Employment in Portugal

It feels adventurous when you decide to reify that business idea of yours. You need to do the planning, budgeting, research, and other stuff before starting a business. And yes, not to miss, you also need to develop an endurance to confront the red tape and formalities involved in launching a venture. Whatever it takes, finally, it seems more than satisfying!

Is Portugal on your mind to locate your venture? The country unlocks immense opportunities and a conducive environment for businesses and ventures. Portugal grabbed covetable ranks in HDI (Human Development Index), which measures the average accomplishments in crucial aspects of education, people leading healthy lives, and possessing decent living standards. The country also bagged 39th rank in 2020 in the Doing Business report published by the World Bank. In Portugal, you will get the best and most qualified workforce for your business at lesser expenses. Compared to other Latin-speaking countries in Europe, Portuguese was ranked 12 in the English Proficiency Index 2019. So, you see, opportunities in Portugal for new ventures are truly immense. 

The process of launching a business in Portugal is fairly easy for ex-pats as well as natives. You will need to fulfill certain criteria and undergo administrative procedures, get some paperwork done to get your business registered, and start its operations legally. Although it may seem harrowing to face the red tape at first, with the right guidance, it can be made easier. 

Quick Overview

How to start a business in Portugal? Well, to launch a venture in any country, you need to get familiar with the legal rules and obligations, requirements, and procedures involved. After you have conceived a compelling business idea, you can head to prepare an elaborate and convincing business plan. This business plan will help you get investors and reliable associates for the company. Once done with that part, you need to register your company’s business name and address, followed by choosing a legal structure such as partnerships, sole trader, limited liability company, etc. To register a business in Portugal, you will need a Certificate of Admissibility, Company Card, and Collective Card from IRN, and finally, get your business registered at Commercial Registry and Social Security offices. To accomplish these legal steps without any hassle, you consider an attorney as well. 

In the sections that follow, we shall walk you through the process of starting a business in Portugal in a more detailed manner. Read on!

Process of setting up a business in Portugal

Gen Z professionals and millennials have been racking their minds to get a place in the sun that allows them a better work-life balance. Besides getting a quality work environment in Portugal, the country offers several other benefits too. In the whole of Europe, Portugal is one of the countries that relishes a high number of sun hours annually. Furthermore, it has also grabbed the feat of being one of the safest countries around the globe. On top of this, Portugal also got 39th position among 190 economies compared to the World Bank. The country’s attractive and business-enabling environment is resulting in a steep surge in the number of ex-pat entrepreneurs here. Here is a guide to starting a business in Portugal that will help you erect and grow as a businessperson. Read on!

  • Satisfy legal residency qualification criteria: In case you are EFTA/ non-EFTA national, you would need a residence permit and work visa before you can start a venture in Portugal. For EU/ EFTA Nationals, there are no such requirements. However, you would require a registration certificate from the local city council, which will cost around €15. Furthermore, irrespective of whether you are a non-EU or EU national, you would have to sign up to get a Tax number. You can procure this number from the Portuguese Tax Office, while Social Security Number can be acquired from Portuguese Social Security. So, these are the requirements for starting a business in Portugal as a foreigner.
  • Select a business legal structure: In Portugal, you can choose from different business legal structures such as Individual Limited Liability Establishment, Sole Trader, Private Limited Company, Single-Member Limited Company, Cooperative, and so forth. It is important to decide on the most suitable business structure as it will determine the amount of tax you would pay, the extent of liability or risk to personal assets, and your ability to get funding for business as well.
     
  • Pick business address and name: Now, it is time to pick an original business name that has not been taken by anyone and then get it registered along with the business address. These are typically done during the business set-up process in Portugal, which can be done online or on the spot. In case you are unable to set up a business through these methods, you can go for a conventional method, which is as follows:
  1. Procure a Certificate of Admissibility to officially recognize your Portuguese business name. 
  2. Apply for a Collective Card and a Company Card from the IRN. 
  3. Set up a business bank account and pay the minimum share capital. 
  4. Declare activity commencement at your local Tax Office. 
  5. Get your company registered at a Commercial Registry Office. 
  6. Finally, as an employer, register at your local Social Security office.
  • Registering as a foreign company: If you are a foreigner seeking to launch a branch of your company in Portugal, you will have to get the branch office name registered at IRN and with Commercial Registry Office as well. Furthermore, you will need the following mandatory documents through the process:
  1. A confirmation from the parent company’s board of directors for opening a branch. 
  2. Power of attorney
  3. Incorporation documents of a parent company.
  • Tax payments: The tax year in Portugal goes from 1 January to 31 December. All self-employed residents in the country need to pay tax returns every year. Self-employed and business income is classified under category B Income as per the Portuguese income tax system. Its VAT tax rate is 23 percent on commodities other than basic necessities, drink, and food, while its income tax has a progressive rate in Portugal.
  • Get a lawyer: When founding a company or business in Portugal, it is recommended to get an English-speaking, deft lawyer who has an understanding of the business laws of the country. Doing so will help you navigate any possible tax breaks and facilitate opening a business here.
     
