Investment in PORTUGAL
Setting up a Company in Portugal
Portugal as an investment location offers a strategic access to markets, proactive investment reforms, cost-competitive, qualified and flexible workforce, strategic commitment to education and science, and an excellent environment to live and work.
API – Agência Portuguesa para o Investimento was created in November 2002 representing a new era for doing business in Portugal, with the mission to promote investment in Portugal. This means attracting more projects (from new and existing investors), but also higher value-adding initiatives. The Agency was created in a context of change and strong commitment to structural reform, aimed at enhancing Portugal’s attractiveness as an investment location. At the moment API is the single
In order to set up and legally incorporate a company in Portugal it is necessary to:
- Chose the sector of activity and determine the scope / corporate object of the company
- Chose the most convenient legal form of company to be set up
- Chose a name for the company and request of the Official Certificate of Admissibility for the chosen name. To obtain a name for the company. The following information is required:
- Name of the investor – could be an individual or a company (we would suggest that only one investor should be named as this is the simplest method as it is only necessary to register the statutes with the Company Registry)
- Three company names (assistance on the advisability of the suggested names may be provided)
- Legal form of company (we would suggest that you form a “Sociedade Unipessoal por Quotas”. This type of legal entity is a limited company in which no shares are involved. The investor is named in the statutes of the company and the sale of transfer of the quotas can only be effected by alteration of the statutes
- The area in Portugal where the registered office will be located (say Lisbon)
- The object clauses of the company
- Obtain a provisional tax number for the company
- Elaborate the "Articles of Incorporation/Association"
- Deposit the minimum legal capital of €5,000 in a bank account subscribed by the future company and a certificate obtained confirming that the capital has been deposited
- Effect the public deed of incorporation. Drafting powers of attorney for the formation of the company to be executed by the investor and obtain a certified translation of these powers
- Register the initiation of activity "Declaração de Início de Actividade" at the Tax Department for value added tax and corporation tax
- Estimate that the cost of incorporating the company would be as follows:
Euro Legal Fees 1,250 Expenses 500 1,750
- Enrol the company at the local Commercial Registrar
- Publish the deed in the official newspaper "Diário da República" and in a local newspaper
- Enrol the company at the Social Security Department
- Registering the minute book with the Commercial Registry and the Tax Department
Forms of Enterprise
A foreign investor intending to carry out business in Portugal may choose from various forms of business enterprises, including companies, joint ventures, and branches of foreign companies, partnerships and trusts.
Different forms a company may be adopted:
- Private Limited Liability Company - "Lda." (sole trader or plural)
- Corporation - "SA"
- Holding Companies - "SGPS"
- General Partnerships - "SNC"
- Joint Ventures
- Branches of Foreign Companies
In practice, Private Limited Liability Companies - "Lda." and the Corporations - "SA" are the most widely used types. Smaller businesses and subsidiaries of foreign multinational corporations generally adopt the Lda. form, which has fewer formalities.
Designation: Private Limited Liability Company (Lda.)
- Name of the company followed by "Lda."
- Share Capital (corporate capital) - Minimum of €5.000 and €100 per contribution.
- Number of partners - Minimum of 1
- Normalities required - Public notary act and registration in the Commercial Registrar
- Responsibility/liability - Limited to contribution
- Administration - Managers
- Taxes Payable:
- Income Tax: IRC - 23%
(The first 15.000Eur of taxable income is taxed at the rate of 17% for small and medium businesses.)
- Expenses tax: IVA - 23%, 13% and 6%
- Low number of partners
- Low minimum capital
- Large intervention of the partners in management
Designation: Corporation - "SA"
- Name of the company followed by "SA"
Larger businesses and public companies use the SA form. Shares in an SA are generally transferable, but quotas cannot be transferred without permission of the company. The transfer must be made through a notary deed.
