematic factors that Portuguese
businesses face are:
1. The access to financing, affecting the capacity of local firms to obtain loans (109th), equity
(97th), or venture capital (97th) for their investment projects (note that this may constitute
an opportunity to the foreign investor);
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2. The inefficient government bureaucracy (note that the curbing of red tape by at least 25% by
2012 was elected a priority by the Portuguese Government);
3. The tax rates (but note that there are special favourable regimes for foreign investors and
the Government is currently revising corporate taxation with the aim of rendering it very
competitive);
4. The restrictive labour regulations (which are now being eased, as imposed by the financial
bailout package made available by the EU/IMF, and which in any case are counter-balanced
by the relatively low wages paid in Portugal);
5. The policy instability (which makes it advisable for investors to recur to careful planning);
6. The tax regulations (which are currently under review, so that they are made simpler and
contribute to the international competitiveness of the country).
Other factors
Positive factors
Other factors worth considering by the prospective foreign investor in Portugal might be:

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Portugal is a potential gateway to a market of about 250m people in the Portuguese
speaking countries and communities.
Foreigners are welcome and 42% of the population speak at least one foreign language
(mainly English, French and Spanish). Some 80% of secondary school students learn English
and 63% French. Portugal ranks 2nd in the 2011 The Migrant Integration Policy Index (MIPEX
III).
Portugal has a highly educated population (35% of 20 year olds in higher education), an
abundance of labour (>16% unemployment rate) and competitive wages, labour costs
standing at around 50% of the EU average.
Financial incentives to the foreign investor may reach 30% of the agreed investment amount
and tax incentives 20%.
The country has 48 agreements for the reciprocal protection and promotion of investments,
namely with:
Albania
Algeria
Angola
Argentina
Bosnia Herzegovina
Brazil
Bulgaria
Cape Verde
Chile
China
Croatia
Cuba
Czech Republic
Egypt
Gabon
Germany
Guinea-Bissau
Hungary
India
Kuwait
Latvia
Libya
Lithuania
Macao
Mauritius
Mexico
Morocco
Mozambique
Pakistan
Paraguay
Peru
Philippines
Poland
Qatar
Romania
Russia
Sao Tome and Principe
Slovakia
Slovenia
South Korea
Timor
Tunisia
Turkey
Ukraine
Uruguay
Uzbekistan
Venezuela
Zimbabwe
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Portugal has agreements for the avoidance of double taxation with the following 64
countries:
Algeria
Austria
Barbados
Belgium
Brazil
Bulgaria
Canada
Cape Verde
Chile
China
Colombia
Cuba
Czech Republic
Denmark
East Timor
Estonia
Finland
France
Germany
Greece
Guinea-Bissau
Hong Kong

Poland
Qatar
Romania
Russia
Singapore
Slovakia
Slovenia
South Africa
Spain
Sweden
Switzerland
The Netherlands
Tunisia
Turkey
Ukraine
United Arab Emirates
United Kingdom
United States
Uruguay
Venezuela
The banking system comprises the following 36 banks headquartered in Portugal, besides
several local savings banks and agricultural mutual credit unions:
Banco Activobank
Banco BAI Europa
Banco Banif Mais
Banco BIC Português
B. Bilbao Vizcaya
Argentaria
Banco BNP Paribas Personal
Portugal
Finance
Banco BPI
Banco Comercial
Português
Banco Credibom
Banco de Investimento
Global
B. de Investimento
Imobiliário
Banco Efisa
B. Espírito Santo de
Investimento
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Hungary
Iceland
India
Indonesia
Ireland
Israel
Italy
Japan
Korea
Koweit
Latvia
Lithuania
Luxembourg
Macao
Malta
Mexico
Moldova
Morocco
Mozambique
Norway
Pakistan
Panama
B. Espírito Santo dos
Açores
Banco Espírito Santo
Banco Finantia
Banco Invest
Banco Itaú BBA
International
Banco L.J. Carregosa
Banco Madesant
Banco Popular Portugal
Banco Português de
Gestão
B. Português de
Investimento
Banco Primus
Banco Privado AtlânticoEuropa
Banco Rural Europa
B. Santander Consumer
Portugal
Banco Santander Totta
Banif - Banco de
Investimento
Banif – B. Internacional do
Funchal
Best – B. Electrónico de
Serviço Total
Caixa - Banco de
Investimento
Caixa Central-C. C. de Crédito
Agrícola Mútuo
C. Económica Montepio
Geral
Caixa Económica Social
Caixa Geral de Depósitos

The following 33 foreign banks have full branches in Portugal:
AS Privatbank
Banco de Caja de
España de I., S. y Soria
Banco do Brasil
Banco Grupo Cajatres
Bankia
B. Privée Edmond de
Rothschild
Banque Privée Espírito
Santo
Banque PSA Finance
Barclays Bank
BMW Bank
BNP Paribas

Aktiengesellschaft
Deutsche Leasing Ibérica
Dexia Sabadell
FCE Bank
Financiera El Corte Ingles
Fortis Bank
Hyposwiss Private Bank
Genève
Hypothekenbank
Frankfurt
Ing Belgium
Lico Leasing
NCG Banco
Pastor Servicios
Financieros
RCI Banque
Union de Créditos
Inmobiliários
Volkswagen Bank
Another 23 foreign banks have formal representative offices in Portugal:
Allianz Global Investors
Europe
B. Ind. e Com. da China
(Macau)
Banco Natwest España
Banco Tyumen Credit
Banque Centrale de
Compensation
Banque Heritage
B. Marocaine Commerce
Ext. Int'l
Banque Privée Espírito
Santo

