Company incorporation in Portugal

Portugal is becoming an increasingly attractive destination for foreign businesses due to its strategic location, skilled workforce, and favorable tax environment. With access to the European Union market, competitive operating costs, and a well-developed infrastructure, Portugal offers an ideal environment for businesses looking to expand in Europe.

Most Common Business Forms for Foreign Companies

The most common business structures for foreign companies in Portugal are the Private Limited Liability Company (Lda.) and the Public Limited Company (S.A.).

• Private Limited Liability Company (Lda.): The Lda. is the most popular form of company in Portugal, especially for small to medium-sized businesses. It offers limited liability, meaning the shareholders are only responsible for the company’s debts up to the amount of their share capital. The minimum number of shareholders is one, and foreign investors can hold 100% of the shares. The minimum share capital requirement is EUR 5,000, though it is recommended to have a higher amount for financial stability.
• Public Limited Company (S.A.): The S.A. is typically used by larger companies, especially those planning to raise capital from the public or list shares on the stock exchange. This structure requires a minimum share capital of EUR 50,000. An S.A. is less commonly used by foreign investors looking to establish small businesses, but it is ideal for larger entities that need access to significant capital.
• Foreigners can own 100% of the shares in both the Lda. and S.A. structures, making Portugal a favorable jurisdiction for foreign direct investment.

For most foreign investors, the Lda. is the preferred structure due to its lower capital requirements, flexibility, and limited liability protections.

Setting Up a Company in Portugal

Setting up a company in Portugal involves several steps. Here is an overview of the general process for incorporation:

1. Choose a unique company name and check its availability with the Portuguese Companies Registrar (Conservatória do Registo Comercial).
2. Prepare and notarize the company’s Articles of Association (AoA), which outline the company’s objectives, governance, and shareholder structure.
3. Register the company with the Companies Registrar to obtain legal recognition. This process typically takes about 1-2 weeks.
4. Open a corporate bank account in Portugal and deposit the required share capital. For an Lda., the minimum share capital is EUR 5,000.
5. Obtain a tax identification number (NIF) from the Portuguese Tax Authority (Autoridade Tributária e Aduaneira) for both the company and its directors.
6. Register for VAT with the Portuguese Tax Authority if the company’s turnover exceeds EUR 12,500 (for services) or EUR 50,000 (for goods).
7. Obtain any necessary business licenses or permits depending on the type of activity. Some regulated industries may require additional licenses.

The incorporation process is relatively straightforward and can be completed in a few weeks, depending on the complexity of the business. Foreign investors are advised to seek legal and accounting assistance to ensure compliance with local laws and regulations.

Taxation and Withholding Taxes

Portugal offers a favorable tax environment for businesses, with competitive corporate tax rates and various tax incentives for foreign investors. Key tax aspects to consider include:

• The corporate income tax rate in Portugal is 21% on profits, with reduced rates for small businesses and start-ups. Companies with profits below EUR 50,000 are taxed at a reduced rate of 17%.
• In addition to corporate income tax, businesses are subject to VAT, which is charged at a standard rate of 23%. Reduced VAT rates of 13% and 6% apply to certain goods and services.
• Portugal offers tax incentives for businesses involved in research and development (R&D), as well as various regional incentives for companies located in specific areas.
• Dividends paid to foreign shareholders are subject to a 25% withholding tax. However, this rate can be reduced under Portugal’s network of double taxation treaties (DTA) with other countries.
• Interest and royalties paid to foreign entities are subject to a 25% withholding tax, which can also be reduced under the DTA.

Service Providers for Company Incorporation

• PwC Portugal
• Deloitte Portugal
• BDO Portugal
• Grant Thornton Portugal
• KPMG Portugal

These service providers offer expert guidance on company formation, legal advisory, tax planning, and compliance in Portugal. They can help foreign investors navigate the local legal landscape and ensure smooth company registration and setup.