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Doing business Portugal 2019


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Doing business Portugal 2019

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Doing business Portugal 2019

  1. 1. Doing Business in Portugal 2019
  2. 2. Why Portugal? • Major investments from global leading companies, creating tech, innovation and R&D hubs in Portugal • Multiple government initiatives for start-ups, the 2017 Report from the Startup Europe Partnership states that the start-up ecosystem in Portugal is growing at a rate twice as fast as the European average • Web Summit (the biggest tech conference in Europe) for three consecutive years • Highly qualified workforce including many university degrees in science and technology areas • Low operating costs with a highly educated population (70% of which speak at least one foreign language, accordingly to an inquiry done by the Statistics Portugal in 2017), a skilled but cost efficient labor force (50% of the EU average cost) • Highly developed infrastructure and communications networks • A potential gateway to a market of more than 250 million people in the Portuguese speaking countries and communities, as well as the EU market • Accordingly to the 2018 Global Peace Index, Portugal is the world’s 4th safest country (after Iceland, New Zealand and Austria, none of them with such a good weather and low cost of living)
  3. 3. Economy Outlook • GDP Growth (2018) 2.16% • Exports/GDP (2018): 44% • Exports Growth (2017-2018): 5.3% • Unemployment rate (Q4 2018): 6.7% • Annual inflation rate (2018): 1% • Foreign Direct Investment (2018): €118.6 billion
  4. 4. Starting a Business There are two easy ways of starting a business in Portugal: • "On the Spot Firm" (Empresa na Hora) This is currently the most common way to register a business. This service enables to set up a company in less than an hour at a single contact point • "Online company setting up” (Empresa Online): This service enables to set up a company through the Internet in 1 to 2 days
  5. 5. Most Usual Types of Companies Type Description Capital Responsibility PRIVATE LIMITED LIABILITY COMPANY (Sociedade por Quotas – Lda.) Most common in Portugal. It is usually chosen by foreign investors who want to set up a small business in Portugal At least two shareholders There is no minimum capital but each share cannot be less than 1 euro No personal liability of shareholders PUBLIC LIMITED LIABILITY COMPANY (Sociedade Anónima – S.A.) Investors who want a medium or large sized company choose this type of structure At least five shareholder Minimum capital of 50,000 euro No personal liability of shareholders. Companies with one sole shareholder, liability of shareholder may be triggered SINGLE SHAREHOLDER ENTITIY 1 (Sociedade Unipessoal por Quotas) When only one person decides to set up a company in Portugal Single shareholder Minimum capital of 1 euro (share value) There is no personal liability for the shareholder Except if there is evidence that the shareholder didn’t comply with some requirements BRANCH When a foreign company wants to operate in Portugal without its own separate legal entity Not applicable Liability rests with the foreign company 1 There are other forms for an individual to act as a sole trader but this is the only form to separate the shareholder personal assets from the business assets.
  6. 6. Tax System The principal taxes in Portugal are: • Corporate income tax (IRC) • Personal income tax (IRS) • Value added tax (IVA) • Property Taxes (IMT, IMI, AIMI) • Other relevant Taxes
  7. 7. Corporate Income Tax (IRC) This tax is applied on the income of resident companies independently of the place where it was obtained The standard tax rate is 21% (20% for Madeira Islands and 16,8% for Azores IslandS) Small and Medium entities can have a reduced tax rate of 17% for the first € 15,000 of taxable income (13% for Madeira and 13,6% for Azores Islands) - the income above this threshold is subject to the standard tax rate For resident entities and permanent establishment of non resident entities is also charged: • Municipal surtax (“derrama municipal”) up to 1.5% levied on taxable profits (depending on the municipality of the activities) • State surtax (“derrama estadual”) • 3% on taxable profits exceeding € 1.5 million up to € 7.5 million (Azores: 2,4%; Madeira: 2,5%), • 5% on taxable profits exceeding € 7.5 million up to € 35 million (Azores: 4%; Madeira:4,5%) and • 9% on taxable profits exceeding € 35 million (Azores: 7,2%; Madeira: 8,5%)
