DOING BUSINESS IN PORTUGAL IN 2023
Since 2003, Healy Consultants Group has assisted our Clients with starting their company in Portugal. Our services include i) Portugal business registration ii) government license registration iii) Portugal business bank account opening iv) employee recruitment v) visa strategies and vi) office rental solutions in Portugal.
|Compare different Portugal entities||Tax-resident LLC||Madeira IBC||Free zone LLC||Golden Visa LLC||Branch office||Representative office|
|Also known as||SpQ||Sociedade Limitada/IBC||Madeira FZ/ Santa Maria FTZ||Golden Visa LLC||Filial||Escritório de representação|
|Best use of company?||All products and services||Intl. operations & investments||Holding & trading||Flexible investments||Short-term projects||Marketing & research|
|How soon to invoice Clients?||2 weeks||3 weeks||5 weeks||2 weeks||3 weeks||Can not|
|How soon can you hire staff?||2 weeks||3 weeks||5 weeks||2 weeks||3 weeks||3 weeks|
|How soon can you sign a lease agreement?||2 weeks||3 weeks||5 weeks||2 weeks||3 weeks||3 weeks|
|How long to supply corporate bank a/c?||4 weeks||4 weeks||4 weeks||4 weeks||4 weeks||4 weeks|
|How long to supply co. reg / tax numbers?||2 weeks||3 weeks||6 weeks||2 weeks||3 weeks||3 weeks|
|Corporate tax rate on annual net profits?||21%||5%||5%||21%||21%||0|
|Limited liability entity?||Yes||Yes||Yes||Yes||No||No|
|Government grants available?||Yes||Yes||Yes||Yes||Yes||No|
|Govt approval required for foreign owners?||No||No||No||Yes||No||No|
|Resident legal representative required?||No||No||No||Yes||Yes||No|
|Minimum paid up share capital?||1||1||1||1||None||None|
|Can bid for Government contracts?||Yes||Yes||Yes||Yes||Yes||No|
|Corporate bank account location?||Abanca||Caixa Bank||Bank of Portugal||Deutsche Bank||Novo Banco||CGD|
|Can secure trade finance?||Yes||Yes||Yes||Yes||Yes||No|
|VAT payable on sales to local customers?||23%||22%||22%||23%||23%||None|
|Accountant at incorporation required?||Yes||Yes||Yes||Yes||Yes||Yes|
|Average total business set up costs?||€15,200||€18,050||Contact us||Contact us||€14,400||€13,450|
|Average total engagement period?||1 month||3 months||3 months||1 month||2 months||1 month|
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Advantages and disadvantages
Advantages of Portugal company registration
- A Portuguese limited liability company can be incorporated within 1 week with 1 director and 1 shareholder, who can be of any nationality. The minimum paid-up share capital required is only €1 and our Clients do not need to travel to complete engagement;
- It is easy and cost-efficient to register a business in Portugal because:
- Resident companies benefit from office space rental costs recorded at i) €11 per sq. m in Lisbon and ii) €6 per sq. m in Porto, among the lowest in Western Europe;
- The World Bank ranks Portugal as the 5th best European country for ease of business incorporation;
- A Portuguese LLC incorporation takes no more than 1 week, the fastest pace in Europe.
- The Portuguese government offers fiscal incentives to entrepreneurs registering a company in Portugal including:
- Companies with annual revenue below €50 million benefit from a reduced corporate tax rate of 17% for profits up to €15,000;
- Resident companies can carry forward their business losses up to 12 years, allowing them to claim subsequent tax rebates for an amount up to 70% of a year’s taxable income;
- Resident innovative companies benefit from a corporate tax credit on of up to i) 50% of eligible R&D expenses if these expenses are higher than their 36 months average or ii) 32.5% if otherwise. This tax credit may i) be carried forward up to 8 years and ii) represent up to €1.8 million.
- All companies incorporated in the Madeira International Business Centre (MIBC) in Portugal post January 2015 are given a range of incentives that would be applicable till December 2027, including:
- Complete exemption from paying of i) stamp duties; ii) withholding taxes; iii) dividends as well as iv) interest paid out of shareholder loans;
- A reduced corporate income tax of 5% for all companies;
- Benefit from the Portuguese participation exemption rules.
Disadvantages of Portugal company registration
- Entering the Portuguese market is currently very difficult for startups because:
- Few consumers will buy our Clients’ products sold in Portugal. The Portuguese market suffers indeed from i) a population recorded at only 10 million people ii) an unemployment rate recorded at 16% and iii) a purchasing power of Portuguese consumers still 6% below its pre 2008 financial crisis level;
- Portuguese banks provide no support to local businesses, as i) over 40% of loan applications from SMEs are rejected ii) lending rates are recorded at 2% and iii) the country’s largest bank has collapsed, with more likely to follow.