- Share Capital (corporate capital) - Minimum of €50.000 and €1 cent per share
- Number of partners - Minimum of 5
- Formalities required - Public notary act and registration in the Commercial Registrar
- Responsibility/liability - Limited to contribution
- Administration: - Board of Directors
- Taxes Payable:
- Income Tax: IRC - 23%
- Expenses tax: IVA - 23%, 13% and 6%
- Large number of partners
- Dispersed capital
- Share transmission*The choice of one of the above companies depends on different factors such as:
- The share capital available
- The type of administration requested
- The area of activity
Designation: Holding Companies - "SGPS"
Decree Law 495/88, of 30 December 1988 created the pure holding company (Sociedade Gestora de Participações Sociais or SGPS), which owns and manages investments. In general, each investment held by the SGPS must represent at least 10% of the share capital of the associated company and must be held for a minimum period of one year. An SGPS may own less than 10% of an associate company’s share capital if one of the following situations exists:
- According to the last approved balance sheet of the SGPS, the shareholdings of the SGPS in the associated company do not exceed 30% of the total value of the holdings in other associated companies and the shareholdings of the SGPS in the associated company represent at least 10% of the share capital with voting rights in such company
- The acquisition value of the participation is at least €4.99 million
- The participation derives from a merger or spin-off of the associated company
- The participation is in an associated company with which the SGPS has signed a subordination agreement (an agreement under which a SGPS subordinates its management to the management of another company).
- An SGPS may not engage in commercial or industrial activities, including the management of companies not in its group. However, it may provide management and treasury functions to group companies. In addition, an SGPS is subject to the following rules:
- It may purchase real estate only for its own use and for the use of companies in which it holds more than 10% of the share capital
- It may not provide credit to non-group companies.
Designation: General Partnerships - "SNC"
Partnerships are rare in Portugal and are primarily used by self-employed professionals.
General partnerships (Sociedades em Nome Colectivo) are characterised by the unlimited liability of all partners. Consequently, the number of members is generally restricted to those who effectively manage the partnership. From an economic standpoint, these partnerships are of limited use and are rarely used in Portugal.
The mixed liability company (Sociedade em Comandita Simples) is practically non-existent in Portugal. The primary characteristic of this type of company is that some of the partners, known as general partners, have unlimited liability, while others, known as limited partners, have limited liability up to the value of their registered capital.
The limited partnership (Sociedade em Comandita por Acções), although legally permissible, is also virtually non-existent. The legal form is identical to that of a mixed liability company, except that shares represent the registered capital of the limited partners.
Professional partnerships are those formed by members of the liberal professions, such as lawyers, doctors, engineers and consultants. Professional partnerships are formed with contributions from each partner rather than share capital. They may be formed by a notary deed that sets out the bylaws of the partnership, including the rules governing the admission of new partners and the method for sharing profits.
Designation: Joint Ventures
Joint ventures may take the following forms:
- Consortium (Contrato de consórcio);
- Silent partnership (Associação em participação);
- European Economic Interest Grouping (Agrupamento Europeu de Interesse Económico, or AEIE)
- Association of business enterprises (Agrupamento complementar de empresas, or ACE).
A consortium is a contractual arrangement favoured by companies coming together for a specific project, usually a large construction project. The formation of the consortium is evidenced by an agreement in writing (if the assets include real estate, the agreement must be executed in the form of a notary deed), which usually contains provisions for the participating parties to contribute the assets necessary to execute the project. In an external consortium, activities and goods are supplied directly to third parties by each of the members, expressly claiming their membership in the consortium. In principle, each member invoices and receives directly the amounts due from third parties, but the agreement may provide a different profit-sharing method. One of the members of the consortium, known as the leader of the consortium, generally manages the business of the consortium and represents the other parties. In an internal consortium, activities and goods are supplied to a member of the consortium, which supplies the third parties, or are supplied directly to third parties by each of the members without expressly claiming their membership in the consortium.
2. Silent Partnership
The association of a person to an economic activity carried on by another, the former participating in the profits or in the profits and losses of the latter may be designated as a silent partnership. The formation of the silent partnership does not require a written agreement, unless an underlying transfer of assets requires such agreement or unless the silent partner does not expect to participate in the losses or to bear unlimited responsibility regarding those losses.
3. European Economic Interest Grouping
An AEIE is an association with unlimited liability consisting of individuals and companies from EU member states.
4. Association of Business Enterprises
An ACE is similar to an AEIE except that its investors are not required to be EU residents. An ACE may engage only in activities that are preparatory or auxiliary with respect to the group’s principal activity. It may not engage in activities that are principally designed to generate profits. With some exceptions, an ACE is treated under commercial law as a company.
The trust concept does not exist under Portuguese law, with the exception of Decree Law No. 352-A/88, of 3 October 1988, which allows the establishment of offshore trust companies in the Madeira Free Zone. Broadly, under such decree, an offshore trust company may be established if the settlers and beneficiaries are not residents of Portugal and if the company derives income only from sources outside the zone and outside Portugal. However, a trust company may invest funds with financial institutions operating in the zone. Trust companies are permitted in the zone if they have a minimum capital of €99,760.
