Starting a Business in Portugal as a Foreigner

Portugal has been synonymous with holidays in the sun for years, but did you know it's also great for business development?

In recent years, sunny Portugal has shed light on many successful foreign young entrepreneurs due to its unique business conditions. If you think you have what it takes to be the next, you've come to the right place!

Why Start a Business in Portugal?

Why Portugal and not other European countries?

Well, let's break it down:

• **Economic growth and stability:** Portugal has emerged as a beacon of economic resilience and ethical business practices. With its steady growth, it offers a stable environment for businesses to thrive and expand.

• **Supportive government policies:** The Portuguese Government has a history of rolling out the red carpet for startups and entrepreneurs, offering incentives, grants, and international support mechanisms such as the Portugal Golden Visa.

• **Thriving expat community:** Don't worry if you ever feel the pangs of homesickness, because Portugal boasts a bustling expat community! From networking events to social gatherings, you'll have no problem finding like-minded individuals to share a glass of wine and discuss your next big business idea.

Understanding the Portuguese Business Ecosystem

With its rich history of explorers and traders, Portugal has always been a melting pot of innovation and commerce. This legacy lives on today, with the country offering a diverse and dynamic business culture that beckons entrepreneurs from every corner of the globe.

Popular Industries for Foreign Entrepreneurs

These are the best industries for entrepreneurial innovation in Portugal:

• **Tech and startups:** Cities like Lisbon and Porto are becoming European hubs for corporate and entrepreneurial innovation, with numerous business incubators, accelerators, and co-working spaces sprouting up.

• **Tourism and hospitality:** With its stunning landscapes, rich history, and delectable cuisine, Portugal is a magnet for tourists. This presents vast opportunities in the tourism industry, from boutique hotels to culinary ventures.

• **Real estate and property development:** The allure of the Portuguese lifestyle and the country's strategic location have led to a surge in demand for properties.

• **Renewable energy:** Portugal's commitment to sustainability has opened doors for ventures in solar, wind, hydroelectric power, and other types of renewable energy. In the age of Corporate Social Responsibility, this can be a key reason for deciding to start a business in Portugal.

Chambers of Commerce and Business Associations

Navigating a new business landscape can be daunting, but you're not alone!

Portugal's local chambers of commerce and various other business associations play a pivotal role in guiding foreign investors by offering:

• **Networking opportunities:** Regular events, seminars, and workshops where you can meet industry leaders, potential partners, and fellow entrepreneurs.

• **Resources and training:** Access to market data, legal advice, and training sessions tailored for Portuguese companies.

• **Advocacy:** Representation of the interests of your business operations, especially in policy-making and regulatory matters.

Choosing the Right Company Structure in Portugal

Starting a business in Portugal is an exhilarating journey, and selecting the appropriate legal structure is one of the first crossroads you'll encounter in this journey. This choice will influence everything from your tax obligations to your level of liability, so it's crucial to get it right.

Overview of Business Structures in Portugal

• **Sole Proprietorship (Empresário em Nome Individual):** Ideal for self-employed sole traders, sole proprietorships are easy to navigate and require minimum investment but assume unlimited liability. They're a single-member limited company, not suited for companies with more than one proprietor.

• **Private Limited Liability Company (LDA):** A popular choice for small to medium-sized companies, LDAs offer limited liability and can be set up with one (as a Unipessoal) or more shareholders. This type of individual limited liability establishment also has the benefit of requiring minimum investment compared to other alternatives.

• **Public Limited Liability Company (SA):** Suitable for larger ventures, SAs require a higher minimum share capital and are subject to more stringent regulations. Due to their overwhelming administrative requirements, SAs may not suit the average Portuguese tax resident.

• **Partnerships:** These can consist of a collective companies general partnership (Sociedade em Nome Colectivo) or of a limited partnership (Sociedade em Comandita), depending on the liability and involvement of partners.

Additional types of legal structures include non-profit organizations, cooperatives, or mutual guarantee companies.

What is Unlimited Liability?

Unlimited liability refers to a situation where the owners of a business are personally responsible for all the debts and liabilities of the business. This means that if the business can't cover its debts or faces legal action, the personal assets of the sole trader can be used as business assets to settle these obligations.

Since there is no legal separation between personal and business assets, non-limited liability causes all of the risk to fall on the entrepreneur's lap.

Is a Private Limited Company Best for Foreigners?

Choosing the best business structure for your business in Portugal depends on many factors. However, private limited companies (LDAs) are generally considered the safest and most popular option. Here's why:

• They offer limited liability by separating business and personal assets.

• They can be set up by one single business owner (as a Unipessoal).

