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Home » Countries » Europe » Portugal

Global expansion is a step to make for any business, regardless of what you wish to achieve. The opportunities that can come with an expansion can be both incredibly exciting as well as intimidating and confusing, especially when you consider all of the registration procedures that needs to be done and documentation required.

Expanding to countries such as Portugal – which is characterized by a highly-skilled, productive, and international workforce, complex employment and tax laws, an integrated infrastructure network linking to Europe, Africa, and beyond, as well as leading sectors in services, industry and manufacturing, exports, and agriculture – can bring both excitement to the possibilities, but also significant stress to ensuring the entity with the country’s rigorous legal structures and laws.

Ensuring compliance without the sufficient knowledge of the country’s laws also adds to the stress of getting your new entity off the ground and ready to test new markets. Going at it without the proper support can increase the costs, time and risks involved.

Each new markets bring new challenges, and these can be worked through more efficiently and cost-effectively with the support of an International Professional Employer Organization (PEO) such as Bradford Jacobs, especially through our Employer of Record (EOR) framework. This can be best utilized when businesses are just beginning their expansion process and require more information before committing to incorporating an entity and fully establishing themselves in that market.

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Portugal – The Economy

Portugal is a developed country with an advanced economy and high living standards. Additionally, it ranks highly in peacefulness, democracy, press freedom, stability, social progress, prosperity, and English proficiency. The economy of Portugal is ranked 34th in the World Economic Forum’s Global Competitiveness Report for 2019.

The great majority of the international trade is done within the European Union (EU). Other regional groups that are significant trade partners of Portugal are the NAFTA (6.3% of the exports and 2% of the imports), the PALOP (5.7% of the exports and 2.5% of the imports), the Maghreb (3.7% of the exports and 1.3% of the imports) and the Mercosul (1.4% of the exports and 2.5% of the imports).

Portugal is home to a number of notable leading companies with worldwide reputations, such as The Navigator Company (a major world player in the international paper market); Sonae Indústria (the largest producer of wood-based panels in the world); Corticeira Amorim (the world leader in cork production); Conservas Ramirez (the oldest canned food producer); Cimpor (one of the world’s 10th largest producers of cement); and EDP Renováveis (the 3rd largest producer of wind energy in the world).

The Portuguese currency is the euro (€), and the country has been a part of the Eurozone since its inception. Portugal’s central bank is the Banco de Portugal, which forms part of the European System of Central Banks, and the major stock exchange is the Euronext Lisbon, which belongs to the NYSE Euronext, the first global stock exchange. Portugal is a member of the United Nations, the European Union, the Schengen Area, and the Council of Europe (CoE), and was also one of the founding members of NATO, the eurozone, the OECD, and the Community of Portuguese Language Countries.

Small and Medium-Sized Companies

SMEs account for 68.3% of value added and for more than three quarters – 77.4% – of employment in Portugal. Both are some 10 percentage points higher than the respective EU average for SMEs.

Portuguese SMEs employ an average of 2.9 people, which is roughly one person less than the EU average.

The percentage of micro-enterprises in the total business population is higher in Portugal (95.4%) than the EU average (93%). The two most important SME sectors, manufacturing and wholesale and retail trade, together generate nearly half of all SME employment and value added.

The annual productivity of Portuguese SMEs, calculated as value added per person employed, is around €22,900, only slightly more than half the EU average other factors, the definition of SMEs is different in the United States and the European Union.

CountryPortugal (Portuguese Republic)
No. of States/Provinces7 provinces (Alentejo, Algarve, Beira, Douro, Litoral, Estremadura, Minho, Ribatejo, and Trás-os-Montes)
Principal CitiesLisbon, Porto, Amadora, Braga, Setúbal, Coimbra, Queluz, Funchal, Cacém & Vila Nova de Gaia
Local CurrencyEuro (EUR)
Major ReligionRoman Catholic
Date Formatdd/mm/yyyy
Time ZoneWestern European Time (GMT+1)
Country Dial Code+351
Population10.1 million
Border Countriesthe Atlantic Ocean (west), the Gulf of Cadiz (south), and Spain (north and east).
Tax Year1 January to 31 December (calendar year)
VAT %23%
Minimum Wage€822.5 per month
Taxpayer Identification NumbersIndividual Tax Identification Number – NIF (Número de Identificação Fiscal)
Social Security Number – NISS (Número de Identificação de Segurança Social)
Company Tax Identification Number – NIPC (número de identificação de pessoa colectiva)
VAT Number
Leading Sectorsservices, industry (mainly machinery, automotive and ship parts, textiles, refined oil goods, plastics, food products, and beverages) agriculture, and exports
Main importsCars, Crude Petroleum, Vehicle Parts, Packaged Medicaments, and Petroleum Gas
Main exportsCars, Vehicle Parts, Refined Petroleum, Leather Footwear, and Packaged Medicaments
Main trading partnersSpain, France, Germany, United Kingdom, United States, Netherlands, and Italy
Government TypeUnitary semi-presidential republic
Current Prime MinisterMarcelo Rebelo de Sousa (President), António Costa (Prime Minister)