Designation: Branches of Foreign Companies
A non-resident company that intends to carry on an activity in Portugal for more than one year must register a permanent representation (branch) with the Commercial Registry and with the National Registry of Collective Persons (Registo Nacional de Pessoas Colectivas, or RNPC). The formalities for establishing a branch involve the appointment of a local manager with the power to represent the company, the filing of an application for a name and the verification of the parent company’s incorporation documents. The articles of association of the parent company and a copy of the minutes of the board of directors meeting containing the decision to open the branch must be filed with the Commercial Registry. With some exceptions, the branch may carry out any type of activity.
As in other countries, a branch may have more difficulty obtaining local financing than a local subsidiary; however, this may not be considered a major problem.
Mergers and Reorganisations
Approvals for mergers and acquisitions from commercial authorities (the General Directorate of Competition and Prices or supervisory bodies) may be required if the companies involved exceed a certain size or engage in certain activities.
The most common forms of reorganisation are mergers (fusão) and spin-offs (cisão). Full details regarding a proposed merger must be submitted to the shareholders who must approve the merger. In addition, they must be filed at the Commercial Registry and published in the Diário da República. Creditors may take action in the courts to challenge a merger or spin-off within 30 days of publication of the details of the merger in the Diário da República.
Portugal offers a wide range of investment incentives to domestic and foreign investors. The incentives are offered by the central government, the regional governments of the Azores and Madeira and by municipalities.
The Portuguese government and the EU Commission drafted a framework covering financial support for business for the period of 2000 through 2006. (To view the investor’s guide produced by the Portuguese Economy Ministry click here).
Funds provided under the approved framework can be cash grants, interest-free loans or rebates on the interest charged on medium-term loans granted by financial institutions. In the latter case, government agencies pay directly the interest imposed on such loans. The financial institution must be established in Portugal and enter into a memorandum of understanding with the relevant government agency.
In addition to Portuguese legislation granting financial support, EU-funded programs offer incentives to EU investors in particular areas. The municipalities usually provide land at a reasonable price or undertake some of the infrastructure work related to the setting up of project facilities. Some municipalities also offer technical assistance during the initial phase of a project. The recently created Portuguese Investment Agency (Agência Portuguesa para o Investimento, or API) is responsible for all investments exceeding €25,000,000 in all sectors. Investments of less than this amount are also subject to the jurisdiction of the API if the companies and their parent companies generate annual sales exceeding €75,000,000
If the investments do not exceed €25,000,000, but the companies or their parent companies present sales over €75,000,000 they will also fulfil API’s requirements. The API also invests public venture capital in qualifying companies and promotes investment in business parks.
Operational Programmes are public incentive regimes, which are designed to support several economic sectors. These regimes are funded by EU Structural Funds, which are funds provided by EU members to assist in the structural development of industry, agriculture, infrastructure and other sectors. The Operational Programmes are summarised below. (For official website click here)
The Operational Programme for the Economy (Programa Operacional da Economia, or POE) supports the modernisation and internationalisation of Portuguese economic activity. POE is administered by the Institute for Support of Small and Medium-Sized Enterprises (Instituto de Apoio às Pequenas e Médias Empresas e ao Investimento, or IAPMEI), the Foreign Trade Institute (Investimentos Comércio e Turismo de Portugal, or ICEP) and the Financial Institute for the Support of Tourism (Instituto de Financiamento e Apoio ao Turismo, or IFT).
Companies may apply for support under the POE program if they are involved in any of the following: mining; manufacturing; energy; certification under ISO Standards 9000 and 14000; tourism; commerce; civil construction; certain services; and transportation.
To qualify for support under the POE program, a company must meet certain conditions, including the following:
- They must have a debt-to-equity ratio lower than 3:1
- They must not owe any debts to the tax or social security administrations
- They must be in compliance with all the legal conditions for performing their activity, including the obtaining of the appropriate licences
- They must maintain their accounts in accordance with Portuguese General Accepted Accounting Principles (GAAP; also known as Plano Oficial de Contabilidade or POC)
- They must have the technical and managerial ability to sustain the development of the project.
The following additional conditions apply to the investment:
- The minimum investment must be €150,000 for small and medium-sized companies and €600,000 for other companies;
- The investment must be made over a period not exceeding two years;
- The investment must consist of at least 30% equity; and
A diagnostic and strategic analysis must support the investment.