  • Recruiting staff in Portugal: As a business in Portugal, you may recruit EU/EFTA nationals or those from other countries who possess a valid work visa. When launching a business in the country, ensure to include and calculate the costs of employing staff. Employers need to reimburse 14 months’ salary annually with five weeks of paid annual leave, 14 paid public holidays, and social security contributions. With the help of experienced consultants at Zimyo by your side, hiring suitable employees for your business will no longer be a hassle for you.

Hiring Employees in Portugal 

Finally, after getting your business registered and officially recognized, you will need to recruit staff and hire employees. While taking care to hire the right people for a startup, you also need to get familiar with the diverse employment and labor laws of Portugal. The administration lays forth several regulations to promise a healthy and sound working environment. Here we have collated all the things related to hiring employees in Portugal as an employer. Read on!

  • Trial Period/Probation Period: Standard probation period for permanent employees is 90 days, for high complexity job roles is 180 days, and for the directorate, management, and other higher roles, it is set to 240 days. Furthermore, if an employment contract is for a definite time, the trial period would be 15 days and less than six months. Whereas, if the employment contract is for an indefinite period, the probationary phase would be for 30 days and cannot exceed the duration of 6 months. 

Employer, as well as employee, has the liberty to terminate the employment contract during the initial probation period. When terminating the employee, 7 to 15 days prior, notice is given if the probation was between 60 to 120 days. There is no need to clarify the grounds for termination during the probation period. Depending upon the activity type and kind of agreement, a probation period may be established for 15 to 240 days. The employee need not produce any prior notice for terminating the contract during the probation phase. 

  • Leave and Holidays: Employees in Portugal are entitled to get 22 business days of paid vacation annually. If the employment contract is temporary and will last for at least 6 months, the employee must be allowed 2 holidays on working days every month. If the employment contract is for 12 months, employees must be allowed a holiday corresponding to the duration of the employment contract. If an employee gets absent from work due to sickness, injury, or accident, it must be informed immediately as medical documents that prove the sickness of the individual would be asked to provide. 

The employee continues to get paid for the first three days of absence, and after that, sickness allowance payment would be looked after by Social Security. The majority of the employees in Portugal have the right to get 1095 days of sick leave, while research fellows and independent workers should get 365 days of paid sick leave. 

  • Maternity Leave: It is mandatory for a woman to take 90 days of 100% paid leave from work after childbirth, while the remaining part of the leave may be utilized completely or partially, making it a total of 120 days with 100% remuneration. At the same time, a father is allowed leave from work for 20 compulsory business days immediately after the birth of his child.
  • Termination of Services: Termination of services in Portugal is done based on stringent regulations. An employment contract may be terminated in the circumstances mentioned below:
  1. The employment contract expired. 
  2. Collectively agreed to the termination. Employee’s inability to satisfy the conferred responsibility. 
  3. Collective dismissal of an employee due to structural, technological, and economic reasons. 
  4. Dismissal due to disciplinary reasons. 

The termination of contract needs to be conveyed with advance notice as follows:

  1. Employees with seniority of less than a year should receive notice 15 days in advance. 
  2. Employees who have worked with a company for between 1 year or less than 5 years duration must receive 30-day prior notice. 
  3. Employees who have worked with a company for between 5 years and less than ten years must receive 60-days prior notice.
  • Pension: Old-age retirement pension is a type of provided pension that comprises a monthly amount reimbursed to secure the grantees of the general social security scheme in the old-age. It replaces the remuneration from work. In 2021, the retirement age was set to 66 years and 6 months. However, if the person is younger than the retirement age, they become eligible for:
  1. Early -retirement owing to long-term unemployment. 
  2. Receive early retirement under the age flexibility plan. 
  3. Exclusive plans for anticipating the age at which a person can access an old-age pension.
  • Work Hour Norms: A standard working day in Portugal is set at 8 hours per day and a typical working week has 40 hours per week. Suppose an employee works between 10 p.m. and 7 a.m., it would be counted as night-time work. The night-time work should be compensated with a raise of 25 percent over the equivalent workday payment. A collective agreement may, however, adjust the starting and ending of the night-time work, where an employee can start work at 8 p.m. rather than 10 p.m. Overtime is allowed in the following cases only:
  1. A company cannot recruit additional employees and needs to tackle a temporary workload. 
  2. If overtime prevents or heals any serious injury to the business or its viability. 

If an employee is given work on weekly rest days, the employer must allow a compensatory rest day during the next three working days.  

How easy is it to conduct business in Portugal?

According to the World Bank’s Doing Business report 2020, Portugal has come out at 39th position among 190 countries which clearly signifies its conducive business environment. To prepare a Doing Business report, the World Bank peruses and analyzes different factors that contribute to rendering the process of starting a business in a country smoother. For Instance, it looks at how easily a business can get electricity, pay taxes, resolve insolvency and commercial disputes, get funding or credit, etc. After estimating the ranks of an economy on these individual sub-indices, the overall Ease of Doing Business rank is determined. