How To Start A Business In Portugal In 2024

Portugal is known for its food and fine wine, its favourable weather and it is considered to be one of the world’s greatest historical countries.

There are various reasons why entrepreneurs would want to set up shop in Portugal, however, there are some factors to consider. These include the economic conditions, the legal and regulatory requirements businesses must adhere to, as well as the taxation policies and labour laws.

Portugal has strong aerospace, manufacturing and creative industries, making it an exciting location for startups. Entrepreneurs must plan adequately to make the most of all Portugal has to offer.

 

Why Is Portugal Appealing For Business?

 

Various factors make Portugal an appealing location for entrepreneurs. These include Portugal’s government incentives, its skilled workforce, the cost effectiveness of staying there and its favourable location.

The government has incentives such as tax breaks, straightforward registration processes, and programmes like the Golden Visa that grants investors residence in the country, which makes Portugal especially attractive for entrepreneurs.

Portugal’s workforce is also talented and multilingual, and the country has lower operational costs than surrounding areas whilst boasting high quality living. Portugal’s geographical location may also help entrepreneurs tap into larger markets.

 

What Opportunities Are There For Startups In Portugal?

 

There are some industries taking centre-stage in Portugal’s markets, which may present opportunities for entrepreneurs who can find their niche in alignment with these sectors.

Since Portugal is a rising leader in the tech frontier, startups with a focus on areas like artificial intelligence, cybersecurity, and fintech innovation may have a bright future in Portugal.

Startups focusing on tourism and agricultural innovations, renewable energy solutions, and retail, logistics, and digital marketing may also tap into a market ripe for entrepreneurs.

 

Portugal’s Economic Overview

 

Portugal’s economy proved its resilience after the economic battles of COVID-19. Portugal’s economic growth slowed slightly in 2023 compared to 2022, yet still remains above the Eurozone average, the OECD reports. This is due to Portugal’s strong labour market, an increase in employment and a decrease in unemployment rates.

Portugal’s strong domestic demand and the government’s healthy fiscal position is a major advantage for the economy, and can help the country navigate potential economic stressors.

Inflation and a decrease in global economic activity are Portugal’s greatest current economic concerns, affecting Portugal’s export-oriented sectors.

Portugal’s Legal And Regulatory Framework

 

Portugal’s business registration process is relatively streamlined compared to other European countries. It is also good to note that Limited liability companies don’t require a minimum capital contribution.

It’s highly recommended that entrepreneurs consult with a local lawyer or business advisor to help them navigate the technicalities of launching a business whilst remaining compliant.

 

Choosing An Appropriate Business Structure

It’s crucial that entrepreneurs choose a business structure that suits their business’s needs. They should consider how high their risk tolerance is, how many owners the company will have, their investment needs and whether they need a more formal and flexible business structure.

Entrepreneurs can choose between a Sole Proprietorship, a Limited Liability Company, and a Public Limited Company.

The Sole Proprietorship’s setup is simple, but the owner holds unlimited liability for any debt. This structure is ideal for low-risk, single-person businesses.

The Limited Liability Company is the most popular choice for startups, and provides limited liability protection for shareholders (with a minimum requirement of two shareholders). This structure also provides some management flexibility.

The Public Limited Company is a more complex business requirement and it requires more capital than a Limited Liability Company. This structure is best for larger companies with plans of obtaining public investment.

 

The Registration Process

Once entrepreneurs have chosen an appropriate business structure, they can start the registration process.

Businesses must choose a unique name (business name availability can be verified at the Commercial Registry). Businesses must also complete an Articles of Association document.

Entrepreneurs need their Articles of Association and identification documents for shareholders and can make use of the Empresa Online platform to register. Additionally they must register for a tax identification number.

Then, businesses can open a business bank account to manage the company’s finances and acquire any necessary licences or permits which is industry dependent.

 

Taxation And Financial Management

 

Portugal’s tax system has some intriguing benefits for new businesses, and the country offers tax incentives to encourage investment and entrepreneurial innovation. Consulting a tax advisor can help ensure compliance with all regulations and can help you optimise your tax duties.

Here are some of the taxes Portuguese entrepreneur may have to deal with:

Corporate Income Tax: Corporate Income Tax is applicable to all profits made by the company, and has a standard rate of 21%. However, businesses considered to be “innovative” with high growth potential can qualify for a reduced rate of 12%, applicable on the first €50,000 of taxable income generated.
Value Added Tax: With a standard rate of 23%, this is applied to most products and may be reduced to 13% and 6% on specific categories like food and essentials.
Municipal Surtax: Municipal Surtax is a local tax which applies to profits, levied by the municipality where the business is registered. Rates cannot exceed 1.5%, and can vary based on location.

 

Hiring And Managing Employees In Portugal

 

Portugal allows for various types of employment contracts, ranging from permanent to fixed-term, which must include clear job descriptions, compensation, working hours (typically 40 hours per week with breaks), and time off, which is a minimum of 22 days per year. Portugal’s minimum wage is currently around €773 per month.

Employees are also entitled to healthcare, unemployment benefits, and generous parental leave. Employers must contribute to social security and overtime work is allowed, though regulated and requires additional payment.

Terminating employment contracts requires following specific procedures and providing notice periods. Termination may also require severance pay obligations as the situation demands.

Entrepreneurs should consider partnering with an Employer of Record (EOR) to handle payroll, taxes, and administrative tasks, which can simplify compliance.

Portugal, with it’s rich history and entrepreneurial opportunities, may be promising for aspiring entrepreneurs. They must prepare adequately and take into consideration various factors, such as the economic outlook, applicable taxes, registration processes and employee management.

The business-centric tax system and straightforward registration processes create a welcoming business environment for new entrepreneurs.