Setting up your business in Portugal: GEOS Guide for Global Expansion

This is apart of our weekly series associated with the The Global Subsidiary Index. The series is designed to help businesses identify the best countries for establishing a subsidiary based on key operational factors. GEOS provides a data-driven ranking of jurisdictions worldwide, assessing across 40+ criteria to bring you insights into global expansion opportunities.

Each country on the index is scored on an overall score out of 100, with each individual criterion out of 5 or 10. Higher scores indicate a more favorable environment for businesses. By leveraging these insights, companies can make informed decisions on where to establish a legal presence.

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There’s a saying in Portugal – navegar é preciso, which means to navigate is necessary. Expanding a business there requires the same approach. The country opens doors, but making progress means understanding its market, workforce, and rules.

Portugal is a strong choice for tech, finance, and professional services. It has competitive taxes, EU access, and a skilled workforce. However, challenges still exist. The wheels of bureaucracy can turn slowly.

Businesses in Portugal need a clear course forward. Keep reading to learn how to make the most of Portugal’s business advantages. From tax breaks to talent, we’ll cover why Portugal is a top choice and how to get started.

Why Should You Expand to Portugal?

Portugal has made a comeback from global economic challenges in recent years, says the IMF. And with steady growth ahead, now is a good time to invest. Here’s why Portugal is a smart choice for growth.

A Gateway to European and Lusophone Markets

Portugal has long been a bridge between Europe, Africa, and South America. Its prime location strengthens trade with the EU and key markets like Brazil, Angola, and Mozambique.

On top of that, Portugal has a strong investment climate, earning it a GEOS score of 68. It ranks among the top 10 in FDI attractiveness, according to EY’s 2024 Europe Attractiveness Survey. In the past five years, foreign investment has grown by 40%. And in 2023 alone, Portugal secured 221 FDI projects, creating over 18,000 jobs.

The financial sector is just as strong. Portugal scores a perfect 5/5 in Financial Infrastructure thanks to its well-developed banking system and fintech sector. Not to mention, supportive policies and flexible regulations are making room for corporate and entrepreneurial innovation. Some key fintech players taking advantage of this are:

• ivendPay enables cryptocurrency payments through bank terminals and mobile apps.

• Wallid opens up online payments with a bank-linked checkout process.

• Coinscrap Finance uses AI and behavioral economics to improve the financial health of banks and insurers.

• Uphold provides access to digital assets, national currencies, and precious metals.

• The Jupiter app helps freelancers and digital nomads with tax compliance.

Portugal’s startup scene is growing fast, with more than 2,500 registered startups calling it home. Lisbon, often called Europe’s Silicon Valley, draws entrepreneurs and foreign investors from around the world. It also hosts major events like the Web Summit, which brings global attention to its tech ecosystem.

This kind of growth depends on a strong digital infrastructure. Fortunately, new connectivity projects are making that happen.

• EllaLink connects Europe and South America through Sines and Fortaleza, Brazil.

• Equiano, a Google-backed cable, links Portugal with South Africa and West Africa.

• 2Africa is a massive subsea network connecting Europe, Africa, the Middle East, and South Asia.

• Medusa, an AFR-IX Telecom project, links Portugal with Spain, France, Italy, Morocco, Algeria, and soon, Tunisia, Greece, and Egypt.

With its location, business-friendly policies, and fast-growing digital sectors, Portugal is an ideal base for foreign companies expanding into Europe.

Competitive Tax & Business Incentives

Portugal makes it easy for businesses with low taxes and strong incentives. The corporate tax rate was recently reduced to 20%, keeping it lower than in many Western European countries. The Non-Habitual Resident (NHR) regime also offers great perks for skilled professionals and investors.

Freelancers and self-employed individuals should be aware of their personal income tax obligations, including social security payments, and ensure they obtain the necessary identification number from the tax office.

R&D tax credits under the SIFIDE II program encourage innovation, while foreign direct investment incentives create opportunities for foreign companies and for growth. Hiring remains affordable, with an Employer Payroll Cost Score of 4/5.

Overall, Portugal offers a range of tax incentives that can help businesses lower costs and reinvest in growth. Here’s what stands out.

• Foreign Tax Credits & Double Taxation Relief: Businesses can offset taxes paid abroad against their Portuguese tax bill. Owning at least 10% of a subsidiary’s share capital can bring extra credits for international double taxation.

• Incentive to the Capitalisation of Companies (ICE): Companies can deduct net increases in eligible equity to lower taxable profit.

