Portugal Subsidiary Entity Set Up

Portuguese Entity Set Up

Launching a subsidiary overseas takes time and eats up funds – and the venture has no guarantee of success.

Even so, expanding overseas is a major step, especially for companies opening a legal entity in their new territory. If the move fails, companies face the extra expenditure and stress of closing the business, selling property, and paying off employees. It is easy to stumble while chasing two objectives – advancing your company at home while crossing the world into a new territory, maybe thousands of miles overseas.

The sensible alternative is to use a Professional Employer Organization (PEO) and Employer of Record (EOR) such as Bradford Jacobs to locate the finest local talent and administer your payroll in Portugal – speedily and risk free. Your company will be up-and-running in days rather than weeks or even months.

How to set up a Portuguese Subsidiary

The typical choice to open a subsidiary as a private limited liability company is 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 company of this type. Requirements include:

• A unique company name registered with the Institute of Registries and Notaries (Instituto dos Registos e do Notariado, IRN)
• A Certificate of Admissibility from the IRN
• ID cards or passports of members or partners of the company, depending on the nationality
• Documentation from the Commercial Registry of the parent company’s home country
• Official minutes of the parent company’s meeting authorizing setting up the subsidiary in Portugal
• Verification of the individual empowered to sign on behalf of the new company
• Memorandum and Articles of Association of the parent company
• Bylaws of the subsidiary detailing business activity, registered office, individual’s share capital (known as ‘quotas’), number of shareholders, minimum of two for an LDA, management structure
• Minimum share (quota) capital for an LDA is two euros and one euro for a Sociedade Unipessoal LDA
• Submit all documents in person to the Portugal Registrar of Companies (Serviços do registo comercial) for publication on their website
• A business bank account to deposit share capital

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 Coletiva, 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)

Benefits of setting up a Subsidiary in Portugal

Portugal’s Companies Law is based on limited liability, 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.
Notwithstanding, there are general benefits for opening a subsidiary in Portugal. The subsidiary can operate under a different company name and pursue separate business interests. It operates under Portuguese corporate law in the same way as local companies and is taxed on its worldwide income and liable for Corporate Tax at the headline rate of 21%. A lesser rate of 17% on the first €25,000 (US$28,100) of taxable income applies to SMEs with annual revenue under €50 million (US$56.2 million).

Through its subsidiary, the parent company has the advantage of exploring the Portuguese market and further afield among the European Union’s member nations.

Other benefits for a subsidiary: 

• Easier to obtain regulatory approvals, loans and finance and enter into contracts with other Portuguese and European Union companies 
• More impact with clients and suppliers, as subsidiaries imply more permanency than branches 
• Employees feel there is more stability and job security than from being with a branch 

In the wider commercial sense, opening a subsidiary makes a statement of a company’s commitment to expanding into foreign markets, in this case the opportunities offered by the European economies.

However, there is a more straightforward option to the risks and costs of setting up a subsidiary in Portugal.