BNP Paribas Lease Group
BNP Paribas Securities
Services
BNP Paribas Wealth
Ma’gement
Caterpillar Financial
Citibank International
Cofidis
De Lage Landen
International
Deutsche Bank
Crédit Agricole Corporate &
Investm.
Crédit Industriel &
Commercial
Crédit Suisse
Dexia Crédit Local
Espirito Santo Bank of
Florida
European Credit
Management
Hythe Securities
JPMorgan Chase Bank Nat.
Merrill Lynch
International
Société Bancaire de Paris
Société Générale
Standard Chartered Bank
(Ci)
Stormharbour Securities
The Bank Of Tokyo Mitsubishi
Volkswagen Bank
Assoc.
Besides banks, the country attracts many well known multinational investors, among which:
Accenture
Adidas
Air Liquide
Alcatel-Lucent
Artenius
Blaupunkt
Bosch
Cisco Systems
Citroën
Continental
Embraer
Faurecia
Fujitsu
Globe Motors
Grohe
Groupe Danone
IBM
Ikea
Leica
Louis Vuitton
Mephisto
Microsoft
Mitsubishi Corporation
Mitsui & Co
NEC Corporation
Nestlé
Nexans
Nokia Siemens Networks
Olympus
Pescanova
Saint-Gobain Solar
Shin-Etsu Chemical
Tamfelt
Tata Consulting Services
The Dow Chemical
Company
The Sakthi Group
Toyota
Visteon Corporation
Vodafone
Volkswagen
Webasto Gruppe
Wipro Technologies
Yazaki
ZTE Corporation
As the export.gov US government agency puts it (see link at the end of this guide), “The Portuguese
market is larger than it may initially appear. While there are only 10.6 million people in Portugal,
there are well over 200 million people who speak Portuguese worldwide. Former Portuguese colonies,
including Macau, Mozambique, Angola and Brazil, have close business ties with Portugal. U.S.
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companies can often find avenues to these other markets through Portugal (…). Portugal is an
excellent entry point or test market for U.S. firms looking to establish access into the EU. The country
is politically stable; the crime rate is relatively low; the bilateral relationship is strong; English is
widely spoken; and the population is very friendly toward Americans. Both physical and IT
Infrastructure are well developed, and Portugal is still one of the lower commercial cost business
environments in Western Europe.”
Negative aspects
On the negative side, besides those already mentioned, the following aspects have to be emphasised:
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The excessive legislative instability and the poor quality of many laws and regulations
The excessive weight of the state in the economy and the excessive meddling of government
in business
The excessive opacity of government’s accounts and the low accountability of politicians and
civil servants
Is now the right time to invest in
Portugal?
Despite the sovereign debt crisis, foreign direct investment in Portugal has been growing at a
considerable pace. According to the UNCTAD’s Global Investment Trends Monitor, FDI increased
from USD 2.6b in 2010 to USD 10.3b in 2011, and from USD 2.2b in the first half of 2011 to $7.8b in
the first half of 2012. The EU/IMF team that monitors the country’s performance under the financial
bailout package forecasts a growth rate of 80% in FDI for 2012/2013 due to the attraction to foreign
investors of the bargain prices brought about by the crisis.
The Bank of Portugal’s statistics indicate that in 2011/2012 the most important countries of origin of
FDI were France, Spain, Switzerland and the US, the most sought out sectors having been finance
and insurance, manufacturing, services to business and real estate.
Most forecasts point to the high probability that the cost of acquiring businesses or real estate in
Portugal may hit rock bottom in 2013/2014, which is proving to be a magnet to cash-rich foreign
investors.
Investors wishing to start up operations in Portugal will benefit from an abundance of qualified
cheap labour, strong government incentives, a tax regime that is being changed in order to attract
investors and possibly the easing out of the traditionally heavy red tape.
Non resident skilled individuals willing to settle down in the country may benefit from a highly
favourable special tax regime, which essentially caps their Portuguese-source income at a 20% tax
rate and exempts them from tax on non-Portuguese sources of income. This special status is
guaranteed to be granted for an initial period of 10 years, renewable for identical periods.
The main current risks of investing in Portugal are the prospect of social unrest due to the unpopular
reforms being implemented by the government and the possibility of an exit by Portugal from the
Euro currency. However, unlike other peoples, the Portuguese are peaceful, it taking absolutely
extreme circumstances for any significant unrest to occur and this would in any case be limited to a
few major cities.
As regards the possibility of the country leaving the Euro, the two following factors make it highly
improbable: on the one hand, the worst is now over in respect of the Portuguese financial crisis and
both the government and local banks are now finding it possible to recur again to the international
markets to finance their operations; and, on the other hand, there have been all kinds of assurances
by the EU and Eurozone leaders that Portugal will be fully supported with a view to remain a
Eurozone member.
In sum it does look as though now is the right time to consider investing in Portugal, taking
advantage of the current exceptionally favourable circumstances.
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The most promising sectors
In view of the current downturn in domestic consumption due to the financial crisis, the most
promising sectors are those that have established export markets or else have domestic customers
whose revenues originate mainly from abroad. Having said that, real estate and financial services go
on attracting significant investment, due mainly to the opportunities afforded by the currently
depressed prices.
The most promising sectors are currently the following.
Mining
Portugal has interesting resources in lithium, tungsten, tin, uranium. iron ore, copper, zinc, silver,
gold, marble, clay and gypsum. A number of foreign investors has been investing in this sector in
2011-2012.
Agriculture and associated industries
Wine (3,750 sq km of vineyards) and olive oil (4,000 sq km of olive groves) are praised for their high
quality, but, except for some wines (especially Port Wine), still have to gain a more significant
reputation among international consumers. Portugal is also a quality producer of fruits, mainly
oranges (especially in the Algarve), cherries (Cova da Beira and Alto Alentejo) and pears (Pêra Rocha
in the West central region). The canned tomato industry is also well developed and some Portuguese
producers are expanding internationally. Other agricultural exports include fresh vegetables and
flowers, beet sugar, sunflower oil and tobacco. The traditionally dry lands to the South of the River
Tagus (Alentejo) are increasingly benefiting from the huge Alqueva water reservoir and the
associated irrigation system, which is still being developed.
Forestry and associated industries
Around one third of mainland Portugal is forest land, mainly pine trees (13,500 sq km), cork trees
(6,800 sq km), holmoaks (5,340 sq km) and eucalyptus (2,340 sq km). The country is the leading
producer of cork and cork products, including high tech products, with a share of around 50% of the
World market. The pulp and paper industry is significant and is concentrated mainly in the Figueira
da Foz area. Processed wood products and furniture manufacturing are the other main industries
associated with the forestry sector.
Fisheries and sea-related industries
Portugal has a large Exclusive Economic Zone (1,727, 408 sq km) and the second largest
consumption of fish per capita in the world. However, mainly as a result of misapplied EU policies,
the size of the fishing fleet has decreased considerably and the fishing sector is chronically
undercapitalised. Having said that, the industry is nonetheless significant, with local fishing by small
traditional vessels accounting for the largest part of the total fleet but less than 10% of the total
tonnage. The main local captures comprise octopus, black scabbard fish, conger, pouting, hake,
anglerfish and sardine, canned sardine constituting an important industry. The ship building and
repair industry is increasing its export quota and some mid-sized shipyards may constitute
interesting investment targets.
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Other industrial production
Other major industries include oil refining, petro-chemistry, cement, automotive, electrical and
electronics products, machinery, injection moulding, plastic products, textiles, footwear, leather,
ceramics, beverages and food processing. The automotive industry is a key sector and a major
exporter, with innovative vehicles and high quality components being developed and made in the
country. Portugal is a world leader in the making of precision moulds for the plastics industry, having
over 500 companies in this sector and exporting about 90% of their total output. The development
of equipment for clean energy production has been gaining momentum and a range of business
opportunities are being created given Portugal’s target of increasing electricity generation from
clean sources from the current 45% to 60% by 2020. The aerospace industry recently received a
boost with an important investment by Brazil’s Embraer.
Information and telecommunications technology
The Portuguese ICT market has an estimated turnover of EUR 18.5b and generates an added value of
about EUR 5.7b. The sector has over 14,000 companies employing a total labour force of 79,000
people. From software development to hardware and telecommunications, Portuguese companies
have achieved a high level of excellence and international recognition in the delivery of state-of-theart products and services.
Biotechnology
Around 40 Portuguese biotech companies, mostly founded in 2001-2006, are attracting international
attention to innovative healthcare and medical products, foodstuffs and environmental engineering.
These companies, which have a strong focus on R&D and millions of Euros invested, are putting
Portugal under the radar.
Tourism
Tourism-linked revenues represent over 10% of Portuguese GDP. Cheaper to live in and visit than
most of western Europe, this small but diverse Iberian country, with sunny beaches, historic sites
and some of Europe's finest golf courses, has eked out considerable growth in tourist numbers, now
somewhat down from its 2007 peak of 7m annual tourists. Portugal’s tourism is in any case a lot less
vulnerable to economic downturns than, for example, its neighbour Spain; and there is an enormous
opportunity for Portugal to position itself for the time when international tourism gets back on track.
There are currently several resorts and hotels up for sale and there is a considerable number of
planned new projects, many of which are on standby, awaiting the end of the financial crisis.
Shared services centres
The services sector accounts for 2/3 of Portuguese GDP and employs more than half of the working
population. Portugal positions itself as a good destination for shared services centres, with its
qualified, multilingual and competitively priced workforce, a cost-competitive modern telecoms
network and cut-rate real estate readily available. To name but a few, leading global companies such
as The Phone House, Adidas, Cisco, 3C, Solvay, IBM BTO, Nokia Siemens, Microsoft, Santander,
Fujitsu Services, HP, Netjets and SAP have set up such centres in the country. There are more than
450 companies in the shared services centre sector, generating EUR 1.3b (about 1% of GDP) and
these numbers are growing, According to the IBM-PLI SSC Monitor, Portugal has a 2% share of the
global market and is included in the “third wave location trend”.
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Real estate
As regards real estate, for one with a long term view, now is an excellent moment to invest in
Portugal, due to the numerous opportunities to find property at bargain prices. In 2011, according to
Cushman & Wakefield, Lisbon held the 6th position among the best European cities in terms of value
for money of office space and the 4th in terms of cost of staff. During the year to end-May 2012, the
average property price in the country plunged by 8.9% to €1,047 per square meter, according to
figures released by the National Statistics Institute (INE). When adjusted for inflation, property prices
actually dropped by 11.3% over the same period. The property market in Portugal is highly
developed, has a high quality of supply in all sectors and a considerable presence of foreign
occupiers. The market is highly transparent and counts various international consultants and agents.
Finally, it should be noted that the laws governing rental agreements have just been made much
more liberal and that evicting a tenant that fails to pay the rent has been made much more expedite.
Financial services and insurance
The financial services and insurance sectors also present good investment opportunities for the
investor with a long term view, having absorbed the greatest share of FDI in 2011 (79%) and in Q1Q3 2012 (63%). This is a huge increase from before the global financial crisis: in 2007 the greatest
share of FDI was held by manufacturing (29.1%), followed closely by real estate (25.5%) and by
wholesale & retail trade (23.3%).
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Doing business in Portugal
Legal & institutional framework
Agencies supporting foreign investors
At government level the agency in charge of promoting foreign investment in Portugal is AICEP
Portugal Global - Trade & Investment Agency. This agency targets companies with a minimum
annual turnover of 75m euro or an investment project of over 25m euro, to whom they “provide a
Key Account Manager” who will be a “single point of contact”, “to help during all steps of the
investment process”, rendering “support services and counselling” as well as coordinating “contacts
with Portuguese entities involved in investment processes”.
Invest Lisboa, “a support structure designed to attract business and direct investment to Lisbon”, is
a joint venture initiative of the Lisbon Trade Association, AICEP Portugal Global and the Lisbon
Municipality. It “seeks to attract business (particularly foreign business) to the city by capitalising on
the competitive advantages of Lisbon”, “focusing on providing support to investors at all stages of
the decision-making process, attracting investment to specific projects to the city, and promoting
Lisbon as an ideal place to invest.”
IAPMEI, the institute for small and medium-sized businesses and innovation, supports “all the ‘life
phases’ of SMEs”.
Turismo de Portugal provides support and information to businesses intending to invest in the
tourism sector.
Types of business entities
Depending on the particular circumstances, a non resident investor may choose to set up or acquire
a Portuguese business entity or else to establish a representation of a non Portuguese entity.
It should be noted that regulated businesses such as financial services and insurance obey specific
rules and are not covered in the following brief description. Also note that industries having a
potentially high negative impact on the environment may be subject to prior licensing.
Besides the fairly unusual EU legal formats, such as the Societas Europea (SE) or the European
economic interest grouping (EEIG), which must have members in at least two member States, the
main Portuguese business entity formats are as follows.
Sociedade por quotas (Lda)
By far the most common type of business entity, this is a private limited liability company having the
share capital divided into “quotas” of at least 1 euro each. There is no minimum capital requirement,
but it must have a minimum of 2 quota holders. The transfer of quotas is subject to registration with
the Commercial Registry and, if to a third party, to prior consent by the company. An Lda may at any
time elect to “upgrade” to an SA (see below). Should an Lda have a sole quota holder for more than
one year, it must “downgrade” to a Unipessoal Lda (see “sole trader” below).
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Sociedade Anónima (SA)
This is the second most popular legal format. It is a corporation/public limited company with a
minimum capital of EUR 50,000, at least 30% of which must be paid up on incorporation,
represented by freely transferable shares, which may be issued to the bearer, and, except where the
founder is a non resident company, an initial number of shareholders of not less than 5. The SA is
the most demanding entity in terms of regulatory compliance and, irrespective of size, its accounts
have to be audited annually by a certified auditor (Revisor Oficial de Contas), a requirement that only
applies to other business entities in case they exceed a certain size or have a regulated activity (e.g.
financial). The adoption of this format is compulsory for a company intending to be listed on the
stock exchange.
Holding company
Where an Lda or an SA is essentially a holding company, subject to applicable regulations it may
adopt the additional legal status of a regulated holding company, called Sociedade Gestora de
Participações Sociais (SGPS). The advantages of this legal status lie essentially in the tax benefits it
confers.
Sole trader, sole proprietorship and independent professional
A sole trader or independent professional may choose among one of 3 business entity formats: the
Unipessoal Lda, which is essentially an Lda having a single quota holder; the Estabelecimento
Individual de Responsabilidade Limitada (EIRL), which is a sole proprietorship in which the liability of
the proprietor is limited to the assets allocated to the business; and the sole trader or independent
professional having unlimited liability.
Partnership and joint venture
Partnerships may take on the format of a general partnership with unlimited liability of all members
(Sociedade em Nome Colectivo), which is tax transparent; or of a partly limited partnership, either
having no share capital (Sociedade em Comandita) or having a share capital (Sociedade em
Comandita por Acções), which must have at least one unlimited partner (the general partner, called
sócio comanditado, who contributes goods or services and takes on the management) and one or
more limited partners (sócios comanditários), who contribute capital and have no management
responsibilities. Another form of limited partnership is the Associação em Participação, an
agreement (not subject to registration) under which a general partner (Associante) takes on the
partnership management and has unlimited liability and the limited partners (Associados) contribute
capital, are entitled to profits and may or may not assume responsibility for losses, in accordance
with the agreement. Certain professions, such as lawyers and certified auditors, may adopt
profession-specific, tax-transparent, forms of partnership. Joint ventures generally take the form of
either a consortium, which may have limited liability subject to certain legal requirements, or of an
economic interest grouping (Associação Complementar de Empresas or ACE), which has unlimited
liability. Another form of association is the cooperative, an independent legal entity having limited
liability, which may be freely established and whose aim must consist in meeting the economic,
social or cultural needs of its members and not to seek profit for itself.
Besides the local subsidiary company, the legal format of the representation in Portugal of a
foreign entity depends on the business activity it intends to have in this country, as follows.
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Tax representative (representante fiscal)
Except for residents of EU member countries (or EEA countries that have agreed to EU-type tax cooperation), it is legally mandatory for a non-resident entity that owns property in, or derives regular
income from, Portugal but has no permanent establishment in the country to appoint a resident tax
representative. Non residents are not even legally entitled to directly dispute any decision made by
the tax authorities in their respect whenever a representative is legally required, as this has be done
through the local representative. The tax representative may, or may not, have management powers
in connection with the represented entity’s property or business. The representative who does have
such powers shall share any liabilities of the represented entity in connection with Portuguese tax,
so it is usually advisable not to grant the tax representative any such powers.
Representative office (escritório de representação)
This the registered local presence of a non resident business entity, for example for marketing
purposes, but not carrying on any business transactions.
Branch (sucursal)
The branch of a non resident business entity is a permanent establishment that carries on a business
activity in Portugal, its registration being mandatory should any such activity be carried on (or
intended to be carried on) for more than one year. It is a local extension of the represented business
entity, without separate legal personality, the management of the branch being performed under
delegation of powers by the owning entity. It is in practice treated as a domestic company as regards
taxation and compliance; but unlike other jurisdictions there is no requirement to file the “parent’s”
accounts in Portugal, and unlike a domestic company the distribution of profits by the branch to the
“parent” is not subject to any taxes.
Establishing an entity
Business activity
It should be noted that the business activity or activities to be carried out have to be described and
classified upon a company being formed or a branch being registered. In general, a Portuguese
company name includes a reference to its main business activity, although this is no longer
mandatory and the practice is therefore being dropped.
Company shareholders and directors
There are no legal restrictions on the nationality or place of residence of either shareholders or
company directors, but there must be at least one resident legal representative. Corporate
shareholders and directors are permitted, but in the latter case an individual representative of the
corporate director must be appointed and registered with the commercial registry office.
Company formation
Setting up a company in Portugal can be a somewhat costly, long and fastidious process, unless one
accepts some restrictions and opts for forming it online or as an “on-the-hour company” at a registry
office, of which there are hundreds throughout the country. The latter option is popular because it is
the simplest and quickest and the company can be up and running within one day.