The Main Sectors of the Portuguese Economy

Portugal focuses on the following key sectors, which all have a significant impact on the country’s economy:

  1. Agriculture – More than half (50.8%) of continental Portugal is dedicated to agriculture – grain, potatoes, tomatoes, olives, grapes; sheep, cattle, goats, swine, poultry, dairy products; fish. The north has a miscellaneous agricultural type (except for the Douro Valley), while the south has developed an extensive monoculture on cereals and olive trees.

    Wheat (3,000 sq km) and corn (2,680 sq km) are produced in vast areas, followed by barley, potatoes, and rice. Larger plantations are the vineyards with 3,750 sq km, but the olive trees have the larger area of about 4,000 sq km.

    In 2020, the share of agriculture in Portugal’s gross domestic product was 2.11 percent, and its share in employment was 5.7%.

  2. Services – The majority of working residents in Portugal are employed in the services sector. The services sector accounts for around 75.3% of GVA and 70.1% of employment.

    Portugal has around 450 companies working in the services sector generating a turnover of 1.3-billion-euro which represents about 1% of total GDP. Among these companies are well known leading brands like Cisco that already has 3 service centers based in Portugal.

  3. Manufacturing – Portugal has a diverse manufacturing industry. It produces a number of cars and car parts, with factories focused on automobile and automobile parts production primarily concentrated in and around the cities of Lisbon, Porto, Setubal, Braga, and Aveiro.

    Investors and business owners in Portugal have also turned toward more technology-based products. Goods like computer software and pharmaceutical products are now also being produced with factories primarily located in the cities of Oeiras and Coimbra.

    Other more modern industrial products being manufactured in Portugal today include the following industries: information technology, biotechnology, and aerospace technology.

    Value added in Portugal was reported to be 11.86% of total GDP in 2020, as well as an approximate of 25% of total employment.

  4. Culture and Creative Industries – This can form part of the services sector, but it is worth pointing out that Portugal has a world-renowned reputation for its creativity and culture.

    Books, movies, music, architecture, design, painting – the Portuguese create magnificent works that break the status quo and change perspective. The Portuguese Cultural and Creative Industries surprise the artistic community and are often invited to participate in world-class events.

  5. ICT (Information and Communications Technology – The Portuguese National ICT Sector is a highly innovative and dynamic sector, which already represents nearly 10% of the Portuguese GDP, reaching almost 20 Billion US$ in total turnover, according to latest data available from the National Portuguese ICT Cluster, TICE. It also employs over 80,000 people.

  6. Transport & Logistics – Portugal logistics and warehousing market has witnessed positive growth over the past few years owing to increase in investment by the government for development of logistics infrastructure, growing E-commerce, and rising exports. Transport and logistics represents 6.5% of employment and 4.3% of GDP in the services sector.

Compliance Highlights

  • Portuguese Tributary and Customs Authority (Autoridade Tributária e Aduaneira) – The Tributary and Customs Authority (AT) is a body of the Ministry of Finance of Portugal, which started its activities on the 1st of January 2012, and results from the merger of DGCI – Directorate General of Taxes (former Directorate General of Contributions and Taxes), DGITA (General Directorate of Informatics and Support to Tax and Customs Services) and DGAIEC (General Directorate of Customs and Special Consumption Taxes), succeeding in all the attributions and powers of these Directorates-General.

    This body administers taxes, customs duties, and other taxes in Portugal, as well as exercises control of the external border of the European Union and the national customs territory.

  • The Authority for the Work Conditions (ACT) – promotes the improvement of working conditions through policies on the prevention of occupational hazards and by controlling the compliance with labor standards and laws concerning health and safety at work in all activity sectors, as well as in central and local administration services, including public institutes.

