How To Start A Business In Portugal
You are not alone if you want to start a business in Portugal. According to Ernst and Young, the majority of global investors trust Portugal more than countries such as France, Germany, and the United Kingdom. The Portuguese government provides public financial assistance to businesses committed to innovation, and thousands of highly skilled workers are available. The Portuguese market is stable, with Portugal ranked 39th out of 190 countries in the World Bank’s ease of doing business index. Opening a business in Portugal also gives you access to the European Union (EU) market, which accounts for more than 23% of the nominal global GDP and 7% of the world’s population. So, to open a business in Portugal, you must have Portuguese residency as well as a social and tax security number.
If you are a non-EFTA/EU national and want to start a business in Portugal, you must first obtain a visa and a residency permit. View our guide to starting a business in Portugal. We have all you need to know about registering your business and paying taxes.
Steps To Starting A Business In Portugal
Make Sure That You Are Legally Permitted To Start A Business In Portugal
Before you get into the nitty-gritty of establishing your company, make sure you can legally do so in Portugal. You must have your own Portuguese residency card, a Portuguese tax number (NIF), and a social security number. Therefore, if you are a non-EU/EFTA national and want to start a business in Portugal, you must first obtain a visa and a residency permit.
Choose A Name For Your Company
Think of names for your company and see if your favorite is already registered in the Portuguese Registry of Business Names. If not, register your company’s name with the National Registry of Companies using a Validation Certificate known as Certificado de Admissibilidade, which costs €75. Typically, the certificate is valid for three months.
Choose The Business Structure – Different Types Of Companies In Portugal
The Portuguese Companies Code governs the various legal structures for businesses in Portugal. You must choose the one that best fits your business structure. Consider the following business types in Portugal:
- A Sociedade por Quotas is a private limited company. These require a minimum of two partners and a €5,000 capital investment. Shareholders must pay a minimum of €100 per share, and all debts must be covered by business assets.
- A Sociedade Anomina, or public limited company, requires a minimum of five shareholders and a minimum capital investment of €50,000 capital. Shareholders are liable for debts up to the value of their shares.
- Partnership: A Partnership, also known as a Sociedade em Nome Colectivo, requires at least two partners, and their liability extends to personal assets. They can be used to cover any company’s debts.
- Limited Liability Partnership: Also known as a Sociedade em Comandita, this type of partnership requires a minimum of two partners who can run the business and have unlimited liability, including personal assets, as well as sleeping partners who contribute capital and have liability limited to the amount invested.
- Cooperatives are non-profit organizations that operate on the principles of cooperative models.
- Single-Member Limited Company: Also known as a Sociedade Unipessoal por Quotas, this is a business run by one person with debt liability limited to business assets. A minimum capital investment of €5,000 is required.
- Individual Limited Liability Establishment: This is similar to a Single-Member Limited Company and is known as an Estabelecimento Individual de Responsabilidade Limitada. However, the €5,000 capital investment must include at least two-thirds cash.
- Sole Trader: Also known as Empresario em Nome Individual, this is a type of self-employment in which only one person runs a business. So, there is no minimum capital requirement, and sole proprietors are personally liable for all business debts.
Freelancers differ from sole proprietors in that they do not run a business from a fixed location (such as a hairdresser). Freelancers must pay their own income tax (IRS) and social security contributions, but they do not pay corporate tax.
Set Up Your Company
Now that you’ve decided on a name for your company and have chosen an appropriate business company, it’s time to incorporate it by signing the deed of incorporation. You can do this online, allowing you to set up your business quickly. This costs around €360 and takes 1 to 2 days to register your company. Your company will be assigned a tax identification number (NIF) and a social security number. The deed contains specific information about your company, such as the type of company, the capital share of each partner, and so on.
Start Your Business Activity
Companies in Portugal are required to have an accountant. After you’ve signed the papers, your accountant can assist you in opening a bank account for your business. Your accountant will use your IBAN to register your company’s activity at the tax office so that you can pay taxes.
Taxes For Businesses In Portugal
Corporate Income Tax (IRC) In Portugal
Limited and incorporated businesses must pay corporate tax in Portugal. Self-employed sole proprietors and partners in partnerships pay income tax instead. Corporate tax in Portugal must be paid in three installments: July, September, and December. The corporate tax rate in Portugal is 21% on taxable profit, which is slightly lower than the European Union average of 21.9%. On their first €25,000 of taxable profit, small and medium-sized businesses pay a reduced Portuguese corporate tax rate of 17% (lower in the Azores and Madeira).
In addition to corporate tax, you must pay a surcharge to your local municipality, which is typically 1.5% of the profit charged by the regional municipality. Other surcharges that may be added to your corporate tax bill include the following:
- 3% state charge on the profit between €1.5 million & €7.5 million (That is 2.1% in Madeira, 2.4% in the Azores)
- 5% surcharge on the profit between €7.5 million & €35 million (That is 3.5% in Madeira, 4% in the Azores)
- 9% surcharge on the profit over €35 million (That is 6.3% in Madeira, 7.2% in the Azores
Corporations pay corporate tax on net profits. Labor costs, marketing costs, insurance, tax planning costs, bills, and so on can all be deducted when calculating profit.
Social Security (TSU) In Portugal
It is mandatory to contribute to Social Security if you have employees. The Portuguese Social Security system also secures citizens’ basic rights and ensures equality of opportunity by providing support measures such as unemployment benefits, paternal leave, and other financial assistance. The Single Social Tax (TSU) is equal to 34.75% of each worker’s gross salary. Companies pay 23.75%, while employees pay 11%. Companies are mandated to pay the social security contributions between the 10th and 20th of the month following the referenced salaries.