The cash grant under the POE program is calculated as a percentage of the eligible professional training costs.
The reimbursable incentive which is a non-interest-bearing loan, is calculated as a percentage of the following eligible costs: land; buildings and equipment; payments for transfers of technology such as patents, exploration licences and know-how; productive investment abroad; costs of acquisition and registration of intangible assets, such as trademarks and patents; market studies and studies related to strategies for internationalisation; promotion and marketing technical assistance; energy savings tests and essays; certification under ISO standards 9000 and 14000; diagnostic and strategic studies; audits; architectural and civil engineering projects; legal certification of accounts; costs related to bank guarantees; and insurance and freight for equipment purchased for the project.
The basic support, which is the cash grant and the reimbursable incentive, equals 30% of the eligible costs. The maximum amount of financial support provided as a reimbursable incentive is €3,750,000.
Additional incentives may be allowed depending on the following: location; whether the company is small or medium-sized; whether the company is owned by young entrepreneurs; and the environmental value-added of the project.
Support for costs related to professional training, R&D activity, and internationalisation can be upgraded up to a maximum of 90%, 80%, or an additional 30% (small company) or 10% (medium-sized company) if certain conditions are satisfied. The maximum amount of financial support for internationalisation equals €1,250,000.
With respect to the eligibility of the project under the contractual regime of foreign investment the financial incentive may not exceed the maximum level of state aid approved by the European Commission under the “map for regional support.”
Effective from 17 December 2002, investments in the Lisbon Tagus Valley region (Lisboa e Vale do Tejo, or LVT) are no longer eligible for the incentives described above.
A new programme named the Business Modernisation Incentive Program (Programa de Incentivos à Modernização Empresarial, or PRIME) is expected to replace the POE by the middle of 2003. However, this new programme is not expected to introduce significant changes.
The AGRO programme supports the following: modernisation, conversion and diversification of farms; processing and commercialisation of agricultural products; development of forests; management of hydro-agriculture infrastructure (irrigation systems); enhancement of the agriculture potential of farms that have suffered natural catastrophes; financial engineering; professional training; technological development and demonstration; information technology infrastructure; and specialised rural services. The Financial Institute for the Support and the Development of Agriculture and Fisheries (Instituto de Financiamento e Apoio ao Desenvolvimento da Agricultura e Pescas or IFADAP) administers the AGRO programme.
Eligible investments of up to €450,000 in projects related to the modernisation, conversion and diversification of farms or the development of forests can qualify for financial support in the form of a cash grant The amount of capital expenditure exceeding €450,000, but not exceeding €750,000, per farm, can qualify for financial support in the form of a reimbursable incentive.
Projects related to the processing and commercialisation of agricultural products can qualify for basic financial support of 30% of the eligible costs. The projects are classified into three categories. Category 1 covers eligible investment costs up to €250,000. Category 2 covers eligible investment costs exceeding €250,000. Category 3 covers projects with capital expenditures exceeding €5,000,000, and therefore, included in the contractual regime (this regime applies to projects in the agricultural sector with a strong structural effect in the agricultural sector) contained in the legislation. For start-up or environment-related projects of Category 1, the cash grant equals 50% of the eligible costs. For projects under Category 2, the basic financial support of 30% can be increased to 50% under specific conditions provided by the regulation. The maximum amount of cash grant available for projects of Category 2 is €1,750,000 and the total financial support is limited to €3,750,000. For projects in Category 3 with eligible investment between €5 million and €12.5 million, the financial support may vary from 30% and 50%, depending on specific conditions set out in the regulations. For projects over €12.5 million, the maximum financial support equals 30% of the eligible costs. For projects exceeding €50 million the amount of financial support also depends on the following:
- Its contribution to the increase in competition in the sector;
- The increase in employment resulting from the project;
- The adoption of modern agricultural techniques and machines; and
- The impact on regional development.
Projects involving the extraction, processing and commercialisation of cork and its products can qualify for basic financial support of 30% of the eligible costs. These types of projects are classified in two categories. Category 1 covers eligible investment costs up to €250,000, while Category 2 covers eligible investment costs exceeding €250,000, but not exceeding €12,500,000. For projects in Category 2 the percentage can be increased from 30% to 50% under specific conditions set out in the regulation. The maximum support provided to projects under Category 2 is €3,750,000. Up to 80% of this support can be in the form of cash grant not exceeding €1,750,000, with the balance being in the form of reimbursable incentives.