    ACT is under the direct administration of the Ministry but endowed with administrative autonomy in all mainland territory.

Payroll – Tax Contributions and Benefits

Income Tax:

NOTE: There is a tax-free allowance of €4,104 (US$4,657), and earnings below this do not attract tax.

Tax liability depends largely on residency. Residents pay tax at progressive rates on their worldwide income in six categories – employment income, self-employed income, investment income, rental income, capital gains and pensions.

Non-residents pay at a flat rate of 25% on income earned in Portugal. Individuals become tax residents by spending 183 days – not necessarily consecutive – in any 12-month period, or by owning or maintaining a property in Portugal, regardless of how many days are spent in-country. Married couples or registered couples can make either joint or individual returns, but in the latter case both must name dependents on their returns.

Health and Social Insurance: Portugal’s Ministry of Employment and Social Solidarity oversees the Social Security Institute (Instituto de Segurança Social), which handles social welfare issues. Healthcare is implemented by the National Health Service (Servico Nacional de Saude, SNS) which comes under the Ministry of Health (Ministério de Saude). Additionally, social health insurance schemes operate in certain sectors as well as private health insurance options. The universal system is provided regionally by Social Security District Centers (Centros Distritais de Segurança Social, CDSS).

Both the employer and the employee enrolled in the social security system are required to pay contributions. The rates generally applicable are 23.75% for employers and 11% (deducted at source from gross pay) for employees. Payments cover family benefits, unemployment assistance and pensions.

The self-employed have to pay monthly contributions at a rate of 25.4% of their declared income (if covered by the compulsory protection scheme alone) or 32% (if they opt for the broad protection scheme) of the pay scale chosen by them.

Sick Leave and Benefit in Portugal: The Portuguese Social Security Institute (Instituto de Segurança Social) pays sickness benefit for those employees unable to work through sickness or incapacity. Beneficiaries must have been employed for a minimum of six months (consecutively or in parts) before claiming benefit, which can be for a maximum of 1,095 days. Benefit is calculated as follows on the employee’s salary and number of sick days:

  • 55% – up to  30 days sick leave
  • 60% – between 31 and 90 days
  • 70% – between 91 and 365 days
  • 75% – over 365 days

For full-time employees benefit cannot begin until after the third day; for the self-employed or beneficiaries of a voluntary social insurance scheme the waiting period is 30 days. Sickness must be validated by a doctor or the health services supplying a ‘Temporary Invalidity Certificate (CIT) to the social services, the employer, and the employee. Employees must undergo medical examinations as and when required by the Disability Verification Service (SIV) and they are also restricted as to when they can leave their home while on sick leave.

Paid Vacations: The Labor Code provides a minimum of 22 paid vacations days in a calendar year, after completing one year’s service. They should be taken in that year but can be delayed until April 30 of the following year in special circumstances.

During the first year of work, employees are allowed a maximum of 20 days. In addition to receiving their normal salary, employees also receive a ‘vacation subsidiary’ as a 13th month salary payment. Collective agreements may provide for better entitlements.

Public Holidays: Portugal has 13 national public holidays. Employees who are required to work on a public holiday in workplaces that are not allowed to suspend their operation are entitled to compensatory rest lasting half the number of hours worked or to a premium of 50% of the corresponding remuneration, the choice being up to the employer.

Overtime is paid for the hourly wages, at 50% for each hour or fraction, for work on a holiday. An employee who provides overtime work on a mandatory holiday is also entitled to a compensatory rest day in addition to remuneration, to be taken on one of the following 3 working days.

  • New Year’s Day – January 1
  • Good Friday – March / April
  • Easter Day – March / April
  • Liberty Day – April 25
  • Labor Day – May 1
  • Corpus Christi Day – May / June
  • Portugal Day – June 10
  • Assumption of Mary – August 15
  • Republic Day – October 5
  • All Saints Day – November 5
  • Independence Restoration Day – December 1
  • Feast of Immaculate Conception – December 8
  • Christmas Day – December 25

Maternity, Paternity, Parental Leave and Benefit:  Maternity leave entitlement is a total of 120 days, and it is mandatory to take at least 42 days after the birth, with the balance used wholly or in part before or after the birth. Benefit is funded by the social security system and paid at 100% of the mother’s salary for the 120 days. Fathers receive 20 workdays leave after the birth, five of which must be taken immediately with the remaining 15 days taken within six weeks after the birth consecutively or in parts. Fathers also have the option of taking a further five workdays as paternity leave.


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