• They're ideal for both small and medium-sized companies.

• They're perfect for scaling foreign investment projects with minimum capital compared to SAs.

In sum, LDAs are great due to their versatility and minimum capital investment requirements, which fit both a small online business as well as a more ambitious private limited company.

Navigating the Registration Process

Starting a business in Portugal can be an exciting and rewarding experience, but it's important to navigate the registration process with precision. As a foreigner, there are some additional considerations to keep in mind, so here's a step-by-step guide to ensure you're on the right track:

Step-by-Step Guide to Registering a Business with the Portuguese Government

1. Make sure you can legally start a business in Portugal: Ensure that you meet basic legal requirements such as having a Portuguese residency card, a Portuguese tax identification number, and a social security number. If you are a non-EU national, you'll also need to obtain a Portuguese visa and residence permit. To be extra sure, familiarize yourself with the Portuguese Companies Code.

2. Choose a name for your company: Select a unique name for your business.

3. Reserve your company name: Before registering your business, you may reserve the name of your company online via the Portuguese Commercial Registry Office.

4. Open a bank account: Create a business bank account to manage your company's finances.

5. Draft and notarize articles of association: Depending on your business structure, you'll need to draft and notarize the articles of association, officially outlining your company's objectives and share distribution in legal form.

6. Register with the Commercial Registry: Head to the Commercial Registry (Registo Comercial) to officially register your business once all your documents are in order.

7. Obtain necessary licenses and permits: Depending on your industry, you might require specific licenses or permits. Ensure compliance to avoid legal issues.

8. Register for Social Security and VAT: Ensure you're registered for Social Security and VAT (IVA in Portuguese).

Special Considerations for Non-Residents

1. Legal representation: If don't reside in Portugal, you might need to appoint a legal representative to act on your behalf during the registration process.

2. Documentation: All foreign documents must be translated into Portuguese and notarized. Some might also require an apostille stamp for validation.

3. Staying updated: Regulations can change, so ensure you're always updated on any changes that might affect Portuguese companies.

In case you're having a hard time with the commercial register of your business in Portugal, you can hire the services of external company formation agents.

Business apps such as Rauva can also help you set up and register your company in Portugal.

Navigating Banking and Portuguese Tax Office Essentials

Navigating the financial landscape of a new country can be a maze, especially when you're setting up a brand-new business...

But fear not, as Portugal offers a robust banking system and a transparent tax structure that, once understood, can be a boon for your entrepreneurial journey. Let's dive into the essentials:

Opening a Business Bank Account

Having a dedicated business bank account is not just a recommendation—it's a necessity! It ensures clear financial records, simplifies tax filings, and offers a professional front when dealing with clients or suppliers.

Here are some tips to keep in mind:

• **Choose the right bank:** Portugal boasts a healthy mix of international and local banks. Research and choose one that aligns with your business needs. Some popular choices include Millennium BCP, Banco Santander Totta, and Novo Banco.

• **Collect the required documentation:** Typically, you'll need your business registration certificate, tax number, proof of address, and identification. For non-residents, additional documentation might be required.

• **Online banking:** Most Portuguese banks offer comprehensive online banking services, which is especially beneficial for non-residents.

• **Fees:** Be aware of any account maintenance fees, transaction charges, and other associated banking costs.

Complying with the Portuguese Tax Authority

Portugal's tax system is complex, but that doesn't mean it's not manageable. Here are some key concepts to help you get started:

• **Corporate Income Tax (IRC):** Businesses are subject to IRC, which is levied on their profits. The standard rate is 21%, but reduced rates might apply to smaller businesses.

• **Value Added Tax (VAT):** If your business deals with goods or services, you'll likely need to charge VAT. The standard rate is 23%, but changes may apply if your company is based outside of mainland Portugal, in Madeira or Azores.

• **Social Security contributions:** Employers are required to make social security contributions on behalf of their employees. The rate is typically 23.75% of the employee's gross salary.

• **Double taxation agreements:** Portugal has double taxation treaties with several countries. This means that if you're paying corporate tax in another country, you might be exempt or receive a credit in Portugal.

• **Tax benefits:** Portugal offers various corporate tax incentives for startups and businesses in specific sectors.

• **Filing and deadlines:** Ensure you're aware of tax filing deadlines. Late submissions can result in penalties. Consider hiring a local accountant or tax consultant to guide you through the intricacies. In addition, pay attention to the Portuguese Tax Calendar.