  8. 8. Non-Resident Entities Benefits (IRC) Withholding tax exemption • It is possible, under certain conditions, to benefic of a withholding tax exemption on the profits and shares placed on disposal by a company considered as being tax resident in Portugal to another entity tax resident on the European Union, EEE or other Contract State with whom Portugal has already signed a Double Tax Treaty (77 countries at the present1) Participation Exemption Regime • Dividends as well as capital gains arising from the disposal of shares or other corporate rights and securities in other companies are exempt from corporate tax on condition that some requirements are cumulatively met Interest on Loan • Interest on loans granted by non-resident financial institutions to resident credit institutions are exempt from CIT Interest of long-term deposits • Interest deriving of long-term deposits when made by non-resident financial institutions are exempt from CIT Interest from public and private bonds • The income from bonds with a maturity longer than one year and listed in a liquidation centralized clearing system could be exempt 1 Photo by Matthew Foulds on Unsplash
  9. 9. International Business Center of Madeira (IBCM) The present tax regime allows the incorporation of new entities within the legal framework of the International Business Centre of Madeira (IBC) until the end of 2020, granting a reduced corporate tax rate of 5%, applicable on the taxable income. This tax rate is guaranteed until 2027 if they create a minimum number of new permanent jobs (this number depends on the company’s taxable income) and also comply with a number of other conditions Besides the tax benefits for non residents mentioned before, other tax benefits also include: • Madeira's IBC companies qualify for the Portuguese participation exemption regime already mentioned if they own at least a participation of 10% of the shareholding (or voting rights) of an associated company that is held more than 12 consecutive months, among other requisites • Exemption from withholding tax on dividends paid to shareholders not resident in black listed jurisdictions • Exemption from withholding tax royalties, service fees and interests paid to third parties • Besides the 5% of reduced rate until 2027, licensed industrial companies may also benefit from a 50% reduction in the taxable income under certain conditions • 80% of reduction in stamp duty (IS), municipal property transfer tax (IMT), municipal property tax (IMI), regional and municipal surtax as well as any other local taxes, under certain conditions Madeira offers also a good package of conditions to foreign companies: great infrastructures, efficient local support services and low operational costs
  10. 10. Personal Income Tax (IRS) This Tax is applied on worldwide income of individuals resident in Portugal for tax purposes Tax residence: being in the Portugal for over 183 days of any 12-month period which begins or ends in that tax year. Tax residency is presumed if the individual owns a home in Portugal Tax rate: General income (such as employment income or business income) is subject to a progressive tax. There is also a special regime for non habitual residents (see next page) Income such as interest income, rents, royalties, commissions or dividends are taxed at a maximum rate of 28%
  11. 11. Since 2009 Portugal has a beneficial voluntary Personal Income Tax (IRS) regime for non habitual residents in order to attract talent in high added value activities and their families to Portugal This is accessible to all individuals: a) That become tax residents in Portugal but it is mandatory that they were not Portuguese tax residents in the previous 5 years, and b) In order to be considered tax resident, the individual should have remained in Portugal for more than 183 consecutive or non-consecutive days, or having remained for less time, having, at 31st December of that year, a home in such conditions that would lead to the assumption that it is intended to be kept and occupied as his habitual residence Portuguese Source Employment Income The status is granted for a period of 10 consecutive years during which the income (employment or self- employment) will be subject to a reduced 20% in Personal Tax rate (IRS), applicable to income from a Portuguese source derived from high added value activities of a scientific, artistic or technical nature Non Portuguese Source of Income Employment income could be exempt from Personal Tax if it is taxed in the origin country under an existing Tax Treaty (or if there is no tax treaty applicable, the income where taxed in the origin country) Other types of income could also be exempt from Personal tax if it are not considered derived from Portugal and not obtained in a tax haven Tax regime for non habitual residents (IRS) Photo by Kamile Leo on Unsplash
  12. 12. VAT is applied on most goods and services, intra-Community acquisitions and imports made by traders or professionals Portuguese VAT rules are based on regulations drawn up by the EU The standard Portuguese VAT rate is currently 23% in mainland although there is two other tax rates (13% and 6%) applied in specific type of goods or services Portugal has implemented legislation to harmonize with EU simplification directive, as the following: • there is no obligation to register for VAT or appoint a fiscal agent in Portugal if the taxable person is established in a Member State (other than Portugal) • if the taxable person is registered in Portugal, the acquisition is taxable as an intra-Community acquisition under the Portuguese VAT registration number Value Added Tax (IVA)
