Portugal is a preferred location for foreign companies to start a business due to its attractive and business-friendly tax regime, fewer legalization processes, ready-to-develop business sites, and skilled workforce. The World Economic Forum’s 2019 Global Competitiveness Report ranked the country 34th out of 190 economies globally.
Companies can create their presence in Portugal and make the most of their growing economy by setting up a subsidiary in Portugal. It is one most accessible and affordable approaches to entering Portugal. It demands comparatively less paperwork and compliance.
Let’s go through all the significant information you should know before setting up a subsidiary in Portugal.
What are the Types of Subsidiaries in Portugal?
The following section discusses details of different types of subsidiaries before setting up a subsidiary system in Portugal.
1. Public Limited Company
- At least five partners are required to establish a public limited company.
- The company’s name should contain the full or abbreviated name of one or more partners and an expression about the activity performed. It should conclude with the expression “SA” or “Sociedade Anónima”.
- The minimum capital needed is €50,000. It is divided into equal nominal values with a minimum of 1 cent.
- Each partner is liable for the number of shares subscribed and their value in the company. Only the company is accountable for potential debts.
- Two key benefits of opening a public limited company in Portugal are the easy transfer of corporate bonds and the easy management of investments and funds.
2. Limited Partnership
- A minimum of two types of partners are needed to set up this subsidiary business in Portugal.
- General partners (contribute to services or goods)
- Sponsor partners (draw capital and manage the company).
- It features two forms of the constitution, i.e., simple or shared.
- A minimum of two members exist in the simple form.
- In the second form, the limited partners’ shareholdings are denoted by shares. At least six partners are required.
- The minimum mandatory capital required to set up this subsidiary is €50,000.
- The company’s name contains either a full or abbreviated name or the commercial name of a minimum of one of the general partners (unlimited liability partners). It is concluded by “& comandita” or “in comandita”.
3. Sociedade por Quotas (Joint stock company)
- At least two partners are required to set up a joint stock company.
- The company’s assets are independent of the partners’ personal assets.
- Each partner is liable to the share capital. There can be an additional liability if the contract specifies.
- The company name should terminate with the word “Limitada” or “LDA”.
4. Estabelecimento Individual de Responsabilidade Limitada (EIRL) (Individual limited liability institution)
- An individual partner can set up an EIRL in Portugal.
- The minimum required capital is €5,000. One-third of this amount is required to be fulfilled in monetary form. The remaining amount comprises the physical assets or rights (1 and 3 of Article 3 DL 248/86).
- The assets of the entrepreneur and that of the company are independent of each other.
How to Set Up a Subsidiary in Portugal?
The following steps will help you to establish a subsidiary company in Portugal.
Apply for NIF (for individuals)/ NIPC (for companies) to register the company.
Select a legal form for the business and determine the company’s name. (You can choose a company name from a list of pre-approved names). You can request a Denomination Approval Certificate if you prefer a different name.
Open a bank account and deposit the minimum required capital.
Register the beneficial owner at the Registo Central de Beneficário Efetivo (within 30 days of starting the business activity).
The foreign company must apply to the Commercial Registry. The corresponding application should include the registered office’s address and details about the subsidiary’s owner and representative. Articles of Association must be attached to the application.
To operate the business in the country, the foreign company should apply to the Directorate-General for Economic Activities (DGAE). Since every economic sector has unique requirements, go through the license list before applying.
After the business continues operating, it must be registered with the Registo Central de Beneficiátio Efective (RCBE).
The created subsidiary should obtain its Collective Persons Card and Company Card from the IRN (Institute of Registries and Notaries).
Benefits of Setting Up a Portugal Subsidiary
The outstanding benefits of setting up a subsidiary company in Portugal are discussed below.
- The subsidiary can explore the market by engaging its business ideas and discovering various operation areas with the parent company.
- The subsidiary can function under a different company name and follow discrete business interests. It will operate under its administration and protect the parent corporation from lawsuits or losses
- It runs under Portuguese corporate law, just like the local companies. Moreover, it is taxed on its worldwide income.
- It is simpler to acquire regulatory approvals, finance, and loans and enter into contracts with other European Union or Portuguese companies.
- The permanency is more than branches, providing more control to clients and suppliers.
- It benefits employees with improved job security and stability.
- It streamlines obtaining tax incentives to motivate a specific economic activity by reducing tax payments.
- To ensure hassle-free business operations in the future, a subsidiary can define its agreements and contracts with clients before initiating a business.
- It allows a company to sign contracts with other Portugal or EU companies.
Documents to Prepare When Opening a Subsidiary in Portugal
Companies should prepare the following documents while applying for subsidiary incorporation:
- Memorandum & Articles of Association
- Tax Identification Number (TIN)
- Certificate of incorporation
- Proof of enrollment in Social Security
- Early declaration of activity
- Registration Certificate
- Bank certificate for proof of deposit of capital
- An official request for Business License Registration
- A real estate clearance certificate
- Proof of residence for the company administrator/partners
- The company name’s consultation certificate
- Notarized IDs for the Company Administrator
- Notarized copy of incorporation documents for the Registry Agency (includes Memorandum of Association, Articles, and power of attorney)
- Notarized IDs for all founders of the subsidiary and certified passport details for foreign members
- Notarized copy of either the property lease or deed confirming the right of use of the property where the company is situated
- A statement specifying that the partners are not forbidden by law or by opinion to establish a company
What Business Forms can Portugal Subsidiaries Take?