Leveraging Local Resources for Your Business in Portugal

Starting a business in Portugal can be challenging, but the country offers loads of resources designed to support, nurture, and propel your company forward. Here are some of the resources you can tap into:

Government Grants and Incentives for Startups

The Portuguese Government recognizes the value of startups and foreign investment. As a result, there are several programs and incentives in place:

• **Startup Visa program:** Tailored for non-EU/EEA entrepreneurs, this program facilitates the issuing of a residence permit and offers support to those looking to establish a new company or move their existing foreign companies to Portugal.

• **Portugal Golden Visa:** A program designed for wealthy investors outside of the European Union that grants benefits such as a residence permit and Portuguese citizenship. It requires a minimum capital investment of up to €1.5 million.

• **Tax incentives:** A new company in Portugal can benefit from reduced corporate tax rates, tax credits for R&D, and other fiscal benefits designed to ease the initial stages of business growth.

• **Innovation support:** Institutions like IAPMEI offer tireless support for innovative projects, providing financial aid and expert guidance.

Networking Events and Platforms for Expat Entrepreneurs

Building connections is crucial, especially when you're new to a country. Luckily, Portugal has a vibrant business networking scene, with:

• **Lisbon Startup Week:** An annual event that brings together entrepreneurs, investors, and other professionals. It's a fantastic opportunity to learn, network, and showcase your company in Portugal.

• **Web Summit:** Held annually in Lisbon, Web Summit is one of the world's largest tech conferences.

• **Meetup groups:** Platforms like Meetup have several groups dedicated to expat entrepreneurs with a company in Portugal. These events are more intimate and allow for deeper connections.

• **Co-working spaces:** Co-working spaces aren't just workspaces. They host events, workshops, and social gatherings, making them hubs for the entrepreneurial community.

• **Local Chambers of Commerce:** Organizations such as the British-Portuguese Chamber of Commerce host events regularly and provide resources tailored for expat business owners.

Starting a Business in Portugal as a Foreigner: The Bottom Line

Starting a company in Portugal is always an exhilarating journey, especially as a foreigner. However, it also brings its fair share of challenges. To help you start your business in Portugal on the right foot, here's a summary of the five most important challenges (and solutions) we have discussed today:

1. Excessive Bureaucracy

Challenge: Red tape can be a problem in Portugal. From commercial registration to obtaining licenses, the administrative process can sometimes be overwhelming for foreigners trying to create a company in Portugal.

Solution:

• **Stay informed:** Familiarize yourself with the necessary procedures by visiting official government websites and seeking advice from local business associations. Pay taxes timely and correctly to avoid penalties.

• **Hire a local consultant:** Consider hiring a local business consultant or lawyer who can guide you through the company register process, ensuring all paperwork is in place.

2. Language Barrier

Challenge: Even though Portugal is the 7th country in the world most proficient at speaking English as a second language, most official documents required for creating a company in Portugal might be in Portuguese.

Solution:

• **Learn basic Portuguese:** Even a rudimentary understanding can go a long way in building rapport and navigating day-to-day tasks.

• **Utilize translation services:** For official documents, consider using professional translation services to ensure accuracy.

3. Cultural Differences in Business Etiquette

Challenge: Every country has its unique business culture. If you don't understand and adapt to Portuguese business etiquette, you'll have a tough time making meaningful business connections.

Solution:

• **Research and observe:** Take time to understand the local business customs.

• **Ask for feedback:** Don't hesitate to ask local colleagues or partners for feedback on your interactions. They can provide valuable insights to help you adapt.

4. Access to Local Networks

Challenge: As a newcomer, building a local business network can be challenging. To make an impact, no company in Portugal should ever feel too isolated.

Solution:

• **Join business associations:** Organizations like the local Chamber of Commerce can provide you with networking opportunities and resources tailored for foreign entrepreneurs.

• **Attend local events:** Participate in local business events, workshops, and seminars. This will not only help you gain knowledge but also meet potential partners, clients, and mentors.

5. Local Market Dynamics

Challenge: The Portuguese market, with its unique demographics and consumer preferences, might differ from what you're accustomed to. Even if you have successfully created a company abroad, take some time to understand Portugal's market dynamics.

Solution:

• **Conduct thorough market research:** Before diving in, interiorize the local market trends, consumer behavior, and competition.

• **Engage with local experts:** Collaborate with local market research firms or consultants who can provide insights tailored to your industry.

Conclusion

Portugal, with its sun-kissed beaches, rich history, and vibrant culture, is not just a dream destination for tourists but also a land brimming with business opportunities.

The nation's steady economic growth, coupled with a supportive entrepreneurial ecosystem, makes it a beacon for foreign entrepreneurs looking to make their mark. So, what are you waiting for to finally start your business in Portugal?