• Wage Increase Incentive: Employers get a 100% deduction on employment expenses for qualifying salary increases.

• Investment & Acquisition Benefits: Tax incentives support strategic projects. They also help companies that acquire businesses that are in difficulty by allowing deductions for previously unused tax losses.

• R&D and Patent Box Incentives: The SIFIDE II program lets companies deduct a percentage of eligible R&D expenses. Higher rates apply to SMEs under certain conditions. The Patent Box regime offers tax exemptions on income from intellectual property assets.

• Investment Promotion Regime (RFAI): Companies investing in designated sectors or regions can deduct part of their qualified investment from corporate tax. Unused credits can be carried forward for up to ten years.

These measures give businesses a leg up, making expansion and global competition much more accessible.

Skilled Workforce & Favorable Hiring Regulations

The Portuguese market has a skilled talent pool and freelancer-friendly hiring rules. The workforce is highly educated, multilingual, and fluent in English. Every year, around 96,000 graduates enter the job market, with about 30% focusing on STEM subjects.

Portugal even ranks third in Europe for engineering graduates, according to the OECD. International students make up 17% of enrollments, adding diversity and expertise. Strong industry ties, R&D partnerships, and hands-on internship programs help graduates hit the ground running.

The Portuguese government makes it easier for professionals to build careers in Portugal. Tax breaks for young workers, including a one-year full-income tax exemption, encourage local talent to stay. Portugal’s stance on cryptocurrency and freelancer-friendly laws also attracts global professionals, making it a hotspot for remote work and digital businesses.

Hiring is structured but still straightforward. Public employment services (IEFP) and temp agencies connect businesses with qualified candidates. There’s still some red tape, but Employment Laws score 4/5 for clarity and balance, while Union Influence scores 4/5 for being moderate and keeping labor regulations manageable.

Can I Start a Business in Portugal as a Foreigner?

Starting a company in Portugal as a foreigner is not only possible but also highly encouraged by the country’s business-friendly environment and various incentives for entrepreneurs. Portugal has simplified processes and offers numerous benefits to attract foreign investment, making it an appealing destination for global business expansion.

As a foreign entrepreneur, you can take advantage of Portugal’s strategic location, skilled workforce, and competitive tax incentives. The country provides a supportive ecosystem for startups and established businesses alike, with a focus on innovation and growth.

However, it’s crucial to understand the specific requirements of tax authorities and regulations involved in setting up a business in Portugal to ensure a smooth and successful launch.

How to Set Up a Business in Portugal

If you’re considering expanding your own company in Portugal, there are multiple ways to set up shop.

Choosing the Right Legal Structure

In Portugal, company formation is key. Each company structure comes with its own set of benefits, legal rules, and taxes.

Private Limited Company (LDA) & Minimum Share Capital

A private limited company, known locally as a “sociedade por quotas”, suits small to medium-sized investments. You can set a low minimum capital or share capital (as low as €1) and limit your liability to your investment, effectively separating personal and business assets. The structure involves registration and compliance with Portuguese corporate rules. It offers simplicity and limited personal risk.

Public Limited Company (SA)

A public limited company, or “sociedade anónima,” suits larger or long-term investments. This model requires a higher minimum share capital (currently €50,000), which is the same minimum capital investment needed to form such a company.

It typically uses a board of directors or a sole director (if certain minimum investment thresholds are met). The SA structure supports growth through share issuance. It comes with stricter governance and compliance obligations.

Sole Proprietorship

A sole proprietorship business structure lets one individual run a business without forming a separate legal entity. The setup is simple, with minimal administrative burden. You can register sole proprietorships using the Empresa Online service or by applying in person, often requiring a citizen card or assistance from a lawyer. However, you face unlimited liability. Your personal and business assets are at risk if the business incurs debts or legal issues.

Branch Office

A branch office allows a non-domestic company abroad to operate in Portugal. The branch acts as an extension of the parent company. The parent remains fully liable for any obligations. This option helps you test the market while keeping centralized control.

Each option carries its own tax, liability, and compliance requirements. Your choice depends on your investment scale, desired risk level, and how much regulatory compliance you are ready to handle.

Incorporation & Compliance Essentials

Starting a business in Portugal means handling registration, compliance, and local regulations. The process is straightforward, but there are key details to keep in mind for tax purposes.

Obtaining the company’s social security number is crucial for formal documentation and identification during the registration process. Portuguese business insurance is essential for compliance with legal requirements, including workplace accident insurance and other types of coverage to protect your business. Here’s what you need to know.