The traditional formation procedure involves at least the following 7 basic steps: (1)
obtaining a certificate of the intended name´s admissibility; (2) obtaining a company
identification card; (3) in case a minimum initially paid in capital is required, opening a
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provisional banking account and paying in the said minimum; (4) executing the
memorandum and articles of association before a notary public, a lawyer, a company
registrar or an officer of a chamber of commerce or industry; (5) filing a declaration of
business activity commencement with the tax office, which must be signed by an authorised
person and certified by an accountant; (6) filing the company formation documents with the
commercial registry office; (7) registering the business with the social security office.

Online formation involves the following. The company may be formed by a lawyer, or by an
intended shareholder who is either a Portuguese citizen who holds a “citizen card” or an EU
citizen who holds a European digital certificate. Once all details are entered, the company
documents must be printed and signed, the signatures have to be legalised by a notary
public, a lawyer, a company registrar or an officer of a chamber of commerce or industry,
and the signed documents have then to be scanned and uploaded. The government fees
must then be paid within 48 hours. Once the formation is confirmed by the registrar, the
final step is the filing of the declaration of business activity commencement (which must be
certified by an accountant) with the tax office, all other filings being done by the registrar.

The “on-the-hour company” (empresa na hora) is a fast track company formation procedure
that takes place at any registry office. All founding shareholders or their representatives
must attend, representatives having to hold a power of attorney. Unless the procedure takes
place at the RNPC (National Company Registry) central office, the company name must
either have been previously approved by RNPC or else it must be chosen from a listing of
pre-approved names that is available online. The memorandum and articles of association
must be chosen from between a couple of standard pre-approved drafts. Once the
formation is concluded, the company has to file a declaration of business activity
commencement (which must be certified by an accountant) with the tax office, all other
filings being done by the registrar. Unwanted things like a name or a standard memorandum
and articles can be changed later online in a relatively easy and cheap way.
Rep office or branch registration
The registration of the permanent establishment of a non-resident company in Portugal follows a
procedure that is similar to the “on-the-hour company”, in this instance called “on-the-hour branch”
(sucursal na hora). The name of the establishment shall be the parent company’s name followed by
the appropriate description of the establishment, such as Sucursal (branch) or Escritório de
Representação (representative office). The registrant must produce the following documents
(together with a translation into Portuguese unless they are originally in English, French or Spanish),
besides his/her own passport (or national identity card if an EU citizen): document evidencing the
registrant’s powers; document proving the legal existence of the represented company; full and
updated memorandum and articles of association or equivalent document of the represented
company; minutes of the represented company’s resolution to create a permanent establishment in
Portugal and to appoint its representative(s) in the country; and Portuguese tax identification
number(s) of said representative(s). The registrar may at his/her discretion require that one or more
of these documents be legalised by a Portuguese consulate or by the apostille of the Hague
Convention. The filing of documents with other authorities will be done by the registrar.
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Mergers
Besides setting up a new entity or acquiring an existing one in Portugal, entering the Portuguese
market may also be done by means of a merger. Mergers between Portuguese and non-Portuguese
companies can occur where a new company is incorporated with the assets of the participant
company or where one of the parties is wholly incorporated into the other, which is the most
common procedure. The registration of the merger documents follows roughly the procedures that
are required for a new company formation, except that the competition authority may have to be
notified in certain cases. There is a specific incentives programme (SIRME) aimed at providing
financial support to businesses that propose to take over other businesses that are in financial
difficulties (see Government Incentives section below).
Financial services
Financial services and insurance are regulated activities in line with EU regulations. The Portuguese
regulators are the Bank of Portugal (Banco de Portugal), the Securities Market Commission
(Comissão do Mercado de Valores Mobiliários or CMVM) and Portugal’s Insurance Institute (Instituto
de Seguros de Portugal).
Internet domain registration
Upon registration of a new company or permanent establishment of a non-resident company, an
internet domain name consisting of the business name followed by the .pt extension is automatically
granted to the company and its cost for the initial 12 months is included in the government fees. In
the event the name consists of multiple words, these will be separated by hyphens; but the latter
may be subsequently removed at the company’s request as long as the new resulting name is not
yet taken.
Bank account opening & operation
Opening a business banking account follows the procedure that is common in most EU member
countries. Although some banks do require additional documentation, the required documents
usually consist of the certificate of incorporation and/or registration, a certified copy of the
memorandum and articles of association or equivalent document, minutes of the company’s
resolution to open the account, plus, in respect of each authorised signatory, original passport (or
national identity card in the case of EU citizens) and proof of address. In addition, the Portuguese tax
identification number must be supplied in respect of both the business and each account signatory.
Portugal has a modern banking system and most banking transactions may be performed online. It
should be noted that issuing a cheque in excess of €150 that bounces because of insufficient funds in
the account is a criminal offence in this country.
Intellectual property
Intellectual property rights, which include industrial property and copyrights, follow EU legislation
closely and Portugal is a signatory to the most important international conventions and agreements
in this respect, including the Berne Convention for the Protection of Literary and Artistic Works, the
Universal Copyright Convention, the Rome Convention for the Protection of Performers, Producers
of Phonograms and Broadcasting Organisations, the Paris Convention for the Protection of Industrial
Property and the Agreement on Trade-Related Aspects of Intellectual Property Rights (ADPIC/TRIPS).
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Registration of industrial property rights (trademarks, establishment names and logos, company
logos, patents, designs) can be applied for online on the INPI (National Industrial Property Institute)
website (see Useful Links) by any interested party whatever their nationality or country of residence,
or at one of the several “company shops” Lojas da Empresa.
Disputes concerning industrial property rights may be referred to a specific institutional arbitration
centre called Arbitrare.
Dispute resolution
The functioning of the Portuguese judiciary is unfortunately appallingly bad and slow, with court
cases frequently taking more than 10 years. This is due to a combination of absurd procedural law
and bad management of the judicial system, which the government is currently (once more) trying
to reform.
As a result of this situation, dispute resolution by arbitration is becoming increasingly popular, as it is
not only much speedier but also ends up being less costly in Portugal than the recourse to the courts
of law.
Portugal is a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral
Awards (the “New York Convention”) of 1958, having chosen to apply the Convention only to the
recognition and enforcement of awards granted in the territory of another Contracting State.
New companies and branches registering under the “on-the-hour” system are offered the option
upon registration of adhering to an institutional Arbitration Centre for the resolution of consumer
disputes.
Under all agreements, contracts, etc., foreign businesses are strongly advised to elect a nonPortuguese governing law and to submit the resolution of disputes to the jurisdiction of nonPortuguese courts of law. In the event this is not possible or convenient, then the recourse to
arbitration is definitely the best choice.
Closing down a business
A business may be closed down by voluntary strike off (if no assets or liabilities exist and the
memorandum and articles allow it), voluntary liquidation (with appointment of a liquidator, or prior
agreement with the creditors in the event there are liabilities) or by insolvency proceedings, which
may be initiated by the business itself or by a creditor.
The voluntary strike off or liquidation is a relatively simple procedure, having to be filed with a
“company shop” (Loja da Empresa), which then sends the details on to the tax and social security
authorities. Insolvency procedures always have to involve the intervention of a court of law and
constitutes a complicated and slow process.
There is no Portuguese equivalent to, for example, the famous “Chapter 11” of the US or the socalled “pre pack” in the UK.
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Regulatory matters & compliance
Time involved in tax-related compliance
According to the PwC/The World Bank/IFC report titled Paying Taxes 2012. The Global Picture, in
Portugal the time it takes a business to comply with tax-related obligations averages 275 man-hours
per year, which puts Portugal in the 121st place of the World’s ranking. Of this time, 96 hours per
year are on average required for VAT compliance, against the EU general average of 68 hours.
Tax identification number
In practice, no legal act may be performed in Portugal, including the opening of a simple bank
account, without all the intervening parties producing a tax identification number. Obtaining this
number is therefore the first step to be taken by someone intending to invest, carry on a business or
establish a presence in this country.
An individual’s tax identification number may be obtained by the individual from any tax office or
from a “Citizen’s Shop” (Loja do Cidadão) upon presentation of an original passport (or national
identity card if an EU citizen); or it may be obtained by the individual’s tax representative, who will
need a legalised copy of the represented person’s passport (or national identity card if an EU citizen)
plus a power of attorney.
In respect of incorporated business entities, the tax identification number is simultaneously the
corporation tax reference number, the VAT registration number and the company registration
number. The number is granted upon setting up a company or registering a permanent
establishment, and in all other cases it can be obtained either in person or by mail from the National
Company Registry office (Registo Nacional de Pessoas Colectivas or RNPC), or online, through the
“Company Portal” (Portal da Empresa).
Invoicing
Every sale of goods or services by a resident entity, including payments in advance, must be titled by
an invoice in the approved format, which may be a “simplified” format in the case of low value
transactions. Then copies of all invoices must be submitted online to the tax authority, either
automatically by the invoicing software (which must be certified for a business having an annual
turnover exceeding €100,000) or by uploading a file up until the 25th day of the month following the
issue date. Also, from 1st May 2013 onwards, the details of goods transportation documents will
have to be submitted to the tax authority before the transportation takes place.
Accounts reference date
By default, the accounts reference date of a business is December 31st, the financial and tax year
coinciding with the calendar year. This can, however, be changed to the last day of another calendar
month, as a rule upon the formation of the company or the registration of the branch of a foreign
company. In the event of such a change, the same accounts reference date must be kept during at
least 5 years, except in the event that the company subsequently becomes a member of a group
subject to consolidated accounts and the parent company has a different accounts reference date.
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Legal reserve
Company law makes it mandatory for a Portuguese company to build up a “legal reserve”, made up
of at least 5% of the annual profit, which may not be distributed until the amount of the reserve
reaches at least 20% of that of the share capital.
Consolidated accounts
A resident group of companies is allowed to consolidate accounts and submit consolidated returns if
the dominant company has not renounced the consolidation regime during the previous 3 years.
Such a group has to be composed of a dominant company, which cannot be deemed to be
dominated by other companies, and one or more member companies, all having to have their
registered office or their place of effective management in Portugal and be therein subject to tax on
their worldwide income. During at least one year, ownership of the dominated companies must be
directly or indirectly at least 90% and voting rights therein must exceed 50%.
Filing of annual returns
The electronic filing of self-assessment annual returns is legally mandatory, the tax return having to
be filed within 5 months of a business financial year end and the annual accounts within 7.5 months
of the same date. Penalties and interest for late filing and late payment of taxes will be imposed.
Advance rulings
Taxpayers may obtain 3 ruling types from the tax authorities: (1) a general ruling, providing their
general interpretation of the law; (2) an advance ruling, providing their position in respect of a
specific transaction; and (3) an advance pricing agreement, in connection with the transfer pricing
policies to be adopted between related companies.
Accounts of the branch’s parent and branch profits
There is no requirement for the Portuguese branch of a foreign company to file the latter’s accounts
and there is no tax on the distribution of a branch’s profits to its parent.
Advance corporation tax
Advance corporation tax and national surtax are payable in 3 instalments during the tax year and are
calculated on the basis of a percentage of the total tax amount paid with reference to the previous
year (which means that this rule does not apply during the initial year of activity of a business). This
percentage is 80% for businesses with a turnover of less than EUR 0.5m and 95% for larger
businesses, except that the third instalment may be skipped in the event that at least 80% of the
estimated amount of corporation tax for the current year has already been paid through the two
initial instalments.
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Taxation of business
Effective rates of taxation
Effective rates of taxation in Portugal are not as high as might be suggested by the relatively high
