Starting a Business in Portugal: A Step-by-Step Guide for Foreign Entrepreneurs
Portugal has emerged as an attractive destination for entrepreneurs and investors in recent years, known for its business-friendly environment, strategic location, and high quality of life.
With the growth of Portugal’s start-up ecosystem, especially in Lisbon and Porto, foreign entrepreneurs are increasingly interested in establishing their businesses here.
Whether you’re drawn by the low cost of living, the skilled workforce, or Portugal’s strategic access to the EU market, this guide provides a comprehensive overview of the steps and considerations for starting a business in Portugal.
1. Understanding the Business Climate in Portugal
Portugal’s business landscape is known for its innovation-friendly policies and supportive initiatives for startups, particularly in technology, renewable energy, and tourism. In recent years, Portugal has introduced tax incentives, grants, and even residency programs to encourage foreign investment.
Programs like the Golden Visa and D7 Visa allow entrepreneurs and investors to establish residency, making it easier to build and manage a business.
With Portugal’s skilled, multilingual workforce and access to European markets, the country provides an ideal environment for launching new ventures. Furthermore, Portugal’s stable political environment and expanding digital infrastructure make it a prime location for both startups and traditional businesses.
2. Types of Business Entities
Choosing the right legal structure for your business is a crucial first step. In Portugal, several types of business entities are available, each with its advantages and limitations:
- Sole Proprietorship (Empresário em Nome Individual): Suitable for small businesses and freelancers, this option is easy to set up but does not limit personal liability.
- Single-Member Private Limited Company (Sociedade Unipessoal por Quotas): This option provides limited liability, and only one person is required to establish the business, making it a popular choice among foreign entrepreneurs.
- Private Limited Company (Sociedade por Quotas or LDA): This is one of the most common business structures, where two or more shareholders have limited liability based on their investment. It is often chosen by small and medium-sized enterprises (SMEs).
- Public Limited Company (Sociedade Anónima or SA): For larger businesses or companies planning to go public, this structure requires a minimum of five shareholders and a substantial share capital.
- Branch or Subsidiary: If you already have a business abroad and want to expand into Portugal, you can establish a branch (sucursal) or subsidiary (filial). A branch operates as an extension of the parent company, while a subsidiary is an independent entity with limited liability.
3. Registering Your Business
The process of starting a business in Portugal involves several registration steps:
- Choose a Company Name: Verify the availability of your desired company name by checking with the Portuguese Institute of Registries and Notaries (IRN). You can reserve the name if it’s available, which is valid for 48 hours.
- Get a Portuguese Tax Identification Number (NIF): To start a business in Portugal, all founders need a NIF, which is a Portuguese tax number. Non-residents can obtain this through a fiscal representative in Portugal.
- Open a Business Bank Account: You’ll need to open a bank account in the name of your business to deposit the minimum share capital required for registration, which varies by business structure.
- Draft the Articles of Association: For limited companies, prepare and notarize the Articles of Association (Contrato de Sociedade), outlining the company’s name, address, purpose, and structure.
- Register Your Company: Portugal offers the Empresa na Hora service, which allows you to register a business within an hour at a designated office or online. This includes registering with the Commercial Registry, Social Security, and the Portuguese Tax Authority.
Once these steps are complete, you will receive a company registration certificate, tax registration number, and a social security number for the business.
4. Tax Obligations and Incentives
Portugal has a corporate tax rate of 21%, with reduced rates for small and medium-sized enterprises (SMEs) in some regions. For example, the first €25,000 of profit is taxed at a reduced rate of 17% for eligible SMEs. Additionally, there is a value-added tax (VAT) of 23%, although lower VAT rates apply to certain goods and services.
The Portuguese government offers several incentives for businesses, especially in innovation, renewable energy, and technology sectors. These include:
- Non-Habitual Residency (NHR) Program: This program offers significant tax benefits for foreign residents, including a flat 20% income tax rate for qualifying professionals and exemptions on some foreign-sourced income.
- R&D Tax Credits: Businesses engaged in research and development can access tax credits through the Sistema de Incentivos Fiscais em Investigação e Desenvolvimento Empresarial (SIFIDE) program.
- Golden Visa Program: For entrepreneurs who invest a certain amount in Portugal, this program provides residency, and eventually, a path to Portuguese citizenship.
5. Employment Regulations and Hiring
Portugal has a skilled and multilingual workforce, particularly in urban centers like Lisbon and Porto. When hiring employees, it’s essential to understand Portugal’s labor laws, which include:
- Work Hours and Overtime: The typical workweek is 40 hours, and any overtime must be compensated as per legal requirements.
- Minimum Wage: Portugal has a national minimum wage, which is updated annually. Currently, it is one of the lower minimum wages in Western Europe, making it attractive for labor-intensive businesses.
- Employment Contracts: Contracts can be fixed-term, part-time, or permanent. Portuguese law provides strong protections for employees, especially regarding job security and severance.
- Social Security and Health Insurance: Employers are required to contribute to the social security system for their employees. Portugal’s public healthcare system is funded through these contributions, but additional private health insurance is common and often offered as a benefit.
6. Setting Up Operations and Finding Office Space
Depending on the type of business, Portugal offers various options for office space and facilities:
- Coworking Spaces: Portugal’s start-up ecosystem is thriving, and coworking spaces are popular, especially in Lisbon and Porto. Spaces like Second Home and Impact Hub provide networking opportunities with other entrepreneurs.
- Commercial Real Estate: Renting office space or retail property in Portugal is relatively affordable compared to other Western European countries. The cost depends on the location, with Lisbon and Porto being the priciest.
- Industrial Zones and Tech Parks: For manufacturing or tech-based businesses, Portugal has dedicated industrial zones and technology parks with infrastructure support and often access to funding programs.
7. Navigating Portuguese Business Culture
Understanding Portuguese business culture can help you build relationships and navigate negotiations more effectively:
- Personal Connections Matter: Building personal relationships is essential in Portugal. Networking and trust are often prioritized, so take the time to establish rapport with business partners.
- Patience and Flexibility: Decision-making may take time, as Portuguese culture places a high value on careful consideration and consensus.
- Formality in Business Settings: Portuguese businesspeople value politeness and professionalism. Initial meetings can be formal, with dress codes and titles being respected. Over time, as relationships develop, interactions may become more relaxed.
8. Useful Resources and Support for Entrepreneurs
Portugal has several resources to support new businesses and foreign entrepreneurs, including:
- IAPMEI (Agency for Competitiveness and Innovation): This government agency provides support for SMEs, including training, funding, and advisory services.
- Startup Portugal: A national organization that promotes the growth of Portugal’s start-up ecosystem, offering networking events, funding opportunities, and mentorship.
- AICEP Portugal Global: This trade and investment agency provides support for foreign businesses setting up in Portugal, including guidance on regulatory requirements and market entry.
- Local Chambers of Commerce: Joining a chamber of commerce can provide valuable networking opportunities and resources for foreign business owners.
Conclusion
Starting a business in Portugal offers foreign entrepreneurs access to a vibrant, supportive environment with a high quality of life and extensive growth opportunities. By following these steps, understanding local regulations, and taking advantage of available resources, foreign business owners can successfully launch and grow their enterprises in Portugal. With a focus on innovation, a strategic location, and a welcoming culture, Portugal is a promising choice for business owners ready to make their mark in Europe.