Effective from 29 April 2003, investments in the LVT are not eligible for the incentives described above.
The AGRIS programme supports the diversification of small farms engaged in agricultural and forestry activities and the promotion of alternative sources of income for families in rural areas. IFADAP administers the AGRIS programme.
Under the AGRIS programme, the maximum eligible investment during the period of 2000 through 2006 is €45,000, and the financial support is a cash grant equal to 50% of the eligible investment.
The MARE programme supports the following: definitive withdrawal of vessels from fishing activity through conversion to scrap, transfer to another country or use for a different purpose; establishment of fishing joint ventures; modernisation of fishing vessels; construction of new fishing vessels; development of aquiculture; modernisation of equipment in fishing harbours; processing and commercialisation of fish and aquiculture products; fishing along the coast; socio-economic support of fishermen whose vessel have been permanently withdrawn from fishing activity; research to support a decision to enter into new capital markets; and related capital expenditure; compensation for temporary stoppage of fishing operations; innovative activities and pilot projects regarding fishing; alternative means of financing and applied R&D for fisheries. The Directorate General for Fisheries and Agriculture (Direcção Geral das Pescas e Agricultura, or DGPA) administers the MARE programme.
Financial support for definitive withdrawals from activity of fishing vessels is available through a cash grant equal to 60% of the amounts fixed in the regulation (Portaria No. 56-C/2001), which vary according to the type of vessel.
Financial support for projects related to the processing and commercialisation of fish products and the development of aquiculture is provided for three categories of investment projects. Category 1 includes eligible investments up to €600,000. These investments qualify for cash grants equal to 40% of amount of the investment. Category 2 consists of eligible investment projects exceeding €600,000, but not exceeding €2,500,000. These investments qualify for support equal to 40% of the investment. Up to 80% of this support may be in the form of a cash grant, while the balance is in the form of a reimbursable incentive. Small and medium-sized enterprises receive an additional 10% as a reimbursable incentive. Category 3 consists of investment projects with eligible investment exceeding €2.5 million. These projects receive financial support equal to 40% of the costs. The support is divided equally into a cash grant and a reimbursable incentive. The maximum amount of cash grant is €1.5 million, and the total amount of financial support is limited to €3 million.
Financial support for projects involving the construction of new fishing vessels is granted in the form of a cash grant and reimbursable incentive. The cash grant equals 40% of the eligible cost, and the reimbursable incentive carries a 2-year grace period, and a 3-year repayment period.
Financial support for investment projects related to the establishment of fishing joint ventures is granted as a cash grant equal to 60% of the amounts fixed in the regulation, which varies depending on the type of vessel. Under certain circumstances specified in the regulation, the percentage can be increased to 80%.
Currently, the only existing free zone is located in Caniçal in the Autonomous Region of Madeira.
Another free zone is foreseen for the Azores in Santa Maria. However, the regional government in the Azores must enact certain regulatory measures before the zone is established. Under Regulatory Decree No 53/82 of 23 August 1982, the following are significant aspects of the free zones:
- Goods in free zones are considered not to be in customs territory of the EU for the purpose of the application of customs duties, quantitative restrictions and similar measures.
- No restrictions are imposed on the entry of any type of goods into free zones regardless of quantity or country of origin or destination. Presentation of the bill of lading or other documentation is not required. It is only necessary to deposit a manifest of the goods with the customs authorities.
- Goods manufactured in Portugal or fully duty paid on importation into Portugal may enter the free zones if appropriate documents are submitted.
- The export of foreign goods by ship or air to a foreign destination may be made without customs formalities. The only requirement is that goods must be escorted by a customs official to the actual point of expedition.
- Transfers of goods from the free zones to Portugal are subject to duties and other taxes on the foreign component of the final product if the free zone has been used only as a staging post or bonded warehouse.
Madeira Free Zone
The free zone in Madeira is known as the Madeira Free Zone (Zona Franca da Madeira, or ZFM). All industrial, commercial and financial activities may be authorised in the ZFM. Applications are examined and approved by the Madeira regional government or by an entity designated by it. The Madeira Development Company (Sociedade de Desenvolvimento da Madeira, or SDM) is the official contact for the ZFM.