nominal rates. Numerous exemptions and loopholes can be found in the intricate tax legislation and
with careful planning a favourable effective rate can usually be achieved by businesses.
According to an EU 2011 paper (Taxation Trends in the European Union), the country’s “budget relies
relatively heavily on indirect taxation for collecting tax revenue”. “In 2010 the Portuguese overall tax
burden (including social contributions) stands at 31.5 % of GDP, well below the EU-27 average (35.6
%). Although in 2010 the tax-to-GDP ratio increased by 0.5 percentage points compared to the
previous year Portugal exhibits the eighth lowest tax burden in the EU-27.”
Furthermore, as already mentioned, the Portuguese Government set out to reform the corporation
tax system in 2013, the aim being to make it one of the most competitive in the EU.
Taxation of corporate profits
Liability to corporate taxation
A company that has either its registered office or its place of effective management in Portugal is
subject to Portuguese corporation tax on its worldwide profits. Non-resident companies and
branches (unlike subsidiaries) are taxed only on Portuguese-source profits.
Tax incentives
Tax incentives apply to some investments and may lower the total tax burden significantly, as
described in the Government Incentives section.
Corporation tax rates
The rate of corporation tax for 2013 is 25%, unless a reduction takes place as announced by the
government, but this looks unlikely to occur before January 2014. In addition, a surtax of 3% applies
to profits between EUR 1.5m and EUR 7.5m, and of 5% to profits over this latter amount. A
municipal surcharge of up to 1.5% on profit may also be levied and thus the maximum aggregate tax
rate may reach between 25% and almost 31.5%. This may be reduced to 4% in the case of licensed
industrial, shipping, international services and financial companies established in the Madeira free
trade zone.
Foreign tax credit
A foreign tax credit of up to the amount of Portuguese tax payable on foreign income (or up to the
amount deductible under an applicable double taxation agreement) is granted and is calculated net
of expenses on a country by country basis.
Calculation of taxable profits
Taxable profits consist of trading income, passive income and capital gains, less expenses that are
necessary for the purpose of generating income, but it should be noted that the tax deductibility of
net interest paid is capped at either EUR 3m or 70% of a business’s EBITDA, whichever the greater
amount (this percentage will be progressively reduced each year, until it reaches 30% in 2017).
Dividends and capital gains have a special treatment as mentioned below. Donations to recognised
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charities are deductible for tax purposes and a multiplier may apply within certain limits and under
certain circumstances.
Carrying forward of losses
Operating losses may be carried forward (but not back) during 5 years as long as losses used in one
financial year do not exceed 75% of the taxable profit for the same year. However, this carrying
forward of losses is subject to authorisation in the event of either a change of business activity or of
ownership of the business, the latter being deemed to occur if a majority of either the share capital
or the voting rights changes hands.
Taxation of dividends & capital gains/losses
Participation exemption
Dividends and capital gains/losses concur to the taxable profit of a resident company as follows.
Dividends received by a resident company are tax exempt under the participation exemption regime
provided that the recipient company is not tax transparent, has held a direct participation of at least
10% for a minimum of one year, and the underlying profits have been subject to effective taxation.
This exemption applies to dividends received from subsidiaries that are resident in Portugal, other
EU countries, and EEA countries that are signatories to a tax co-operation agreement equivalent to
that applicable in the EU. It also applies to dividends distributed by companies from Portuguesespeaking African countries and East Timor, but in this case the participation must be of at least 25%
and the minimum holding period 2 years.
Capital gains and losses
50% of capital gains from the disposal of assets held for at least one year may be exempt if the total
proceeds are reinvested. And 50% of capital losses are deductible from the taxable profit, except for
the following, for which no deduction is allowed: the part of capital losses that corresponds to the
profit received from a subsidiary that benefited from dividend tax exemption in the previous 4 years;
capital losses on the disposal of shares that had been held for less than 3 years and had been
acquired from a related entity, from an SGPS or from an entity located in a listed tax haven or in the
Free Zone of Madeira; and capital losses on the sale of shares to a related entity, an SGPS or an
entity located in a listed tax haven or in the mentioned Free Zone. Also, for the computation of
capital gains or losses, the effective capital gain or loss on the disposal of securities listed on a stock
exchange and representing less than 5% of the issuing company’s share capital is disregarded in case
such securities were valued by the disposing company at fair value on the basis of profit and loss. In
this case, the capital loss or gain is replaced for tax purposes by a revaluation on the same basis and
in the event of a decrease in the fair value only 50% of it is a deductible loss for tax purposes.
Holding and venture capital companies
Besides benefiting from the above mentioned participation exemption, a holding company (SGPS) or
a venture capital company (SCR) may also benefit from 100% tax-exempt capital gains subject to
certain conditions, among which the most important one is that the disposed of participation was
held for at least one year (extendable to 3 years under certain circumstances) prior to the disposal.
This regime also applies to EU non-Portuguese companies that are resident in Portugal for tax
purposes, provided they comply with the requirements provided for under the SGPS regime.
Financial costs incurred with the acquisition of shares are not tax deductible whenever the
corresponding capital gain is exempted.
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Capital gains obtained by non-resident entities
Unless reduced or eliminated under a double tax treaty or an EU Directive, capital gains obtained in
Portugal by non-resident entities are autonomously taxed at the rate of 28%.
Withholding tax on payments to non-resident entities
Payment of dividends, interest, royalties, fees and rental income
Unless reduced or eliminated under either one of the 64 double taxation treaties of which Portugal
is a signatory (see listing above) or of an EU Directive (Parent-Subsidiary Directive and Interest and
Royalties Directive), withholding tax generally applies at 25% to the payment of dividends, interest,
royalties, fees and rental income made by Portugal-resident entities to non-resident entities. This
rate of tax will increase to 35% in case the recipient is a resident of a listed tax haven.
Debt securities benefit from a special tax regime, which is being revised by the government under an
authorisation provided for under the 2013 Budget Law. Under this regime, qualified non-resident
investors deriving Portugal-sourced interest and capital gains from debt securities whether public or
private are exempt from Portuguese tax provided such securities are listed on a recognised
centralized system such as the Central de Valores Mobiliários managed by Interbolsa.
Payment of branch profits
No withholding tax applies to the remittance of a Portuguese branch’s profits to its parent.
Madeira free trade zone
As regards licensed industrial, shipping, international and financial services companies established in
the Madeira Free Trade Zone, no withholding tax is levied on dividends, interest (subject to
conditions), royalties or other fees paid to non-resident entities.
Other relevant taxes on business
The other relevant taxes levied on businesses are the following.
Social security
Social security contributions by employers are deductible for corporation tax purposes and payable
at 23.75% of the uncapped monthly gross wages of employees and the capped directors’ gross fees,
who make contributions at 11%. Directors’ fees are either capped for this purpose to a taxable
amount equivalent to 12 times the minimum wage, which is currently EUR 419.22 per month; or
may be exempt from this contribution where the director is already making social security
contributions under a compulsory regime whether in Portugal or elsewhere.
Annual property tax
Municipal annual real property tax, which is deductible for corporation tax purposes, is levied at
rates between 0.3% and 0.8% (or 7.5% if the owner is located in a listed tax haven) of the taxable
value of the property and is payable by the registered owner by 31st December.
Property transfer tax
Real property transfer tax is payable by the acquirer at 5% of the transfer value of rural property, at
6.5% for urban property, or at 10% in the event the acquiring entity is a resident of a listed tax haven.
Some exemptions apply, notably to the transfer of property located in business parks, which may be
exempted under certain conditions at least until 31 December 2013.
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Stamp duty
Subject to various exemptions, stamp duty is due on some types of agreements, contracts, deeds
and documents, as well as on certain transactions that are not subject to VAT, such as the
acquisition of real estate (0.8%), leases and sub-leases (10% of the first monthly rent), insurance
premiums, certain financial transactions and certain bets.
Oil exploration and production
Oil-related levies apply to companies engaged in oil exploration and production.
VAT
VAT rates
Value Added Tax is levied on imports and the supply of goods and services, with some exceptions, in
line with EU rules. The standard VAT rate is currently 23% (16% in the Madeira and Azores islands),
there being an intermediate rate of 13% and a reduced rate of 6% (respectively 9% and 4% in the
said islands).
Non-resident suppliers
Non-resident suppliers have generally to register for VAT on the transfer of their stocks to Portugal
for the purpose of their own undertakings or in the event they supply a significant amount of goods
or services to resident private customers. Otherwise, they may avoid VAT registration for local
supplies under the reverse charge mechanism.
Returns and payment
VAT returns and payment by entities having an annual turnover of more than EUR 650,000 are on a
monthly basis, the return filing and the payment having to take place up to the 10th day of the 2nd
month following the end of the relevant month. Other entities may opt for quarterly returns and
payments, which have to take place by the 15th day of the 2nd month following the end of the
relevant quarter.
Anti tax avoidance legislation
Anti-avoidance rules in Portugal consist chiefly of a general anti-avoidance rule, mandatory
disclosures and those in connection with listed tax havens, transfer pricing, thin capitalisation and
controlled foreign companies.
GAAR
Under the general anti-avoidance rule (GAAR), the tax authorities may disregard a transaction for
taxation purposes in the event that they deem the aim of the transaction as being chiefly to avoid
payment of the full amount of tax otherwise due.
Mandatory disclosure
A mandatory disclosure to the tax authorities must be made by taxpayers and their agents whenever
any corporate restructuring or transaction may lead to substantial tax benefits otherwise not
available.
Listed tax havens
Payments to residents of listed tax havens are in principle not deductible, and such entities cannot
benefit from tax exemptions otherwise available to non residents of Portugal. Furthermore, as seen,
36
such entities are liable to higher tax rates on dividends, interest, property and property transfers.
The black list is as follows:
Alderney
American Samoa
Anguilla
Arab Republic of Yemen
Aruba
Ascension Island
Bahamas
Bahrain
Bolivia
Brunei
Cocos (Keeling) Islands
Cook Islands
Costa Rica
Djibouti
Dutch Antilles
Falkland Islands
Fiji Islands
French Polynesia
Gambia
Guiana
Grenada
Guam Islands
Honduras
Jamaica
Jordan
Kiribati Island
Labuan
Lebanon
Liechtenstein
Maldives Islands
Marshall Islands
Mauritius
Monaco
Montserrat
Natal Islands
Nauru
Niue
Norfolk Island
North Marianas Islands
Pacific Islands
Palau
Pitcairn Island
Porto Rico
Qatar
Qeshm Island
Saint Helen Island
Saint Pierre and Miquelon
Saint Vincent and the Grenadines
San Marino
Sark
Seychelles
Solomon Islands
Sultanate of Oman
Svalbard Islands
Swaziland
Tokelau Island
Tonga
Trinidad and Tobago
Tristan da Cunha
Tuvalu
US Virgin Islands
Vanuatu
West Samoa
The following jurisdictions have been or are being removed from the black list, as they have signed
tax information exchange agreements with Portugal:
Andorra
Antigua and Barbuda
Barbados
Belize
Bermuda
British Virgin Islands
Cayman Islands
Dominica
Gibraltar
Guernsey
Hong Kong
Isle of Man
Jersey
Kuwait
Liberia
Panama
St. Kitts and Nevis
St. Lucia
Turks and Caicos
UAE
Uruguay
Transfer pricing
The transfer pricing regime is in line with the OECD guidelines. Companies must have support
documentation to justify their transfer prices and unless an advance pricing agreement between the
taxpayer and the tax authorities exist, the latter may make pricing adjustments whenever there are
special relations between the parties.
Thin capitalisation
For 2013 the thin capitalisation was replaced by the rule that caps the tax deductibility of net
interest paid by businesses, as described above.
CFC regime
In accordance with the controlled foreign company (CFC) regime, the undistributed profits of an
entity that is resident in a low-tax jurisdiction may be taxed in the hands of anyone holding a
“substantial” interest in the said entity in the proportion of such interest, unless: (1) the CFC is EU or
EEA resident (provided in the latter case that the country is a signatory to a tax co-operation
agreement equivalent to the EU’s); (2) in addition, the tax payer satisfies the authorities that there
are valid economic reasons underlying the interest held; and (3) the CFC carries on a commercial,
37
industrial, agricultural or services business. “Substantial” interest in this context means a direct or
indirect ownership or beneficial interest representing 25% or more of the share capital, the voting
rights or the rights to income or assets of the CFC; or just 10% in the event that more than 50% of
the share capital or of the other mentioned rights is held by residents of Portugal.
Exit tax
An exit tax on potential unrealised capital gains by a Portuguese business relocating to another EU or
EEA country or a non-Portuguese company closing down its Portuguese branch was banned by the
EU Court of Justice, but the Portuguese government intends to redraft this rule so that it does not
contradict the EU freedom of establishment legislation. It may in any case be possible to avoid
negative tax consequences in the event the relocation takes place in accordance with the EU Merger
Directive.
Government incentives
Investment incentives in Portugal are regulated by a maze of laws and regulations and only a brief
summary of the main ones is provided in this guide. There are 3 main types of government
investment incentives, which exclude some business activities and cap the total amount of regionrelated incentives at certain amounts for each region of the country, notably in line with EU
restrictions on state aid:



Tax incentives
Contractual interest-free loans or grants
Job creation and training incentives
In addition, some investment projects may be deemed as being of potential national interest
(Potencial Interesse Nacional or “PIN”) and thus benefit from a favourable procedural treatment as
regards licensing by the various relevant government agencies. A project may in general get PIN
status if the total investment exceeds EUR 10m or, otherwise, if they include a “strong component”
of R&D, applied innovation or environmental interest, or else are geared towards export or the
replacement of imports. Besides, PIN projects have to meet some other criteria, including the
creation of new direct jobs (at least 50) to be trained by a certified training entity. Some business
activities are excluded from PIN status, namely wholesale/retail trade, financial services, real estate,
education, healthcare and social work.
Entities that are at fault in connection with tax or social security payments are excluded from the
benefit of Portuguese government incentives.
Besides Portuguese government incentives, Portuguese companies may also be eligible for EU
incentives.
For large projects (a proposed investment of at least EUR 25m or an investor with an annual
turnover in excess of EUR 75m), AICEP, the Portuguese foreign investment and trade promotion
government agency, is in a position to negotiate incentive “packages” within the national and EU
frameworks. For smaller projects this role belongs to IAPMEI, the institute for SMEs.
38
Tax incentives
Favourable taxation regimes aimed at promoting investment may be generally applicable or
contractual.
Generally applicable tax incentives
The main tax incentives that are not subject to specific contracts are being reformulated by the
government under various authorisations granted by parliament. In general, such incentives are
being consolidated under the Investment Tax Code and several changes are expected to take place
during 2013.
The main generally applicable tax incentives are as follows:



The regime called RFAI 2009, expected to be in force until the end of 2017, grants incentives
for investment in new generation broadband networks, agriculture, forestry, agro industries,
energy, tourism, mining and manufacturing, but excludes the steel industry, shipyards and
synthetic fibres. New generation broadband networks and energy are to be excluded in
2013. Relevant investments in the approved sectors allow for the following: the deduction
from corporation tax of 20% of up to EUR 5m of the invested amount and 10% of the
invested amount that exceeds EUR 5m; exemption from the annual property tax; and
exemption from property transfer tax and stamp duty on property transfers. The right to
deductions from corporation tax may not exceed 25% (to go up in 2013) of the tax
otherwise payable in respect of each financial year, but may be carried forward for 4 years
(to go up to 5 in 2013). This incentive cannot be accumulated with other tax incentives that
might be obtained for the same investment project.
The incentive regime for R&D, called SIFIDE II, in force until at least the end of 2015, which
under certain conditions allows for the deduction from corporation tax of 32.5% of R&D
expenses (42.5% in the case of SMEs under 2 years old), plus 50% of the increase of such
expenses over the average of the two preceding years with a cap of EUR 1.5m, increasing to
70% with a cap of EUR 1.8m in respect of the cost of employing PhDs. This incentive cannot
be accumulated with grants or other tax incentives that might be obtained for the same
investment project.
Other specific regimes apply to shipping (only 30% of profit is subject to corporation tax)
and to the management of integrated systems of specific residue fluxes (exempt from
corporation tax on reinvested operation profits).
Additional incentives are expected to come into force during 2013, including a revised regime in
respect of the reinvestment of profits.
Contractual tax incentives
Under the Investment Tax Code, tax incentives may be granted by the government until the end of
2020 under a contract lasting up to 10 years. Such contractual tax incentives may be granted in
addition to financial incentives, but may not be accumulated with other tax incentives in respect of
the same project.
Eligible sectors for these incentives are as follows: manufacturing, mining, tourism and tourismrelated activities, computers and related services and activities, agriculture, fisheries, forestry,
39
livestock husbandry, high-tech R&D, information technology, audiovisual and multimedia production,
environment, energy and telecommunications.
Incentives are as follows:


A 10% to 20% corporation tax reduction plus reductions (or even exemptions) of property
transfer tax, annual property tax and stamp duty may be granted to investment projects of
at least EUR 5m, to be reduced to EUR 3m in 2013, provided they are deemed relevant for
the development of sectors of strategic interest and contribute to the reduction of regional
asymmetries, the creation of new jobs or the development of technological and scientific
innovation.
Also, investments of at least EUR 0.25m by Portuguese companies abroad that are deemed
of strategic interest for the internationalisation of the Portuguese economy may benefit
from a corporation tax reduction of 10% to 20%, capped at EUR 1m per year or at 25% of the
total annual corporation tax bill if this percentage amounts to less than EUR 1m. This tax
credit may be carried forward for 5 years. In case the investment involves the incorporation
or the acquisition of a foreign company, the taxpayer will also benefit from the total
exemption of tax on dividends received from the foreign subsidiary during the length of the
incentives contract.
Contractual interest-free loans or grants
The main financial incentives to investment, in the form of contractual interest-free loans or grants,
are co-financed by EU funds and the Portuguese government, currently under frameworks that are
in force for the 2007-2013 period, ending on 31st December 2013, after which they are expected to
be replaced by 2014-2020 frameworks.
The main current incentives programmes fall under the following groups:




40
The National Strategic Reference Framework (“QREN”), which, besides regional programmes,
comprises 3 main incentives programmes: “Compete” (competitiveness factors), “POPH”
(human potential) and “POVT” (territorial development). Of particular interest to business
investors is the “Compete” programme, which provides for investment incentives for
innovation, R&D, as well as SME qualification and internationalisation. Under the POPH
programme or as a component of an innovation project under Compete, businesses may
also apply for incentives to the professional training of their employees.
The rural development program, called “PRODER”, which provides incentives to agricultural
projects under 3 main sub-programmes: competitiveness promotion, sustainable
management of rural areas and revitalization of rural areas.
The fisheries development programme, called “PROMAR”, providing incentives to
investment in the fishing industry, which are organised along 5 main axis (adaptation of the
fishing effort, aquaculture / transformation and marketing of fishing products, general
interest measures, sustainable development of fishing zones and technical assistance), plus
specific programmes for the Madeira and Azores islands.
The business revitalisation and modernisation incentive scheme (“SIRME”) which was set up
specifically to encourage mergers and acquisitions involving businesses having financial
difficulties.
Compete
The Compete programme is aimed at medium and large enterprises’ projects, while small and micro
businesses will generally be supported through the regional programmes. Candidates to Compete
incentives may be Portuguese or foreign businesses intending to invest in Portugal in industrial
projects, wholesale and retail trade (generally restricted to SMEs), services, tourism, energy
production, transportation and logistics.
Under the Compete programme, the amount of the incentive to be granted is a percentage of the
eligible actual investment. In general, the incentive is a fixed-term interest-free loan, which under
certain circumstances may be replaced by a subsidised interest rate or else converted into a nonrepayable grant.
The investment incentives are generally granted through calls for tenders, regularly launched by the
government, which have specific rules and objectives and relatively short application time frames.
However, certain strategically important or significantly large projects may forego the bidding
process. Once approved, the incentives are contracted under an investment agreement with the
Portuguese government, which subjects the beneficiary to achieving certain stipulated targets.
There are three main incentives “systems” under the Compete programme:

Innovation (SI Inovação)
This scheme supports projects of investment in productive innovation by either individual
businesses or joint ventures, having the following objectives: promoting innovation in
business via the production of new goods, services or processes that support business
progression in the value chain; to reinforce the gearing of businesses towards international
markets; or to stimulate qualified entrepreneurship and structuring investment in new fields
with growth potential.

R&D (SI I&DT)
The scheme supports technological R&D projects and technological proof of concept
projects, as well as projects aiming at the creation and reinforcement of technological R&D
skills and development.

SME qualification and internationalisation (SI Qualificação PME)
This supports investment projects promoted by SMEs, either individually or in joint venture,
which lead to innovation, modernisation or internationalisation.
PRODER
The beneficiaries of PRODER may vary according to specific schemes, but in general they are
individuals, companies, partnerships, associations, cooperatives or other entities engaging in farming,
agribusiness, the food industry and forestry. Applications for investment assistance are generally
staged in accordance with preset time frames advertised in advance and must be submitted online.
PROMAR
The overall objective of Promar is to promote the competitiveness and long-term sustainability of
fisheries by investing in innovation and product quality, making better use of the fishing resources
and of the potential of aquaculture. PROMAR’s priority assistance goes to the modernisation of the
41
fleet, aquaculture, processing, marketing, collective initiatives, sustainable development of fishing
zones and technical support.
SIRME
SIRME provides a financial partner to businesses wanting to purchase struggling businesses in need
of restructuring. Under this programme there can be an equity co-investment in the acquiring
business, plus the granting of loans or guarantees to the acquired business. This can be combined
with some tax benefits for the acquired business, such as exemptions from government fees,
property tax, stamp duty and personal income or corporation tax on some transactions. Applications
to this incentive are submitted to IAPMEI.
Job creation and training incentives
Businesses that create new permanent jobs by employing long-term unemployed people of 16 to 35
years old (excepting under 23 year olds that have not concluded secondary education and are not
attending certain educational programmes), may claim a deduction from their taxable profit of 50%
of the employment-related costs for a period of five years from the date of the employment
agreement, capped at 14 times the national minimum monthly wage per employee and not to be
accumulated with other job-creation benefits in respect of the same employee or job.
In addition, businesses may benefit from 3 main incentive programmes in connection with the
training of employees:



The POPH programme (human potential operational programme) is part of the above
mentioned QREN framework and grants financial incentives to the professional training of
employees. Such incentives may cover educational supply grants, training grants,
educational aid, fellowships for advanced training, employment-related costs for people in
training during normal working hours, travel, accommodation, meals and other assistance.
Professional internship grants may be co-financed at 40% to 75% through IEFP (the institute
for employment and professional training) if for under 30’s (subject to having some
minimum qualifications) or for handicapped people
Financial incentives to cover the cost of 6-9 months internships abroad for under 30
graduate job seekers can be obtained under the INOV Contacto programme.
EU incentives
The main EU incentives available to Portuguese businesses are EUREKA, FP7 and CIP.
EUREKA
The EUREKA programme targets co-operation between companies of different member States that
provide new products or services and R&D institutions or universities. Incentives are available for
the following projects:


42
Those involving partners of at least two different EU countries to develop an innovative
product, process or service aimed at international markets (EUREKA Projects).
Projects similar to EUREKA Projects, but led by SMEs that have recognised R&D capacity.
This programme (EUREKA Eurostars) aims to stimulate collaboration between national and
international civilian projects.

Long term projects for the development of new technologies, led by large EU corporations
and involving SMEs, research institutions and universities, which may be supported by the
EUREKA Cluster programme.
FP7 and CIP
Both the FP7 and the CIP programmes will end in 2013 and will be reformulated for the 2014-2020
period.
The FP7 programme co-finances R&D and innovation projects, especially of low/medium-tech
businesses, aiming at contributing to the development of products based on new technologies and
markets, as well as stimulating job creation and competitiveness through research in pre-defined
fields. The incentive consists of grants that may cover up to 50% of R&D costs (75% in the case of
SMEs, research institutions and universities), up to 50% of proof of concept costs and up to 100% of
the costs involved in joint venture management, networking, training, results publishing, etc.
CIP, the Competitiveness and Innovation Framework Programme, supports innovation, IT and energy
projects, aiming at promoting the competitiveness of businesses, especially SMEs, promoting all
forms of innovation, contributing to the sustainable acceleration of an information society and
promoting energy efficiency and renewable energy sources in all sectors, including transportation.
The labour market
With unemployment at 16.9% (the EU’s 3rd highest rate), the minimum guaranteed wage at EUR
6,790 per annum (the EU’s lowest) and the average salary at less than EUR 13,000 per annum,
finding and hiring quality employees in Portugal is not in general problematic. Problems may arise,
however, as explained below, when an employer wishes to renegotiate or terminate employment
contracts with permanent workers. Employment terms and conditions are directly regulated by
labour regulations, collective agreements with the unions and professional practice, there not being
much room for freely agreed terms and conditions between the parties. This leads to a somewhat
43
rigid labour market, low average productivity and a considerable number of workers being hired on
either fixed-term contracts or as self-employed workers (the 2nd highest percentage of the total
workforce in the EU). Although the current government is committed to reform labour law so as to
make it more flexible, sustained improvements are not expected to come into force in the short
term. Having said that, well managed businesses are usually able to renegotiate or terminate
employment contracts at a cost that is counter-balanced by the general low level of wages.
Fixed-term employment agreements
Fixed-term contracts are theoretically prohibited for permanent tasks, although in practice it is not
generally difficult to deem a task temporary. The maximum term for a fixed-term contract is in
general 36 months, extendable to 54 months under renewals, after which the worker is either made
redundant or must be hired on a permanent basis.
Working hours
Daily and weekly hours
The workday has generally a maximum of 8 hours, with a maximum of 40 per week, and it is quite
common to grant a lunch break of between 1 and 2 hours, which does not count as working time.
Working hours may nevertheless be defined as an average calculated over a 4 to 12 months period,
in which case the maximum number of weekly hours may be increased to 50 under an individual
employment agreement or to 60 under a collective employment agreement, not including overtime
worked for reasons of force majeure. The normal number of working days per week is 5 and cannot
exceed 6.
Night and public holidays work
In the case of continuous operations, the premium for night work is 25% of the hourly pay and the
premium for work on the weekly rest day or on public holidays is 100% of the hourly pay. While
there are no restrictions on night work, some restrictions do apply to working on the weekly rest day.
Note that the hourly pay is calculated on the basis of the total annual pay divided by 14, times 12,
divided by the number of normal weekly hours times 52.
Annual leave
The minimum paid annual leave is 22 working days (Monday to Friday, not including public holidays),
independently of the job tenure’s length.
Discipline and dismissal
Misconduct
Misconduct by an employee entitles the employer to, under terms set forth under applicable law,
impose various punishments, ranging from a simple reprimand to the termination of the
employment for cause.
Dismissal
Besides termination during the trial period and termination for cause, an employee may be
dismissed on the grounds of his/her failure to adapt to working conditions or for economic reasons
(redundancy dismissal), no other types of dismissal being allowed under current law.
44
Redundancy
Dismissal due to redundancy is allowed by law but subject to notice to the relevant unions (or
workers’ representatives) and to the authorities being given and to various conditions being met,
among which the proven impossibility of retraining or reassigning the affected employee(s); and
should the same job vacancy become available again the readmission of the dismissed employee(s)
has priority. Employees dismissed as a result of redundancy are entitled to severance pay and
accepting such pay is equivalent to formally accepting the dismissal. Although this is currently being
revised by the government, the minimum notice period and severance pay for redundancy dismissal
in salary weeks is as follows:
Years of tenure
1
5
10
Minimum notice
4.3
8.6
10.7
Minimum severance pay
13.0
21.7
43.3
Employees’ rights to information and consultation
Business restructuring
Employers have to inform, and consult with, employees or their representatives on restructuring
processes whenever changes in working conditions are planned, even though the latter’s opinions
on the matter are not binding.
Business transfer
In the event an undertaking is to be transferred, both the transferor and the transferee must consult
in advance with their respective employees or the latter’s representatives with a view to obtaining
an agreement on the measures that may affect them, such as employee dismissals or relocations.
Their views must be heard but are not binding.
45
46
Living in Portugal
Quality of life & cost of living
The good and the bad things
The best things about Portugal are probably the weather, the varied and beautiful landscape, the
nice (and inexpensive) food and wine, the friendly and easy-going people, and the relatively low cost
of living.
With about 2,800 hours of sunshine per year (an average of 4.6 hours per day in December and 11.4
hours in July), Lisbon is the sunniest European capital, having Europe’s mildest winters and hot
summers. Enjoying a subtropical/Mediterranean climate, Lisbon’s typical summer season lasts about
6 months (May to October), with an average temperature of 25°C (77°F) during the day and 16.2 °C
(61.2 °F) at night. December to February are the coldest months in Lisbon and yet the average
temperature is 15.2 °C (59.4 °F) during the day and 8.9 °C (48.0 °F) at night.
The landscape includes many nice white-sand beaches, several top-notch golf courses on which one
can play all year round, rivers, lakes, plains and mountains, the highest of which is 2,000 metres
(6,561 ft). Furthermore, Portugal has an ancient history and the country is sprinkled with castles,
palaces, monasteries, churches and other historic monuments.
47
Portuguese people get on well with people of all races and creeds and there is no racism or religion
related violence to speak of.
The worst things about Portugal are probably all linked to government, though some progress has
been and is currently being made: excessive red tape, excessive weight of the state in the economy,
excessive meddling of government in business, excessive opacity of government’s accounts, low
accountability of politicians and civil servants. This leads to what is probably the average native’s
worst defect: a passive attitude towards government while considering it the source of almost all
evil and yet under the obligation of granting endless favours.
Quality of life indexes
The Economist Intelligence Unit’s Quality-of-Life Index ranked Portugal in 2005 as 19th best among
111 surveyed countries, behind Italy (8th) or Spain (10th), but ahead of Greece (22nd) or France (25th).
The OECD’s Your Better Life Index, updated in 2012, measures how the 34 member countries plus
Russia and Brazil perform according to the importance given to each of the following 11 topics on a
scale of 0 to 10: community, education, environment, civic engagement, health, housing, income,
jobs, life satisfaction, safety and work-life balance. Portugal ranks close to the average in a large
number of topics, but above average on environment and work-life balance and below average on
income and life satisfaction. As regards the latter, Portugal ranks as the 35th worst out of the 36
countries: when asked to rate their general satisfaction with life, Portuguese people gave it a 5.2/10
grade, lower than the OECD average of 6.7; and 71% of people reported having more positive
experiences in an average day (feelings of rest, pride in accomplishment, enjoyment, etc) than
negative ones (pain, worry, sadness, boredom, etc), which is lower than the OECD average of 80%.
This is surely a reflex of the famous Portuguese gloominess, a cultural trait best exemplified in the
typical answer to the how’s life? question. Even though he/she may feel great, the typical native
answer will be along the lines of “it could be better”.
Cost of living
According to EURES (the EU Commission’s European Employment Services), the following is a range
of indicative reference prices for the normal monthly expenditure of a family living in Portugal as at
April 2012:




48
Water: prices vary according to the municipality. Using Lisbon as the benchmark, rates vary
according to levels of consumption:
- up to 5 m3/month: EUR 0.1820 / m3 (plus 6% VAT)
- from 6 to 20 m3/month: EUR 0.5993 / m3 (plus 6% VAT)
- more than 20 m3/month: EUR 1.4141 / m3 (plus 6% VAT)
Electricity: EUR 0.1299 / kWh, EDP - BTN rates of 20.7 kVA, plus the payment for the basic
power rate of EUR 0.9718/day, plus 23% VAT.
Natural gas: EUR 0.0614 / kWh, Lisboagás rates, for consumption of 221–500 m3/year (1
m3 = 11.511 kWh), with the amount of the fixed rate (EUR 3.57 / month + EUR 0.1170 / day)
added to the monthly bill. 23% VAT is added to these prices.
Fuel: prices in Portugal are adjusted in line with changes in the price of a barrel of oil, and
the price can vary from place to place. The current minimum and maximum prices are given
below:




- 95 octane petrol (litre): from EUR 1.519 to EUR 1.699
- 98 octane petrol (litre): from EUR 1.569 to EUR 1.799
- Diesel (litre): from EUR 1.357 to EUR 1.479
Food and drink in the supermarket: since prices vary considerably, the average minimum
and maximum prices are indicated for certain products in a normal shopping basket:
- Milk (1 litre): EUR 0.49 to EUR 1.00
- Bread (1 Kg): EUR 1.65 to EUR 4.10
- Eggs (6): EUR 0.59 to EUR 1.09
- Meat (pork, 1 Kg): EUR 2.98 to EUR 4.50
- Meat (beef, 1Kg) EUR 12.48 to EUR 19.97
- Fish (cod, 1 Kg): EUR 7.29 to EUR19.98
- Oranges (1 Kg): EUR 0.79 to EUR 1.29
- Apples (1 Kg): EUR 0.64 to EUR 1.69
- Beer (0.5 litre): EUR 1.39 to EUR 3.54
- Bottle of wine (0.75 litre) EUR 1.59 to EUR 8.69
- Coca-Cola (0.5 litre): EUR 0.89 to EUR 0.95
Leisure / Free time:
- Cup of coffee (bica [espresso]): EUR 0.60 to EUR 0.80
- Cinema ticket: EUR 5.50 to EUR 6.00
- Theatre ticket: EUR 10.00 to EUR 30.00
- Big Mac (McMenu): EUR 4.25
- Snack bar meal: EUR 6.00 to EUR 8.00
- Restaurant (2nd category) meal: EUR 10.00 to EUR 25.00
Other:
- Daily, local or regional newspaper: EUR 0.80 to EUR 1.50
- Toothpaste (Colgate, 75 ml): EUR 2.54 to EUR 2.99
Minimum Guaranteed Monthly Pay (National Minimum Wage 2012) – EUR 485.00 x 14
months
Other interesting indicators are provided by Numbeo (data based on 6304 entries in the past 18
months from 608 different contributors):
Expenditure
Mean
Range
Meal, Inexpensive Restaurant
€7.00
6.00 - 8.00
Meal for 2, Mid-range Restaurant, Three-course
€30.00
20.00 - 37.00
Combo Meal at McDonalds or Similar
€5.50
5.00 - 6.00
Domestic Beer (0.5 liter draught)
€1.50
1.00 - 2.00
Imported Beer (0.33 liter bottle)
€2.00
1.25 - 2.00
Cappuccino (regular)
€1.00
0.80 - 1.50
Coke/Pepsi (0.33 liter bottle)
€1.00
1.00 - 1.40
Water (0.33 liter bottle)
€0.80
0.60 - 1.00
Restaurants
49
Expenditure
Mean
Range
One-way Ticket (Local Transport)
€1.40
1.10 - 1.75
Monthly Pass (Regular Price)
€35.00
30.00 - 40.00
Taxi Start (Normal Tariff)
€2.50
2.50 - 3.00
Taxi 1km (Normal Tariff)
€0.56
0.45 - 0.90
Taxi 1hour Waiting (Normal Tariff)
€20.00
15.00 -30.00
Gasoline (1 litre)
€1.60
1.55 - 1.70
€24,000.00
20,000.00 - 25,000.00
Fitness Club, Monthly Fee for 1 Adult
€50.00
40.00 - 60.00
Tennis Court Rent (1 Hour on Weekend)
€10.00
6.50 - 15.00
Cinema, International Release, 1 Seat
€6.00
5.00 - 6.50
1 Pair of Jeans (Levis 501 Or Similar)
€85.00
75.00 - 95.00
1 Summer Dress in a Chain Store (Zara, H&M, ...)
€30.00
25.00 - 40.00
1 Pair of Nike Shoes
€80.00
60.00 - 90.00
1 Pair of Men Leather Shoes
€80.00
55.00 - 100.00
Apartment (1 bedroom) in City Centre
€400.00
300.00 - 600.00
Apartment (1 bedroom) Outside of Centre
€300.00
250.00 - 400.00
Apartment (3 bedrooms) in City Centre
€800.00
550.00 -1,000.00
Apartment (3 bedrooms) Outside of Centre
€550.00
425.00 - 700.00
Price per Square Meter to Buy Apartment in City
Centre
€1,500.00
1,000.00 - 2,000.00
Price per Square Meter to Buy Apartment Outside
of Centre
€1,000.00
750.00 - 1,350.00
€777.00
650.00 - 1,000.00
4.00%
3.00% - 5.00%
Transportation
Volkswagen Golf 1.4 90 KW Trendline (Or
Equivalent New Car)
Sports And Leisure
Clothing And Shoes
Rent Per Month
Buy Apartment Price
Salaries And Financing
Median Monthly Disposable Salary (After Tax)
Mortgage Interest Rate (%), Yearly
50
Legal & institutional framework
Tax identification number
As mentioned, in practice no legal act may be performed in Portugal, including the opening of a
simple bank account, without all the intervening parties producing a tax identification number.
Obtaining this number is therefore the first step to be taken by someone intending to invest, carry
on a business or reside in the country. An individual’s tax identification number may be obtained by
the individual from any tax office or from a “Citizen’s Shop” (Loja do Cidadão) upon presentation of
an original passport (or national identity card if an EU citizen); or it may be obtained by the
individual’s tax representative, who will need a legalised copy of the represented person’s passport
(or national identity card if an EU citizen) plus a power of attorney.
Tax representative
The appointment of a resident tax representative is mandatory to an individual (and the individual’s
spouse) that is not a resident of an EU member country (or of an EEA country that has agreed to EUtype tax co-operation) and intends to own property in, or derive income from, Portugal. Only
through their tax representative are such individuals legally entitled to dispute the tax authorities’
decisions made in their respect. The tax representative may, or may not, have management powers
in connection with the represented person’s property or business. The representative who does
have such powers shall share any liabilities of the represented individual in connection with
Portuguese tax, so he/she/it will not usually accept any such powers.
Banking
Portugal has a modern banking system and the only unusual thing about it is that, as already
mentioned, issuing a cheque of more than EUR 150 that bounces for lack of sufficient funds is a
criminal offence in Portugal.
Residence permits for non-EU nationals
General framework
A non-EU citizen that does not benefit from the special investor status (see next section) will in
general need an employment contract with a resident entity in order to secure a long term residence
permit. After 5 years of having resided legally and continuously in the country and upon proof of
having sufficient income (for him/herself and his/her family dependants), health insurance,
accommodation and basic fluency in Portuguese, such a person may apply for permanent resident
status, an EU resident title, and treatment under the law equal to that of Portuguese citizens.
The holder of a Portuguese residence permit enjoys free circulation in the Schengen Space,
composed, in addition to Portugal, of the following countries: Austria, Belgium, Czech Republic,
Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Italy, Letonia, Liechtenstein,
Lithuania, Luxembourg, Malta, Norway, Poland, Slovakia, Slovenia, Spain, Sweden, Switzerland and
The Netherlands.
51
Residence permits for investors (“ARI”)
A non-EU national may obtain resident status without having to obtain a prior residence visa if
he/she, whether privately or through a company, makes an investment in Portugal under one of the
following conditions: the invested amount is of at least EUR 1m, unless it is in real estate, in which
case this amount is reduced to EUR 0.5m; or the investment leads to the creation of at least 10
permanent new jobs. This condition must have been met before the residence application is
submitted and the investment must be kept during at least 5 years. In the event the investment is
made through a company, the relevant investment amount will be the paid-in share in a Portuguese
company or else the pro rata of the capital allocated to the Portuguese permanent establishment of
an EU company.
The application should be submitted within 90 days of entering Portugal for the first time and the
residence permit shall be initially granted for 1 year, subsequently renewable for successive 2-year
periods. During the first year the permit holder is supposed to stay in Portugal for at least 7 days (not
necessarily consecutive) and this number of days is increased to 14 during the following years.
Compliance
The tax year for personal income tax purposes is the calendar year and the deadline for filing the
return is 30th April if the income was from only an employment or pension; or 31st May if other
income was received. The deadline for the payment of the income tax is 31st August.
Married couples must file a joint tax return unless one of the spouses is non-resident, in which case
the latter only has to file a return if he/she owns property in Portugal or has Portuguese-source
income.
Taxation of individuals
Liability to income tax
Resident individuals are liable to income tax on their worldwide income and non-residents on their
Portuguese source income only. Residence for income tax purposes is deemed to occur if an
individual spends more than 182 days in a given calendar year in the country, or if he/she has living
accommodation in the country on December 31 st which is deemed an habitual abode.
Income tax may be reduced or even eliminated under a double taxation agreement, or else under
the “non-habitual resident” status described below.
Taxable income and tax rates
Taxable income falls into the following 6 categories: employment, business and professional,
investment, real estate, net worth increase and pension income. Income is generally taxed at
progressive rates, except for some types, which are taxed at flat rates, notably investment income
and capital gains, generally taxed at 28%.
In the computation of income tax some deductions from taxable income up to certain (relatively low)
limits are available, such as expenses in connection with health, education, social security and
pension plans; and certain tax credits are applicable in connection with marital status, number of
dependants and overall level of income.
52
On the disposal of real estate only 50% of the capital gain is subject to tax, at the normal progressive
rate, except where the property is one’s main residence and the sale proceeds are used to buy
another main residence in the EU (or in an EEA member country that is a signatory to a tax
information exchange agreement), in which case the gain is tax exempt. Capital gains on the disposal
of shares are subject to a flat rate of 28%, a 50% exemption applying to the disposal of shares in
unlisted small companies.
Only 50% of intellectual property income is taxed where the IP owner is the original owner and
€10,000 may be excluded from the taxable IP income.
Except in the case “non-habitual residents” (see below), 5 progressive rates of taxation apply in
2013, starting at 14.5% on an annual taxable income of up to EUR 7,000 and ending at 48% on an
annual income exceeding EUR 80,000. In addition, the following apply:


A surcharge at the rate of 3.5% applies to the slice of the total taxable income (whether
subject to the progressive or the flat rates) which exceeds for each taxpayer the minimum
guaranteed wage of EUR 6,790 p.a.
An “additional solidarity charge” at 2.5% applies to taxable income between EUR 80,000 and
EUR 250,000, and, of 5%, to the taxable income that exceeds EUR 250,000.
Non-habitual resident status
In order to qualify as a “non-habitual resident”, a Portuguese national or a foreign individual must
become a tax resident of Portugal (i.e. spend >182 days/year or else have a place of abode as at
December 31st) after not having been taxed in this country during at least the previous 5 years.
Recognition of this status is not automatic and is granted for a period of 10 years upon successful
application to the Portuguese tax authorities up until March 31st of the year following that in which
Portuguese residence was taken up.
It should be noted that although the individual must be a resident in Portugal when he/she submits
the application, there is no minimum stay requirement afterwards and it is even possible to stop
being a Portuguese tax resident for one or more of the 10 years without losing the non habitual
resident status.
The application formalities have recently been considerably simplified and all that is now required is
the filing of a statement to the effect that the applicant was not resident for tax purposes in Portugal
during the 5 years preceding the arrival in Portugal. Only in the event the tax authorities have doubts
concerning the truth of what is stated will they request additional documentation, which may
include a tax residence certificate from the previous country and a document proving that the vital
and economic interests of the applicant were centred in another country during the previous 5 years.
Qualifying applicants are skilled professionals, entrepreneurs and investors, as per an official list of
occupations, as well as recipients of occupational pensions.
Under this regime, the following taxation rules apply:

Foreign-source employment, self-employment, occupational pension, capital gains and
investment or rental income will be exempt of Portuguese tax as long as it is deemed liable
to tax in the source country under a double taxation treaty or under the OECD model tax
53

convention (as interpreted by the Portuguese state), and it is deemed as not being
Portuguese-source income under applicable Portuguese law and are not sourced from a
listed tax haven.
Portuguese-source employment or self-employment income will be taxed at a flat rate of
20%, while other Portuguese-source types of income will be taxed at the normal rates
applicable to resident taxpayers, with the calculation of the applicable marginal tax rate
taking into account all income, including exempt income. The mentioned surcharge of 3.5%
applies to the slice of the total taxable income (whether subject to the progressive or the flat
rates) which exceeds for each taxpayer the minimum guaranteed wage of EUR 6,790 p.a.
One interesting feature of this regime is that many double taxation treaties grant the power to tax
income to the country of residence of the taxpayer, which means that in practice some types of
income will in many cases be zero taxed in the hands of the “non-habitual resident”. One notable
exception is the pensions of retired civil servants, which under most tax treaties are taxed by the
source country regardless of the recipient’s country of residence.
The official list of eligible occupations is as follows:











Archaeologists
Architects
Auditors
Biologists
C-level company directors and
managers
Computer programmers
Data processing and hosting
specialists
Dentists
Designers
Engineers
Geologists









Investors, directors and
managers of companies
promoting eligible projects
under tax incentive contracts
IT consultants
IT professionals
IT specialists (other)
Life sciences specialists
Medicine doctors
Musicians
News agency and other
information professionals
Painters (artistic)








Psychologists
Scientific research and
development professionals
Sculptors
Singers
Tax consultants
Theatre, ballet, cinema, radio
and TV artistic professionals
University teachers
Web developers and designers
Withholding tax on payments to non-residents
As stated before, unless reduced or eliminated under either one of the 64 double taxation treaties of
which Portugal is a signatory (see listing above) or of an EU Directive (Parent-Subsidiary Directive
and Interest and Royalties Directive), withholding tax generally applies at 25% to the payment of
dividends, interest, royalties, fees and rental income made by Portugal-resident entities to nonresident entities. This rate of tax will increase to 35% in case the recipient is a resident of a listed tax
haven.
Other relevant taxes on individuals
In Portugal there is no capital duty or wealth tax, and an inheritance or gift received by the spouse, a
descendant or ascendant is tax exempt, there being otherwise stamp duty at 10%. Real estate is
subject to an annual municipal tax and to tax on the transfer of property (see above). As already
mentioned, a social security contribution by the employee is payable at 11% on the gross wages and
deductible from the taxable income.
54
Resources / useful links
Investor’s Guides
 Portugal Investor’s Guide, AICEP Portugal Global (a government agency) –
http://www.portugalglobal.pt/EN/InvestInPortugal/investorsguide2/Paginas/Investor%27s%
20Guide.aspx
 Your Europe: Portugal, an EU website –
http://europa.eu/youreurope/business/starting-business/settingup/portugal/index_en.htm
 Doing Business in Portugal, export.gov, a US government agency –
export.gov/portugal/doingbusinessinportugal/index.asp
 Doing Business in Portugal, UK Trade & Investment Agency –
http://www.ukti.gov.uk/export/countries/europe/southerneurope/portugal/item/108605.h
tml
The Portuguese economy
 Portugal Economy Probe (English website containing documents issued by “top
organisations” about the Portuguese economy and financial system) http://www.peprobe.com/
 World Bank Country Profile for Portugal http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/WBEUROPEEXTN/PORTUGALEXT
N/0,,menuPK:309723~pagePK:141159~piPK:141110~theSitePK:309718,00.html
 OECD’s Country Pages: Portugal - http://www.oecd.org/portugal/
 IMF’s Country Information: Portugal - http://www.imf.org/external/country/PRT/index.htm
 Portuguese Government Official Portal - http://www.portugal.gov.pt/pt.aspx
 Portuguese National Statistics Institute (INE) http://www.ine.pt/xportal/xmain?xpgid=ine_main&xpid=INE
Agencies supporting foreign investors
 AICEP Portugal Global - Trade & Investment Agency www.portugalglobal.pt/EN/Pages/Home.aspx
 Invest Lisboa - http://www.investlisboa.com/site/index.php/en
 IAPMEI, the institute for support to small and medium-sized businesses and innovation http://www.iapmei.pt/
 Turismo de Portugal http://www.turismodeportugal.pt/english/TurismodeportugalIP/Pages/TurismodePortugalIP
.aspx
Establishing an entity
 The Portuguese classification of business activities can be found on
http://www.sicae.pt/default.aspx.
 Portal da Empresa - http://www.portaldaempresa.pt/cve/en/
 Empresa na Hora - http://www.empresanahora.mj.pt/ENH/sections/EN_homepage
55

Sucursal na Hora (on-the-hour-branch), IRN, in Portuguese only http://www.irn.mj.pt/IRN/sections/irn/a_registral/registo-comercial/docscomercial/sucursal-na-hora/ and http://www.irn.mj.pt/IRN/sections/irn/a_registral/registocomercial/docs-comercial/snh-faq-s/
Portuguese internet domain registration
 www.dns.pt
Banking
 English website, Banco de Portugal - http://www.bportugal.pt/en-US/Pages/inicio.aspx
Intellectual property
 INPI (National Industrial Property Institute) website - www.inpi.pt
 Arbitrare, institutional arbitration centre - www.arbitrare.pt/arbitrare/
Taxation
 Tax System in Portugal 2009, Autoridade Tributária e Aduaneira (Tax & Customs Authority) –
http://info.portaldasfinancas.gov.pt/pt/docs/Conteudos_1pagina/NEWS_Portuguese_Tax_S
ystem.htm
 Portuguese Tax System, June 2012, AICEP Portugal Global (a government agency) –
http://www.portugalglobal.pt/EN/Biblioteca/Documents/PortugueseTaxSystem.pdf
 Taxation Trends in the European Union: Portugal, EU http://ec.europa.eu/taxation_customs/resources/documents/taxation/gen_info/economic_
analysis/tax_structures/2012/country/pt.pdf
The labour market
 Portugal – Labour System, November 2009, AICEP Portugal Global (a government agency) –
http://www.investlisboa.com/site/images/stories/doc_pdf/PortugalLabourSystem.pdf
56
BELION PARTNERS LLP
5 St John's Lane, London EC1M 4BH
Tel +44 203 004 8972
Largo Rafael Bordalo Pinheiro 16
1200-369 Lisboa
Tel +351 308 803 814
[email protected]
www.belionpartners.com

investing in portugal 201

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