Establishing a business in Portugal

Setting up your Business in Portugal

Issues to consider

Portugal appears among the best countries to invest in. Lisbon is one of the most influential cities in economic terms. It is the only Portuguese destiny present in Cities of Economic Influence Index, ahead of Budapest and Rio de Janeiro. Portugal’s capital city scored 72,4 points in the Economic Power category and 78,86 points in the People and Politics indicator, according to CEOWorld’s magazine. In short, all these reasons make Portugal well placed for the future growth of economy.

However, there are several issues which you must consider when you are looking to set up your business in Portugal.

At Kreston Iberaudit, we have a team of qualified and committed professionals who will always accompany and advise you.

We can advise and help you in different areas such as:

• Administrative services
• Accounting outsourcing
• Consolidation
• Controlling & Reporting
• Due Diligence
• Financial consulting
• Holding Companies regime or Specific locations
• HR/ Payroll outsourcing
• M&A & Transactions services
• Transfer pricing
• Tax consulting
• Tax Regime for expatriate personnel employees
• Tax Regime for young people

This document takes you through some of the common questions we come across and gives you practical information about the issues you need to consider.

What is the minimum investment I need to make?

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 50.000 Eur for a S.A. (Sociedade Anónima -Limited Company)

How quickly can I set a business up?

15-45 days.

How do I raise finance / What can I finance?

Foreign investors can set up a company in Portugal without any restriction.
There exists a compulsory formality to obtain a tax identification number for the foreign investors and non-resident directors.

What type of Business Structure should we use?

There are advantages and disadvantages to all of them, and there is no one correct answer, it’s all dependent on your specific business circumstances and needs. A brief overview of the main structures is below:

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 have a permanent establishment in Spain, 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:

Partnership (Civil Society):

• Members (partners) have limited 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 originated will determine in what jurisdiction and how these profits are taxed.

In-country advice about: locations Payroll and HR requirements. Tax/regulatory and reporting

Personal Income Tax:

The company tax return must be filed within 6 months after end of the accounting period.

• Taxpayers considered resident in Portugal are liable for Portuguese tax on their worldwide income.
• Current Personal Income Tax rates in Portugal are in between 13% and 48%
• Capital Gains Tax Rates are in between 28% (some cases 14%) for residents and no residents.

What Social Security will need to be paid?

• Employers and employees also have to pay Portuguese social security, which is called Segurança Social. In general terms, current percentage of gross pay check 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 of time 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 20% (16% for the first € 50,000 of tax base), Madeira Island is 14.7% (11.9% for the first € 50,000 of tax base) and Azores Island 14,7% (11,9% for the first € 50,000 of tax base).

What is Value Added Tax (VAT) and should the business be registered?

VAT is a “goods and services tax” on supplies made, the standard rate of which is 23% (Madeira Island 22% and Azores Island 16%). 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, all 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.

Anything else to know:

Tax Benefits:

SIFID II (R+D)

This tax credits may be available at a rate of 32,5% ( in certain cases 50%) of the R+D expenses and investments incurred in the tax period. The percentage of 32.5% is increased by 15% in the case of micro, small or medium-sized companies that do not benefit from the incremental rate of 50% because they have not yet completed 2 periods of taxation of activity. Eligible expenses that cannot be deducted in the assessment period in which they are incurred, due to insufficient collection, may be deducted up to the 8th following assessment period (up to the 12th following assessment period in the case of investments made from January 1, 2024).

Tax Regime to Incentive the Capitalization of Companies (ICE)

IRC taxpayers may deduct from their taxable profit an amount corresponding to the application of a variable rate, corresponding to the average 12-month Euribor rate in the tax period, added to a spread of 2 p.p., regardless of the size of the company, to the amount of net increases in eligible equity.

Tax incentive for salary appreciation

The tax incentive for salary appreciation provides that, in determining the real profit of IRPJ taxpayers with organized accounting, the charges (fixed remunerations and contributions to Social Security) related to salary adjustments of workers with indefinite-term employment contracts, established by a dynamic collective labor regulation instrument, and in the case of 2023 and 2024, the extension ordinance and the working conditions ordinance also form part of this concept, may be increased by 100%.

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;

Main tax benefits for non-residents Capital gains

Exemptions:

Capital gains made by non-resident entities on the transfer of:

• shares in resident companies;
• other securities issued by resident companies;
• independent warrants issued by resident companies and traded on the stock exchange;
• derivatives traded on the stock exchange;
• and investment units in venture capital funds traded on the stock exchange are exempt from IRC. T

Taxation is levied at 10% on the positive balance between capital gains and losses on the sale of investment units in venture capital funds, when the holder of such income, a non-resident entity, does not benefit from exemption.

Exceptions: Capital gains made by non-residents from the transfer of shares and other securities for consideration will not benefit from this exemption/reduction in the IRC rate when one of the following situations occurs:

• Entities domiciled in a country, territory or region subject to a clearly more favourable tax regime, as set out in a list approved by order of the Minister of Finance.
• Entities held in more than 25% by resident entities, except if the selling company:
  • (i) is resident in another EU or EEA State that is bound by administrative cooperation in the area of taxation or in a State with which a double taxation convention is in force that provides for the exchange of information;
  • (ii) is subject to and not exempt from a tax referred to in the Parent-Subsidiary Directive or a tax of an identical or similar nature to IRC (provided that the rate is not lower than 12.60%);
  • (iii) directly or directly and indirectly holds a shareholding of no less than 10% of the share capital or voting rights uninterruptedly during the year prior to the sale; and
  • (iv) is not part of a construction or series of artificial constructions whose main purpose, or one of the main purposes, is to obtain a tax advantage. Transfer of shares in companies resident in Portuguese territory whose assets consist of more than 50% of real estate located there.

Transfer of shares in companies that do not have their registered office or effective management in Portuguese territory, when, at any time during the previous 365 days, the value of these shares results, directly or indirectly, in more than 50% of real estate or rights in rem over real estate located in Portuguese territory, with the exception of real estate used for an activity of an agricultural, industrial or commercial nature that does not consist of the purchase and sale of real estate.

What if we use Portugal to set up our holding 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.