In addition to various tax incentives companies established in the ZFM generally benefit from the following:
- Exemption from quotas (limitations on the import or export of goods) and customs duties on the export to EU and non-EU countries of goods produced in the ZFM that incorporate raw materials originating in the EU;
- Exemption from quotas and customs duties on the export to non-EU countries of goods produced in the ZFM that incorporate raw materials not originating in the EU;
- For the export of goods produced in the free zone that incorporate raw materials not originating in the EU, customs duties apply only to the amount of raw material imported from non-EU countries, and not on the value added in the ZFM; and
- Temporary VAT exemption for the import of raw materials.
Under EC Council Decision No. 122/96 of 22 January 1996 and EC Commission Regulation No. 122/96 of 28 July 1997, the customs duties applicable to certain goods released for free circulation in the ZFM that include raw materials and other components imported from non-EU countries may be reduced by up to 100% if the following conditions are satisfied:
- The goods have undergone a substantial transformation in the ZFM according to the EU rules of origin contained in EC Council Regulation No. 2913/92 and will be processed at least to the extent required by Article 24 of that regulation and by Articles 35 to 46 of EC Commission Regulation No. 2454/93; and
- The processing is wholly carried out in the in the ZFM.
The favourable treatment described in the preceding paragraph is granted only to persons established in the EU and applies until 31 December 2005.
Under EC Council Regulations No. 1657/93, of 24 June 1993, as amended by EC Council Regulations No. 3256/94, of 22 December 1994, and No. 2789/00, of 14 December 2000, customs duties are suspended until 31 December 2008 for imports from non-EU countries of certain industrial products and equipment required for operations in the ZFM.
Under EC Council Regulation No. 1600/92, of 15 June 1992, and EC Commission Regulation No. 1600/92, of 30 June 1992, certain agricultural products imported into the Azores and Madeira from non-EU countries are exempt from customs duties.
Special Investment Considerations
The government has relaxed the regulation of business in line with Portugal’s efforts to adapt to EU rules and regulations. It has introduced new laws regarding price controls, competition, environmental protection, banking, insurance and securities’ markets.
Portugal has abolished most controls on prices. The government has also cut price subsidies, allowing prices to reflect costs more directly. Price controls remain in effect in certain sectors, including energy and transportation, in which the government determines that price regulation is necessary. The government consults with manufacturers to set pharmaceutical prices.
Law No. 11/87, of 7 April 1987 regulates the protection of the environment. Although certain companies have been required to build new units to treat effluents and waste, the law primarily affects new investments. All companies planning major development projects must carry out an environmental-impact study before operations begin. The study, which must be approved by the Secretary for the Environment, must include the following:
- An analysis of the location and the environment in which the project would be implemented;
- A study of environmental impact that would be caused by the project; and
- The measures proposed to avoid any damage to the quality of the environment.
The authorities are funding anti-pollution efforts through the POE incentive program by providing a wide range of subsidies and grants to domestic and foreign companies that are required to invest in environment-related improvements.
The government may suspend or reduce the level of activity of a plant if it exceeds the legal pollution levels, and may order a heavily polluting plant to change location. Under general legal principles, a new investor in an existing enterprise may be held liable for environmental damage caused by the enterprise in the past.
The Director-General for the Environment (Direcção-Geral do Ambiente) enforces legislation concerning toxic and radioactive waste, noise and chemical substances. The National Water Institute (Instituto Nacional da Água) is responsible for the control of industrial effluents.
Government-Owned Industries and Privatisation
In 1996 and 1997, privatisations of diverse types of companies generated revenues of approximately €6,484.
Most of the privatisations to date have been achieved through public offerings of shares quoted on the stock exchange. Future privatisations are expected to include transportation (the national airline), paper pulp and energy (the national oil and gas company).
To encourage public interest in privatisation issues, only 50% of dividends from companies privatised in 2002 or an earlier year are subject to corporate income tax or personal income tax (the exemption applies until the fifth year following the conclusion of the privatisation process for the company).
Restrictions on Foreign Investment
The Foreign Investment Code (Decree Law No. 321/95, of 28 November 1995) governs foreign investment in Portugal. In accordance with EU rules, the Foreign Investment Code allows non-residents to set up enterprises to engage in any economic activity open to the private sector. It also assures non discrimination among Portuguese and foreign investors.
The Portuguese Foreign Trade Institute (Investimentos e Comércio e Turismo de Portugal) is responsible for all matters relating to foreign direct investment in Portugal and to Portuguese investment abroad.
Investors requesting state aid for an investment project may apply under either of the following regimes:
- General regime of incentives; or
- Special contractual regime of foreign investment.