Company Registration

Portugal’s Empresa na Hora system speeds up company registration. You complete the process quickly when your legal documents are ready and certified. Register your private limited, single-person, or joint-stock company online through ePortugal using your Citizen Card.

You can also visit your local finance office or a service desk like Espaços Empresa or a Commercial Registry Office to finish in under an hour. Traditional registration involves more steps, such as applying for the Certificate of Admissibility, depositing share capital, and preparing articles of association.

When setting up your own company, it’s crucial to open a business bank account. This involves comparing bank offerings, understanding necessary documentation, and considering the financial and operational aspects, especially for non-EU citizens.

There are a couple of key points to keep in mind when expanding your company business operations in Portugal:

• Online registration does not support companies with share capital contributions in kind.

• Specific procedures exist for registering cooperatives and associations.

Political Risk Score

Portugal offers a stable political environment and a pro-business approach. The country maintains a strong democracy and has a political risk score of 4/5. The Portuguese government focuses on reducing fiscal debt and deficit, which helps improve credit ratings. This creates a solid foundation for businesses looking to expand.

Still, some uncertainties remain. In November 2023, Prime Minister Costa resigned amid an investigation, leading to early elections in March 2024. The vote brought a minority center-right government to power, which added some political uncertainty, and the upcoming budget vote will be a key test for the new leadership.

Labor and wages are growing concerns. Salaries haven’t kept up with rising housing costs, especially in Lisbon and Porto. This could lead to labor disputes and a shortage of skilled workers as more professionals look for opportunities abroad.

Despite all this, key industries continue to attract investment. The tourism industry, real estate, and renewable energy remain strong, drawing significant U.S. interest. These sectors create opportunities for growth, even with political fluctuations.

Pension Management

Portugal’s Pension Management Score is 4/5, as labor laws are clear, but pension contributions are mandatory. Pensionable remuneration includes the salary for a meaningful job but does not cover overtime or special payments. If an employee holds multiple meaningful jobs, only the higher salary counts. Contributions remain tied to the original job if the employee takes unpaid leave or changes roles.

Key points for businesses:

• Civil servants have different pension calculations based on their hiring date.

• Part-time workers’ benefits are calculated as if they worked full-time.

• Employers automatically deduct 11% of the monthly gross pensionable remuneration.

These rules help keep labor costs clear.

Registering with the Portuguese Tax Office (Finanças)

Registering with the Portuguese Tax Office (Finanças) is a mandatory step in setting up a business in Portugal. You will need to obtain a taxpayer identification number (NIF) and register for corporate income tax, value-added tax (VAT), and other applicable taxes. This process ensures that your business or company complies with tax laws and can operate legally within the country.

Financial & Banking Considerations

Portugal’s banking system scores 5/5 for financial infrastructure. It’s well-regulated, reliable, and designed to support international transactions. Businesses expanding here have access to over 150 banks, including national, public, cooperative, and international institutions.

The Multibanco network connects all major banks, ensuring fast and secure transactions. While physical branches have declined, Portugal still has 32.8 bank branches per 100,000 residents – nearly three times the global average. Digital banking is also expanding, making financial management more convenient.

• International SEPA transfers within the EU are fast and low-cost, while SWIFT transfers take 1–5 days. Many businesses use fintech services for better exchange rates.

• Regulation and security are strong in Portugal, with the Banco de Portugal overseeing banking rules to ensure compliance with EU financial laws. Most banks also belong to the Portuguese Banking Association (APB), adding another layer of security.

Opening a business bank account is simple but requires a Portuguese tax ID (NIF) and company registration documents. Many banks offer strong digital services, making transactions easy. Businesses can also explore local financing options, including bank loans and Portuguese government-backed incentives.

Employer Payroll Contributions

Portugal offers competitive employer payroll costs, making it an attractive place for expansion. The Employer Payroll Contributions score is 4/5, reflecting lower social security contributions rates than in much of Western Europe. Employers must contribute 23.75% of an employee’s gross salary to social security, covering pensions, unemployment, and family benefits. Employees contribute 11%, deducted from their salary.

Social Security Costs for Employers

Standard employer contribution: 23.75% of gross salary.

Employers also have significant financial responsibilities related to the company’s social obligations, including social security contributions and other commitments.

Additional requirement: Employers must buy occupational accident insurance, with costs depending on industry and job risk.

Payroll Costs for Hiring Board Members

• General board members: Employers pay 20.3%.

• Managers and administrators: Employers pay 23.75%, the same as for regular employees.

• Minimum declared income: At least EUR 522.50 per month for social security purposes.