VAT (IVA) In Portugal
Self-employed people and businesses that market, produce, or provide services in Portugal are mandated to pay Value Added Tax (VAT) to tax authorities. This is known as IVA in Portugal. Consumers pay VAT when they buy these goods and services. VAT, in essence, is money that the company keeps until the point it has to be returned to the state because it is paid by customers.
Companies with a VAT number in Portugal must submit regular returns detailing their taxable supplies, sales, and costs. Companies with a turnover of €650,000 or more have to submit this monthly, while companies with a turnover of less than €650,00 must submit quarterly. The Monthly VAT returns are due on the 10th business day of the second month when the VAT reporting period goes by, whereas quarterly VAT returns are due on the 15th business day of the third month after the VAT reporting period.
Consider the following VAT rates in Portugal:
- Azores Stats – Normal 16%, Intermediate 9%, Reduced 4%
- Mainland Portugal Stats– Normal 23%, Intermediate 13%, Reduced 6%
- Madeira Stats – Normal 22%, Intermediate 12%, Reduced 5%
The standard VAT rate applies to the majority of taxable goods and services. The intermediate VAT rate applies to food and beverage products and services. The reduced VAT rate applies to necessities such as vegetables, transportation, and medicine.
Work Compensation Fund (Known As FCT) & Guarantee Fund For Work Compensation (Known As FGCT)
These funds, known in Portuguese as the Fundo Compensaço do Trabalho (in short FCT) and the Fundo de Garantia de Compensaço do Trabalho (in short FGCT), were established in 2013 to ensure workers’ right to receive their half of the compensation owed to them in the event of the termination of their employment contracts. Employers must contribute 1% of monthly pay to the FCT and 0.075% to the FGCT for employees hired after October 1, 2013. If an employee chooses to end their contract on their own, the funds are returned to the company.
Financial Assistance For Starting A Company In Portugal
Portuguese agencies offer public financial assistance to lucky companies looking to innovate. Turismo de Portugal encourages innovation and entrepreneurship by providing venture capital, real estate investment, and other services to tourism start-ups. The Portuguese Agency and department for Investment and Foreign Trade are in charge of dealing with all foreign investment projects and selecting projects that best contribute to the economy’s competitiveness and sustainability, such as job creation and GDP growth. Furthermore, the Portuguese government’s Agency for Competitiveness and Innovation (IAPMEI) offers financial incentives and assistance to assist you in starting a business in three main areas:
Corporate And Entrepreneurial Innovation
This assistance encourages innovation investment, qualified entrepreneurship, and the expansion of technology-intensive activities. There are two main benefits. SI Qualified and Creative Entrepreneurship are aimed at small and medium-sized businesses that have been in operation for at least two years. The incentive ranges from 35% to 75%. The SI Productive is designed for businesses of all sizes that are developing new products and services or improving existing ones.
SME Qualification And Internationalism
This assistance aims to increase the competitiveness and productivity of small and medium-sized businesses, as well as their global market presence. It is divided into two systems: individual projects and collaborative projects. The SI Certificate Individual Projects are intended for small and medium-sized businesses of any type, whereas Joint Projects are intended for not-for-profit entities with specific expertise in small and medium-sized businesses. The Individual Project has a €500,000 incentive limit, while the Joint Project has a €180,000 incentive limit multiplied by the number of companies participating.
Research And Technological Development
This assistance fosters relationships between businesses and scientific institutions in order to generate knowledge and accelerate research and development. SI R&D Companies, SI R&D Centres, and SI Industrial Property are the three support systems for companies of any legal form. The SI R&D Companies and Centers assistance seek to invest in increasing a company’s research and development, and the Companies assistance offers a €1,000 incentive. National and international projects that promote the legal registration of industrial property through patents and models are supported by the SI Industrial Property.
Frequently Asked Questions (FAQs) About Starting A Business In Portugal
Can Foreigners Start A Business In Portugal?
You must have your own Portuguese residency card, a tax number (NIF) from the Portuguese tax office, and a social security number to start a business in Portugal. If you are a non-EU/EFTA national and want to start a business in Portugal, you must first obtain a visa and a residency permit. Foreign companies, on the other hand, can establish a branch or subsidiary in Portugal. They must do so by registering the branch office with the Portuguese Registries and Notaries (IRN) as well as the branch or subsidiary with the Commercial Registry Office.
What Is The Cost Of Starting A Business In Portugal?
A company can be formed for €360 and can be done online or at Registries and Notaries (IRN). There are additional expenses. For example, when you register your company’s name using a Validation Certificate known as Certificado de Admissibilidade, you must pay €75. You must also hire a Certified Accountant to prepare and file your tax returns. This is usually at least €100 per month.
What Taxes Do Companies Pay In Portugal?
Here are the taxes that businesses in Portugal must pay:
- Corporate Tax (IRC): The corporate tax rate in Portugal is 21% on taxable profit, which is slightly lower than the European Union average of 21.9%. On their first €25,000 of taxable profit, small and medium-sized businesses pay a reduced Portuguese corporate tax rate of 17% (lower in Madeira and the Azores). You must also pay a surcharge to your local municipality, which is typically 1.5% of the profit charged by the regional municipality.
- VAT: In mainland Portugal, the VAT rates are 23% (normal), 13% (intermediate), and 6%. (reduced). Consumers pay VAT when they buy these goods and services.
- Social Security (TSU): The Single Social Tax (TSU) is 34.75% of each worker’s gross salary. Companies pay 23.75%, while employees pay 11%.
- Work Compensation Fund (FCT) and Guarantee Fund for Work Compensation (FGCT): These ensure that workers receive half of the compensation owed to them in the event that their employment contracts are terminated. Employers must contribute 1% of monthly pay to the FCT and 0.075% to the FGCT for employees hired after October 1, 2013.