  13. 13. Municipal property transfer tax (IMT) Applicable on the transfer of real estate property located in Portuguese territory. Such transfers may also be subject to the stamp tax (see below IS): • Urban properties used exclusively for habitation: between 0% and 6% (maximum progressive rate) • Rural properties: 5% • Other acquisitions: 6.5% Municipal property tax (IMI) Individuals or legal entities who are owners, surface owners or beneficial owners of property, on 31 December of each year, irrespective of their tax residency, are subject to Municipal property tax (IMI), at the following rates: • Rural property: 0.8% • Urban property: 0.3% to 0.5%, depending on the municipality where the property is located Additional to the municipal property tax (AIMI) In some circumstances, additional to the municipal property tax (AIMI) might also be due by individuals or legal entities who are owners, surface owners or beneficial owners of property, on 31 December of each year, irrespective of their tax residency over the sum of all properties held in Portugal Deductions/Exceptions to AIMI: • Urban properties with “commercial, industrial or services” or “others” classification • Privates Individuals and undivided inheritances have a deduction of € 600,000 to the taxable basis Tax rates • Private individuals and inheritances: 0.7% (1% when the sum of all properties is between € 1.000.000 and € 2.000.000 and 1.5%when above € 2.000.000) • Companies: 0.4% • Companies holding properties used as residency of members of their corporate bodies: the same rates of private individuals and inheritances apply Property Taxes
  14. 14. Stamp duty tax (IS) Due on acts, contracts, documents, books, papers and other transactions established in the general stamp tax table, including the acquisition, for no consideration, of goods by an individual (gift or inheritance), taking place in Portugal and not subject to or exempt from value added tax (VAT) The tax rates are defined in a tax table for each type of fact. Vehicle tax (Portuguese ISV) Tax paid when registering a vehicle for private use. The taxable base is determined from the engine displacement and the carbon dioxide (CO2) emissions level. Annual road tax (Portuguese IUC): Tax paid for owning a passenger vehicles and vehicles used for mixed passenger and goods transport, vehicles used for private transport of goods and for transport services, motorcycles, boats and private aircrafts. The final tax payable varies in accordance with the vehicle engine displacement and CO2 emissions level Social Security Contributions The social security contribution rate in Portugal is 11% for employees and 23.75% for employers, based on the salary. There is no maximum contribution. There are rate reductions for employers if some conditions are met in order to the reduce the unemployment rate Other Relevant Taxes
  15. 15. Labor and Employment Regulation Portuguese Labor Code and collective labor agreements and other European and international regulations Types of contracts: • Indefinite-term • Fixed-term • Sporadic work or Part-time • Remote work • Temporary (fixed or indefinite-term) Salary For full time work may not be less than the minimum wage (€600 gross paid monthly with two extra payments yearly – Vacation and Christmas) Vacation 22 business days (although more vacation days may be settled in the collective labor agreement)
  16. 16. Disclaimer & Contacts This Doing Business contains general information existing at the time of its preparation only. It is intended as a point of reference and is not intended to be comprehensive or provide specific accounting, business, financial, investment, legal, tax or other professional advice or opinion or services. This publication is not a substitute for such professional advice or services, and it should not be acted on or relied upon or used as a base for any decision or action that may affect you or your business. Before making any decision or taking any action that may affect you or your business, you should consult us or other qualified advisor. Whilst every effort has been made to ensure the accuracy of the information contained in this guide, this cannot be guaranteed, and neither Esteves, Pinho & Associados, SROC nor any related entity shall have any liability to any person or entity that relies on the information contained in this publication. Any such reliance is solely at the user’s risk. May, 2019 Esteves, Pinho & Associados, SROC is an independent member of BKR International ( For further information relating the content of this document please contact: Rui Pinho: Rui Ribeiro: