Doing business in Portugal
- How quickly can I set up a business?
- What is the minimum investment needed?
- How can I raise finance?
- What are the legal requirements for setting up my business?
- What structure should I consider?
- What advice can you give me in regards to payroll and taxation requirements?
- Is there anything else that I should know?
How quickly can I set up a business?
What is the minimum investment needed?
Investment depends on the scale of project. However Minimum share capital for the incorporation of an Lda. (Sociedade Limitada – Limited Liability Company) is 1,00 Eur and 60.000 Eur for a S.A. (Sociedade Anónima – Limited Company).
How can I raise finance?
Investor must contribute the entire capital.
What are the legal requirements for setting up my business?
Foreign investors can set up a company in Portugal without any restriction.
There exists a compulsory formality to obtain a tax identification number for foreign investors and non-resident directors.
What structure should I consider?
Establishment (a branch of your overseas business):
• Not a separate legal entity but an extension of the overseas parent company
• No limited liability or ring-fencing of the Portuguese operations
• If you have a permanent establishment in Portugal, then profits from this PE are liable to Portuguese Corporation tax
Limited Company/Limited Liability Company (LDA):
• Provides limited liability and ring-fencing to Portuguese operations
• Gives a perception of a local business, with longevity
• Corporation tax to be paid on company profits
• Companies, must have their annual financial statements audited when two of the below conditions are met for two consecutive years:
Company Turnover exceeds 3,000,000.00 €
Company Balance Sheet total assets exceed 1,500,000.00 €
Company average number of employees exceeds 50
Partnership (Sociedad Civil):
• Members (partners) have unlimited liability
• Profits are allocated to members who then pay Income Tax on these profits personally
• The tax residence of the member, and where the profits in the LLP are originated will determine in what jurisdiction and how these profits are taxed
What advice can you give me in regards to payroll and taxation requirements?
Personal Income Tax:
• Taxpayers considered resident in Portugal are liable for Portuguese tax on their worldwide income
• Current Personal Income Tax rates in Portugal are in between 14,5% and 48%
• Capital Gains Tax Rates are in between 28% (some cases 14%) for residents and no residents.
• Employers and employees also have to pay Portuguese social security, which is called Segurança Social. In general terms, current percentage of gross paycheque for the employee is 11% and 23,75% for the employer.
• Portugal has a Reciprocal Agreement with the EU countries and many others whereby when an overseas national of those countries is seconded to Portugal for a defined period and continues to pay social security in their home country, then the employer and employee are exempt from paying Portuguese social security.
Corporate Income Tax:
• Current Corporation Tax rates in Portuguese continent is 21% (17% for the first € 25,000 of tax base), Madeira Island is 14.7% (11.9% for the first € 25,000 of tax base) and Azores Island 16.8% (13.6% for the first € 25,000 of tax base)
• VAT is a “goods and services tax” on supplies made, the standard rate of which is 23% (Madeira Island 22% and Azores Island 18%). If a business makes taxable supplies, then it MUST be registered for VAT.
• Vat taxable entrepreneurs are obliged to submit quarterly VAT returns if annual turnover is less than € 650,000.00 or monthly statements if annual turnover is higher than € 650,001.00 (big companies).
• Additionally, big companies are obliged to provide VAT books corresponding to issued and received invoices, electronically through electronic office of the Portuguese Tax Authorities. The deadline for the submission of the information is 5 calendar days since the date of the issuance for invoices issued and 5 calendar days since the date of the registration for invoices received.
• Compliance requirements
The presentation of all tax returns by companies must be obligatorily by electronic means.
Is there anything else that I should know?
SIFID II (R+D) This tax credits may be available at a rate of 32,5% (in certain cases 65%) of the R+D expenses and investments incurred in the tax period.
DLRR and RFAI (tax credit about Investments realized in year and next years. For expenses incurred on Technological Innovation and Industrial equipment it is recognized a tax credit of 25%.
Both above mentioned credits are limited to 50% of the gross tax payable. However, with application DLRR any excess can be carried forward for use in the following 4 years. Moreover, it´s allowed to request the refund from the Tax Authorities of the R+D and TI tax credits (Cash Back) when the tax payer has insufficient tax payable to apply those tax credits. To apply the mentioned mechanism, specific requirements must be met and advice should be obtained.
Attractive Tax Regime for Expatriated Staff:
An individual assigned to work and live in Portugal may opt to be taxed as a non-resident for the first ten years of the assignment. Under such an agreement, the individual is taxed at a flat rate of 20% on the gross amount of the income. To qualify for the above-mentioned benefit, the individual must: 1) not have been a tax resident in Portugal for the previous 5 years; 2) work in Portugal for a Portuguese tax resident company or a PE of a non-resident company;
The Portuguese tax legislation means that it is a very attractive place to set up a holding company:
• Main Tax Benefits of Portuguese Holding Company (or no formal holding company) are 100% exemption for capital gains realized on the disposal of shares (participation minimum of 10% and uninterruptedly held for a period of not less than 12 months)
• 100% exemption for dividends distributed to Portuguese companies with headquarters or effective management in Portuguese territory as long as certain requirements are met.