- Businesses pay high taxes in Portugal, including:
- Standard tax rates are i) corporate tax – 21% and a surcharge of up to 1.5% levied by municipalities ii) VAT – 23% and iii) Social Security contributions – 24.75%. Consequently, tax paid by businesses represents over 43% of their profits, more than the already high EU average (42%);
- Portugal punishes successful businesses, as corporate tax rate increases by up to 7% when revenue climb over €1.5 million;
- Our Clients will also pay tax when they relocate their office in Portugal. Sales of real estate are subject to a tax with rates levied at rates of up to 8% of the property value;
- Exiting the Portuguese market is costly. A company transferring its tax residence abroad must pay an onerous exit tax, as the transferred assets are considered unrealized capitals gains and therefore subject to corporate tax.
- Portugal-based companies have trouble finding productive employees because:
- Our Clients are often dissatisfied with the poor performance of their employees in Portugal. Portuguese workers’ hourly productivity is indeed recorded at only €17, much lower than the EU average (€32);
- It is complicated to dismiss a poor-performing Portuguese employee. The procedure requests the employer to provide i) a notice of up to 2 months and ii) a compensation averaging 34 weeks of salary, the 13th highest figure in the world;
- Our Clients will face trouble communicating with their Portuguese employees. The local workforce is ranked as the 10th least proficient in English among 23 surveyed European countries;
- Healy Consultants expects our Clients to face shortages of skilled employees in Portugal as i) only 18% of the active population holds a university degree ii) 36% of the active population has never used a computer (6th highest ratio among all EU countries) and iii) the country suffers from an important brain drain to other EU countries.
- Portuguese is the official language for doing business in Portugal. All government documents as well as legal contracts must be in Portuguese. Therefore, foreign entrepreneurs are required to hire local suppliers to overcome the communication barriers with the authorities and, consequently, translate and notarize any documents into Portuguese.
Best uses for a Portugal company
- Portugal is a good place to setup a holding company because:
- Audit requirement is waived for LLCs if they meet two of the three following thresholds: i) total assets below €1.5 million ii) income below €3 million and iii) less than 50 employees;
- The Portuguese FTZ of Madeira offer generous fiscal advantages for qualifying companies including i) reduced corporate tax rate of 5% on profits realized with non-Portugal based entities ii) no tax on capital gains and dividends remitted to a company based in EU/EEA or a country with a DTA treaty with Portugal and iii) no property transfer tax;
- Portugal-based companies are exempted from taxation on received capital gains and dividends if i) they have held 5% of the distributing company’s share capital for 2 years and ii) the distributing company is neither based in a listed tax neutral jurisdiction nor a jurisdiction with a corporate tax rate below 13.8%;
- Dividends, interest and royalties distributed to a non-EU company benefit from reduced rates of up to 5% in withholding tax for receiving companies based in one of the 63 countries that have signed a tax treaty with Portugal.
- Portugal is a good location to setup a manufacturing company in Europe because:
- Our Clients generally choose Portugal in order to reduce their labor costs. They indeed benefit from i) €10.2 hourly labor costs in the industry, the Eurozone’s 4th lowest figure and ii) Western Europe’s 2nd lowest minimum wage (€485 monthly);
- Portugal-based companies also enjoy the lowest industrial space costs in Western Europe, with rents recorded at i) €3.75 per sq. m in Lisbon and ii) €2 per sq. meter in Porto;
- Portugal provides very attractive tax exemptions for manufacturing businesses. Investment in machinery and other productive assets benefit from i) a tax credit up to 20% of the investment value ii) reduced/waived property tax and iii) reduced/waived property transfer tax. Please note that this tax credit can be carried 4 years forward and may cover up to i) 100% of a startup’s taxable revenue or ii) 50% for other companies;
- Portugal is an excellent hub for distributing goods to the rest of Europe thanks to its dense network of roads, ranked as the 2nd best in Europe by the World Economic Forum;
- Portugal’s is an excellent export hub to Northern Africa and the Americas thanks to its 9 international sea harbors, ranked as the 9th best in the EU;
- Portugal-based trading companies will save costs by spending only $780 in administrative and customs clearance fees per exported container, much lower than the OECD average, recorded at $1080;
- Our Clients also benefit from privileged access to Portuguese-speaking overseas markets including i) Brazil – 200 million customers ii) Mozambique – 24 million customers and iii) Angola – 18 million customers.
- Portugal is a good place to setup a holding company because:
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