Registration of Foreign Investment
Under Article 8 of the Foreign Investment Code, all investments by non-resident entities and individuals in existing or new Portuguese enterprises must be registered with the ICEP for administrative and statistical purposes, within 30 days after the date of the investment.
Under the Bank of Portugal’s Notice No. 5/93, of 1 October 1993, the following foreign-investment operations must be reported to it within 10 business days after the date of the contract or transaction:
- The opening of foreign accounts by Portuguese residents
- Credits or loans granted or obtained by residents for a term longer than one year in an amount equal to or exceeding €250,000, as well as credit assignments or debt acceptances regarding such credits or loans
- Portuguese direct investment abroad or foreign direct investment in Portugal equal to or exceeding €250,000
- Investment in real estate abroad by residents
- Investment in Portugal by non-residents
- Investment in securities abroad by residents
- Opening of current accounts between residents and non-residents that are designed to use netting as a method for settling the parties’ obligations.
Contractual Regime of Foreign Investment
Under Article 6 of the Foreign Investment Code, investment projects that involve a specified amount of capital expenditure can apply for the contractual regime of foreign investment. Investment projects qualifying for such a regime may obtain special financial and tax incentives.
Regulatory Decree No. 2/96, of 16 May 1996, amended by Regulatory Decree No. 4/00, of 24 March 2000 establishes the procedures for the filing of such application. Under Portaria No. 865-A/2002, the capital expenditures associated with the eligible investment must exceed €25 million. Projects that qualify for the regime are eligible for financial incentives as well as tax incentives.
After approval is granted by ICEP, the applicant must file a formal application for the incentives in accordance with a specified time schedule. For applications covering both financial and tax incentives, the package of incentives is approved in a government cabinet meeting.
Projects under the contractual regime may qualify for financial support under the Operational Programs and tax incentives. Article 49-A of the Tax Incentives Statute and Decree Law No. 409/99, of 15 October 1999 provide tax incentives available to investment projects carried out in Portugal through 31 December 2010.
Acquisition of Real Estate
Purchases by non-residents of real estate that will not be used in a business activity need not be reported to ICEP.
Portugal does not impose foreign-exchange controls. No restrictions are imposed on inbound or outbound investments.
Unless a specific exception applies, the rules on competition set out in Decree Law 371/93 of 29 October 1993 apply to all economic activities. The legislation generally conforms to the relevant Articles 81 and 82 of the European Community (EC) Treaty.
In accordance with the principles of EU competition law, Decree Law No. 371/93 prohibits an agreement between companies if the purpose or result of such agreement is the prevention, distortion or restriction of competition in the domestic market for goods or services.
Decree Law No. 371/93 also prohibits abuses by one or more companies with a dominant position in the domestic market if the purpose or result of such abuses is the prevention or restriction of competition. However, if the results from such dominant position are deemed beneficial, companies may be granted an exemption under Article 81 of the EC Treaty.
Decree-Law No. 371/93 also inhibits the imposition of minimum prices, the application of discriminatory prices or sales conditions to equivalent services or goods, and refusals to sell.
The General Directorate of Competition and Prices (Direcção Geral da Concorrência e Preços, or DGCP) and a five-member Competition Council jointly administer Portugal’s antitrust law. A company may apply to the Competition Council for a certificate of legality for its competitive practices or for a declaration of inapplicability of Decree Law 371/93.
Decree Law No. 371/93 requires companies to notify the DGCP if a contemplated merger will result in the creation of either of the following conditions:
- Combined turnover exceeding €150 million, net of taxes, based on the previous year’s sales; or
- A market share in Portugal of at least 30%.
A merger may proceed only after it receives the authorisation from the DGCP. Mergers involving insurance companies, credit institutions and finance companies require the approval of the Portuguese Institute of Insurance (Instituto de Seguros de Portugal) and the Bank of Portugal
Regional and International Trade Agreements and Associations
Portugal is a full member of the EU, and the World Trade Organisation (WTO). Portugal is also a member of the Organisation for Economic Cooperation and Development (OECD), the International Monetary Fund (IMF) and the North Atlantic Treaty Organisation (NATO).
Major Trading Partners and Leading Imports and Exports
Foreign trade has contributed significantly to the growth of the Portuguese economy, with exports and imports representing in 2001, approximately 32% and 41% of GDP, respectively.
Major Trading Partners
Portugal primarily trades with the other EU countries. Currently, the destination for 79.7% of Portuguese exports are other EU countries, with 5.8% going to the United States, 2.8% to Portuguese-speaking countries and 1.9% to European Free Trade Association (EFTA) countries.