Costs for Self-Employed Contractors

Companies using self-employed workers may owe extra contributions:

• 10% if a worker earns 80%+ of income from one company.

• 7% if a worker earns 50% to 80% from one company.

Things To Consider When Expanding into Portugal

Expanding into Portugal offers opportunities, but businesses need to plan ahead. Work permits, office costs, and regulations all play a role. Here’s what to consider before making the move.

Immigration & Work Permits for Non-EU Employees

Portugal has a 4/5 Immigration Complexity Score. While it’s easy for EU citizens to work, non-EU hires need a visa. Businesses expanding to Portugal need to plan for this, but fortunatel,y flexible options like the Digital Nomad Visa and Golden Visa make it easier to bring in global talent.

For traditional employment, non-EU hires need a Temporary Stay Visa (for jobs up to six months) or a Residence Visa (for long-term roles). Both require:

• A job contract and proof of financial stability

• A labour market test to confirm no EU citizen is available for the role

For remote workers, the Digital Nomad Visa is a strong option. Employees must earn at least €3,480 per month and secure accommodation. The Golden Visa offers another route to residency through:

• Investment in real estate or venture capital

• Job creation in Portugal

Once in Portugal, non-EU employees need a residence permit. This requires a valid work contract, residence permit, Portuguese tax number (NIF), social security registration, and a clean criminal record. After the residence permit for five years, they can apply for permanent residency or Portuguese citizenship.

Portugal makes it easier for businesses to hire and keep international talent. Work visas involve labour market tests, but the Digital Nomad Visa and Golden Visa offer more flexible pathways. These options help businesses build a long-term presence in the EU.

Cost of Living & Office Space

Lisbon is shaping Portugal’s tech future with 25,800 engineers and a €2.5 billion ecosystem. It’s home to 45 accelerators, 935 startups, and major employers like Microsoft, Siemens, and OutSystems. But costs are rising. Office rent is €26 per square meter, making other cities worth considering. Fortunately, there’s more to Portugal’s tech scene than just Lisbon. 

• Porto has 18,600 engineers skilled in application development, databases, and front-end frameworks. The €950 million tech ecosystem includes 24 accelerators and 488 startups. Office rent is €25 per square meter. Major employers include Farfetch and Critical TechWorks.

• Braga offers lower costs and strong talent in biotechnology, nanotechnology, and IT. The University of Minho and the International Iberian Nanotechnology Laboratory supply skilled graduates.

• Coimbra is shaping itself into a tech hub, turning innovation into real growth. Deputy Mayor Francisco Veiga wants the city to focus on impact, not just ideas. With support from the Portuguese Innovation Society (SPI), the Municipal Innovation Strategy lays out a clear path forward.

Overall, businesses expanding into Portugal have plenty of options at their disposal. And with Portugal growing as a hub for startups and foreign investment projects, there will likely be even more opportunities in the future.

Regulatory & Compliance Risks

Operating in Portugal means meeting GDPR requirements. If your business handles EU customer data, compliance isn’t optional. 

The Portuguese Data Protection Authority (CNPD) enforces GDPR under Law No. 58/2019 but rejected some parts that conflict with EU rules, like employee consent and public sector data use. Companies must update legal, procedural, and tech practices to avoid fines.

Portugal’s tax system is strict and self-assessed. Corporate tax returns are due in May, with installment payments in July, September, and December. Businesses earning over €1.5 million pay extra-regional taxes. 

Non-compliance can mean fines of up to €165,000. Anti-avoidance rules require transactions to have a real economic purpose. Payments over €1,000 must be traceable under European Union tax laws. Compliance support is essential. Portugal scores 6/10 for Business Expansion – it’s stable but demanding.

How GEOS Simplifies Your Expansion into Portugal

Portugal is worth the move. Its economy is strong, and growth is picking up, according to the EU. Private consumption and investment are driving expansion. Inflation is also easing, and unemployment is falling. Public finances are stable, creating a solid foundation for businesses.

Expanding your business in Portugal shouldn’t be complicated. GEOS takes care of registration and tax compliance, making the process simple. You grow. We handle the rest.

AI-powered support makes it even easier. Geovanna, GEOS’s expansion assistant, provides real-time insights and updates. You’ll never be caught off guard. You’ll always be one step ahead with the right info in hand.

With a GEOS Tier 1 ranking and an ease-of-business score of 68, Portugal is a top choice for companies expanding in Europe. Make your move with a strategy that works. Contact GEOS today and start growing in Portugal. 

This article does not constitute legal advice.