Entering the Portuguese Market

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The Portuguese Market

In the modern economic world, Portugal’s Gross Domestic Product (GDP) reached 251 billion US dollars to rank the nation 49th in the world in 2021, with the Organization for Economic Cooperation and Development (OECD) predicting growth of 5.8% for 2022.

Portugal is on the western outskirts of the European continent but has been a central player in the European Union (EU) since joining in 1986. This was followed by joining the Schengen Area in 1995 and adopting the Euro as its currency in 1999. It has a mixed economy with the service sector, including tourism, accounting for over 65% of GDP.

Industry takes close to 20%, while smaller scale factories with lower labor costs specialize in textiles and designer clothes and shoes. Portugal’s Atlantic coastline sees a large and diverse fishing and fisheries industry – in which sardines are a traditional favorite.

But incoming companies tempted to set up a subsidiary will find adjustments need to be made – and quickly. The demanding employment market is framed by strictly applied laws and regulations … and they cannot be ignored or side-stepped.

Starting a business in Portugal

International companies intending to run their own payroll for staff in Portugal have to establish a legal entity subsidiary. The most popular choice is to open a private limited liability company, a Sociedade por Quotas or LDA with at least two shareholders. There is also a simplified form of LDA with a single shareholder called a Sociedade Unipessoal LDA, but the individual can be a shareholder in only one of this company type.

Steps to set up the limited liability subsidiary of a foreign parent company include:

  • Register the company’s unique name with the Institute of Registries and Notaries (Instituto dos Registos e do Notariado, IRN) to obtain a Certificate of Admissibility
  • If members / partners of company are individuals, they must provide ID cards or passports depending on nationalities
  • Provide documentation from the Commercial Registry of the parent company’s home country and supply minutes of the meeting authorizing setting up the subsidiary
  • Verify identity of the individual with power to sign on behalf of the new subsidiary
  • Provide Memorandum and Articles of Association of the parent company
  • Provide subsidiary’s bylaws detailing business activity, registered office, share capital (known as ‘quotas’) and number of shareholders (minimum of two), management structure
  • Submitting all documents translated into Portuguese in person to the Portugal Registrar of Companies (Serviços do registo comercial) for publication on their website
  • Opening a bank account to deposit share capital
  • Minimum share (quota) capital for an LDA is two euros and one euro for a Sociedade Unipessoal LDA

The subsidiary must obtain their Company Card and Collective Persons Card from the IRN, which provide multiple identification documents. These are:

  • The company identification card (Número de Identificaçäo de Pessoa Coletivas, NIPC)
  • The individual tax identification numbers (Número de Identificaçăo Fiscal, NIF) and tax card from the Portugal Tax and Customs Authority (Autoridade Tributária e Aduaneira, AT)
  • The employees’ Social Security Identification Number (NISS) from the Social Security Institute (Instituto de Segurança Social)

Expanding Business into Portugal

Opening a business in any overseas territory brings issues. Moving staff across the world means lengthy processes to obtain visas and work permits. When employees are in place, who will handle payroll? How will your company deal with regulations on taxation, entitlements and benefits, termination, and severance?

Drawing up an expansion blueprint is not enough. Your business plan will have to answer all these questions.

Portugal welcomes foreign investment, but incoming companies must be aware of changes to the Commercial Companies Code that came into effect at the beginning of 2022. Additionally, the employment market is complicated by its mix of laws and collective agreements affecting employee benefits and entitlements. There are other questions too: where will you find distributors, manufacturers, and offices?

Portuguese Business Facts

  • Capital – Lisbon
  • Population – 10.16 million
  • Regions – Northern Portugal; Central Portugal; Lisbon and the Tagus Valley; Alentejo; Algarve; Azores Islands; Madeira Islands
  • Official Language – Portuguese
  • Economy and world ranking – US$251 billion end of 2021.
  • Leading sectors – Service 65.6%; industry 19.3%; agriculture 2.1%; which include: vehicles, railway, and trams; electrical machinery and parts; nuclear reactors, boilers, and machinery; plastics, minerals, and fuels
  • Main exports – Cars and vehicle parts; refined petroleum; leather footwear; uncoated paper
  • Main imports – Cars; crude petroleum; aircraft, helicopters, and satellites; vehicle parts and packaged medicines
  • Main trading partners – Spain, Germany, France, UK, Netherlands, and US
  • Government – Constitutional republic, parliamentary system, representative democracy, unitary state
  • Currency – Euro

Advantages and Challenges of the Portuguese Market

Advantages of expanding into the Portugal market include:

  • Advances: Developing renewable energy industry in hydroelectric and wind power
  • Workforce: Low labor costs
  • Growth: Budding food products and electronics industry
  • Economy:  Organization for Economic Cooperation and Development predicting growth of 5.8% for 2022
  • Security: Ranked in the top five for safest and most peaceful countries in the world; low crime rate
  • Global Trade: Portugal’s Atlantic coastline has five ports, providing maritime access to the rest of Europe, plus North and South American markets

Challenges of operating in the Portugal market include:

  • Industry: Underdeveloped manufacturing sector
  • Bureaucracy: ‘Red tape’ surrounding legal processes
  • Logistics: Infrastructure gaps can affect moving produce round the country
  • Trade: Heavily dependent on imports and exports with fellow European Union members

Limited Company / Subsidiary or Branch in Norway?

International companies intending to run their own payroll for staff in Portugal have to establish a legal entity subsidiary. The most popular choice is a private limited liability company, a Sociedade por Quotas or LDA with at least two shareholders. The simplified form of LDA with a single shareholder is called a Sociedade Unipessoal LDA, but the individual can be a shareholder in only one company of this type.

If a foreign company wants to operate commercially in Portugal without running payroll or opening a subsidiary, it is still legally required to at least open a branch (Sucursal) or a permanent local establishment (Representaço permanente).

Portugal’s Companies Law is based on limited liability, generally restricting the liability of shareholders to their own share contribution. There are exemptions. The parent company can be financially liable for the subsidiary if it is 100% owned by them or they have legal powers over the subsidiary through a subordination contract. A sole shareholder who appoints a director can be liable for the director’s actions, or for debts and liabilities in the case of bankruptcy.

Subsidiaries and branches have differences in how they are registered and operate