In 2001, Portugal’s primary sources of imports were Spain (27%), Germany (14%), France (10%) and Italy (7%). Portugal’s primary export destinations were Germany (19%), Spain (19%), France (13%) and United Kingdom (10%).
In 2001, North America accounted for 6.3% of Portugal’s exports and 4% of its imports. The United States was the fifth largest destination for Portugal’s exports, accounting for 5.8% of the total.
Leading Imports and Exports
In 2001, Portugal’s exports of manufactured goods represented 98% of total exports. Exported manufactured goods included machinery and electrical material, clothing textiles, vehicles and transport equipment, footwear, paper and pulp products and chemicals.
In 2000 and 2001, exports of goods and services increased by 10% and 1%, respectively, while imports increased in by 10.1% in 2000 and decreased by 2% in 2001.
In 2001, textiles and clothing accounted for 18.7 % of the total of exported manufactured goods, with machinery and electrical and optical goods accounting for 14.2 % (this category of goods includes moulds for the plastic industry, machine tools and engines, chips, microchips and television sets), automobile and other transport equipment accounting for 18.1%, and wood, cork, paper and pulp products accounting for 9.6%.
In general, goods may be freely imported into and exported from Portugal. Portugal applies EU and other international restrictions to certain goods. For purposes of supervision and inspection and public health and safety, certain import restrictions are imposed, particularly on goods from non-EU countries.
As a result of Portugal’s membership of the EU, Portuguese imports are subject to the EU common external tariff. In general, import duties are not levied on goods imported from other EU member states if the goods are in free circulation. Goods are considered to be acquired from another EU member state if they originated from within the EU or, for goods originating outside the EU, if all duties applicable on the importation of the goods into the EU have been paid. The EU also provides preferential tariff arrangements to a large number of countries. As a result of these arrangements, many goods benefit from a reduced or zero rate of duty. These arrangements relate to the origin of the goods and vary widely among countries. Complex rules govern eligibility for preference arrangements. Before importation, importers must ensure that these rules are satisfied and that the necessary documentary evidence is obtained from the supplying country.
If duty is due, accurate product classification is essential to ensure that the correct amount is paid. Certain goods may be subject to a quantitative tariff, allowing duty-free entry only up to a certain limit. Special types of relief from customs duties are granted in certain circumstances. These special types of relief are described below.
Inward Processing Relief
Under the system of inward processing relief (IPR), goods imported from outside the EU for processing and subsequent re-export may be relieved from customs duties and from certain other charges. IPR may be general or specific.
Outward Processing Relief
Subject to certain conditions, outward-processing relief (OPR) allows goods to be exported from the customs territory of the EU for processing and re-imported partially or wholly free of import duty.
Although the relief is intended to cover goods temporarily exported for the purpose of completing a specific process, it may also be granted if exported goods return to the EU and if either of the following conditions apply:
- The goods are in the same condition as when they were exported; or
- The goods are intermediate products of a process that has only been partially completed.
Portugal follows the valuation system of the World Trade Organisation (WTO) for determining the customs value for import duty and import value-added tax (VAT) purposes. Under this system, six specified methods of valuation must be applied in hierarchical order. The first, or primary, method of valuation is based on the price actually paid or payable for the goods, that is, the transaction value. However, other methods of valuation may be applied according to WTO specifications.
Anti-dumping duty is imposed on specific goods originating from, or exported by, designated countries or exporters. It is levied to protect EU trade and applies to goods that are imported into the EU at prices less than the “normal value,” which is usually the value of the same or substantially similar products in the exporting country. Anti-dumping duty is levied to increase the price of the imported goods up to an acceptable amount; consequently, it may be imposed at high rates. Anti-dumping duty is payable in addition to other import duties and taxes.
Anti-dumping duties may also be levied on products that are assembled or produced in the EU if all the following conditions apply:
- A party related to or associated with a manufacturer or exporter of products that is subject to anti-dumping duty assembles the product
- The EU operation was started, or substantially expanded, after the initiation of an investigation into the dumping of the goods
- The value of the parts used in the product that originated in a country to which anti-dumping duty applies exceeds the value of the other parts by 50% or more.
Source: Doing Business in Portugal – 2003 by Ernst & Young – 26 June 2003
Last updated in July 2003 by the British-Portuguese Chamber of Commerce