What are the key legal requirements for establishing a business entity in Portugal?
The legal requirements for the establishment of a business/local presence in Portugal have become simpler over the past few years. In the case of investments undertaken by means of the incorporation of companies in Portugal, the investors may rely on two different simplified procedures: (i) the on-the-spot company incorporation, and (ii) the online company incorporation.
Both abovementioned simplified methods aim at the (almost) immediate incorporation of the company. One of the underlying reasons for such a swift procedure is that investors are limited to choosing from a list of pre-approved models of articles of association for the company to be incorporated. The online company incorporation has the benefit of allowing the investor to complete all the registration procedures by submission of the relevant data and documentation on an online portal created specifically to that end.
It is worth mentioning that investors may also resort to the traditional procedures for the incorporation of companies, which are often used for more complex investment structures and completed with the assistance of a lawyer.
Foreign legal entities intending to incorporate a company in Portugal or acquire a shareholding interest in a Portuguese company are required to obtain a legal entity identification number (NIPC) and, in the case of UK-based foreign investors, are also required to appoint a tax representative in Portugal.
Prior to being appointed, the directors of the Portuguese company are required to obtain a taxpayer number (NIF).
Finally, it is also worth noting that all companies incorporated in Portugal are required to comply with the ultimate beneficial owner (UBO) requirements.
What are the different business structures available in Portugal, and what are their advantages and disadvantages?
One of the main features of the Portuguese corporate law is that companies are subject to a principle of limitation of liability, which means that the liability of its shareholders is limited its contributions to the share capital. However, we note that exceptions apply to this rule, in specific cases.
The two types of companies that are usually incorporated are (a) limited liability companies by shares (sociedades anónimas or ‘SA’), and (b) limited liability companies by quotas (sociedades por quotas or ‘SQ’). The main differences between these two types of companies are the following:
(i) minimum number of shareholders – five for SA companies and two for SQ companies;
(ii) minimum share capital – €50,000.00 for SA companies and €2.00 for SQ companies;
(iii) management and auditing structure – SA companies are managed by one or more directors – a board of directors is mandatory for SA companies with a share capital higher than €200,000.00 – and must include an auditing body in its corporate structure. SQ companies’ management may be executed by one or more directors and the appointment of an auditing body is not mandatory (as a general rule, although exceptions apply).
SA companies are usually used for more complex structures and, due to their corporate structure, the costs related to their operations are higher than the ones of SQ companies, which have a simpler corporate structure.
Foreign investors may also incorporate (single) sole shareholder limited liability companies (sociedades unipessoais), either by shares (SAU) or by quotas (SQU). SAU companies may only be incorporated by other legal entities (eg, SA, SQ or SQU companies). SQ companies may have as sole shareholder a legal or natural person. However, the following restrictions apply for:
(a) a natural person can only be the sole shareholder of one SQU; and
(b) a SQU cannot have an SQU as its sole shareholder.
Can you provide an overview of the tax system in Portugal and its implications for foreign businesses?
The Portuguese tax system offers an attractive income tax regime to wealthy individuals as well as to international professionals wishing to establish tax residency in Portugal. The non-habitual tax resident (NHR) regime entails the application of a favourable personal income tax (PIT) regime for a ten year period for those who become tax resident in Portugal whilst not having been considered as such in the previous five years.
Provided specific conditions are met, the NHR regime foresees a PIT exemption on foreign source income (eg, dividends, interest, royalties as well as rental income), as well as a reduced 20% taxation of income from employment and independent personal services resulting from the performance of listed high value-added activities in Portuguese territory. In
addition, foreign pension income is liable to a 10% flat rate.
To be granted with the NHR status one needs first to be registered as tax resident in Portugal. For purposes of becoming tax resident in Portugal, the PIT Code establishes, amongst others, that an individual needs to (i) stay for more than 183 days in the Portuguese territory, consecutive or not, in any 12-month period or (ii) have on any day of the period referred above, a house in the Portuguese territory under circumstances that lead to the presumption of an intention to hold and occupy it as usual residence.
After becoming tax resident and, consequently, obtaining a Portuguese tax identification number, the individual needs to apply for registration as NHR by submitting an application on the tax authorities’ website until 31 March of the tax year following that in which Portuguese tax residence is acquired. This application must be accompanied by a statement whereby the individual solemnly declares that he/she has not been considered a Portuguese tax resident during the preceding five years.
In addition, it is also worth noting that gifts and inheritances between spouses, ascendants and descendants are tax exempt and that Portugal does not apply wealth taxes on large estates or fortunes.
What are the labour laws and employment regulations in Portugal that foreigners should be aware of?
The current regime for entry and exit into Portugal is Regulation (EU) 2018/1806 of the European Parliament and of the Council of 14 November 2018, which contains the list of third countries whose nationals are exempt from the visa requirement when crossing the external borders of the member states for stays of no more than 90 days in any 180-day period. British citizens who want to work in Portugal must fulfil the requirements of a foreign national to work in Portugal, so they will need:
(a) short-term visas;
(b) temporary stay visas;
(c) residence visa;
(d) and residence permits.
Regarding the hiring regime in Portugal, the types of employment contracts existing are the following: i) permanent contract; ii) fixed-term contract (fixed-term or uncertain-term); iii) short-term contract; iv) part-time contract; and temporary contract.
As general rule, the employment contracts may be terminated by:
ii) mutual agreement;
iii) dismissal due to a fact attributable to the employee;
iv) collective dismissal;
v) dismissal due to the extinction of the job position;
vi) dismissal due to unsuitability;
vii) termination by employee based on facts attributable to the employer;
viii) termination by himself employee (ie regardless of just cause).
As a final note, we underline that, as a rule, the termination of contracts must comply with the formalities, procedures and deadlines established by law. Exemplifying, in the case of fixed-term contracts, the employer must notify the termination of contract with at least 15 days in advance. In the case of contracts with uncertain term, the employer must observe the following deadlines: i) seven days, in the case of contracts of less than six months; ii) 30 days, in the case of contracts of six months and up to two years; and iii) 60 days, in the case of contracts lasting more than two years.
Are there any specific permits or licenses required for certain types of businesses in Portugal?
Yes. Companies that intend to operate in specific sectors of the economy are required to obtain specific permits or licenses from the Portuguese authorities. Below are listed the main sectors in which specific permits or licenses are required:
(b) financial activities and insurance;
(c) real estate activities;
(d) manufacturing and extractive industries;
(e) agriculture, livestock, hunting, forestry and fishing; or
(f) transport and storage goods.