Subsidiaries in Portugal can adopt one of these standard subsidiary forms:
- Public Limited Company
- Limited Partnership Company
- Joint Stock Company (AD)
The company can choose the most applicable subsidiary form depending on the business plan and requirements.
Portugal Subsidiary Laws
The companies aiming to establish a subsidiary in Portugal must consider the following laws:
- Portugal subsidiary laws specify that a private limited liability company (LDA) should have total revenue of up to 3 million EUR, combined assets of up to 1.5 million EUR, and up to 50 employees.
- Portuguese corporate law is centered on the principle of limited liability. It specifies that the shareholders’ liability is limited to their contribution to the share capital.
The compliance checklist for incorporation of foreign subsidiaries in Portugal entails the following aspects:
- Get the business’ certificate of commencement within 180 days of starting its business activity.
- You shall have a registered office established within 30 days from the incorporation date of the subsidiary. The corresponding office address would be used to have all official communication from different authorities [according to Section 12(1)].
- You may be asked to maintain statutory registers at your company’s registered office.
- The shareholder is issued a share certificate within 60 days from the date of the subsidiary’s incorporation.
- After establishing the Portugal subsidiary, you manage payroll withholdings, local tax laws, banking principles, and employment requirements.
- Get the unique company number.
- Get the incorporation certificate as provided by the Registrar of companies.
- Submit all the information of the shareholders to the Registrar.
- Every private limited company in Portugal must file its Annual Return within 60 days since organizing the Annual General meeting.
- The BOD will appoint the first auditor of the company within 30 days of the subsidiary’s establishment. The first auditor will manage the office administration until the first AGM (Annual General Meeting) finishes.
Taxes on Subsidiaries in Portugal
A subsidiary in Portugal is subject to the following taxes:
|Personal income tax|
14.5%: income up to EUR 7,112
23%: income from EUR 7,112 to 10,732
28.5%: income from EUR 10,732 to 20,322
35%: income from EUR 20,322 to 25,075 37%: income from EUR 25,075 to 36,967
45%: income from EUR 36,967 to 80,882
48%: income over EUR 80,882
|Corporate income tax||21%|
|Solidarity tax||2.5%-5% (for taxpayers with income over EUR 80,000)|
|Social Security Contribution|
11% payable by employees
23.75% payable by the employer
|Derrama municipal (a tax on profits)||Up to 1.5% (paid annually)|
|Property transfer tax|
6.5% for urban real estate
5% for rural real estate
10% if the buyer belongs to a blacklisted country
|Municipal property tax|
0.8% in rural areas
0.3%-0.45% in urban areas
Reduced rates of 13% and 6% are applicable to certain goods and services
Tax Incentives for Businesses Setting Up a Subsidiary in Portugal
Tax incentives must be considered when working on the incorporation of a foreign subsidiary in Portugal. Irrespective of the sector, your subsidiary business in Portugal can make the most from the following tax incentives:
- In addition to financial incentives, certain tax incentives may be granted to companies that invest in Portugal. These incentives typically involve lower taxes or tax exemptions.
- The Portuguese government has issued several public incentives (like land acquisition, capital grant, other forms of financial support, foreign exchange risk, revenue guarantee, loan guarantee, etc.) to help new businesses.
- According to Decree-Law 249/2009, manufacturing sector projects carried out by December 31, 2020, up to € 5,000,000 may benefit from tax incentives for 10 years (on a contractual basis). These projects are granted permission according to the procedures, terms, and conditions specified in the Investment Tax Code.
Other Important Considerations
In addition to the compliance checklist for incorporation of foreign subsidiaries in Portugal, you must also focus on a few other significant considerations, as discussed below.
- Ascertain that you are familiar with your business activity and the goal of registering before beginning the process of subsidiary company formation in Portugal.
- All company members should be acquainted with Portugal’s subsidiary rules. Otherwise, you’ll need to appoint an attorney or another member of staff who is experienced in these rules.
- The subsidiary incorporation process is quick, but errors can lead to penalties, fines, and extra setup time. So, the incorporation process must be accurate and reliable.
- The subsidiary incorporation process can last a few weeks. You must devote the time and money you would need. You may have to plan your schedule to frequently travel back and forth to Portugal until the subsidiary incorporation process completes.
- Your budget for subsidiary incorporation should consider the travel and hiring costs.
- To establish a subsidiary system in Portugal, you should focus on insurance, residence permits, registration with the federal tax administration, and applying for any licenses (if required).
- The government may demand additional investment capital to establish your subsidiary, depending on the business sector.
How Can Multiplier’s Employer of Record Help You Hire & Expand in Portugal?
You should spare enough time and investment to expand your business in a foreign country. Conforming to industry standards and a country’s labor rules demands substantial time and effort. You can make the most of the services from a third-party service company like Multiplier to create a subsidiary system in Portugal.
Multiplier supervises all the regulations ranging from onboarding proficient employees to payroll processing while extending the business in a foreign country. It takes away the need to set up a subsidiary. Furthermore, Multiplier aids you with recruiting global and local talent while assuring compliance with Portugal’s regulations and labor laws.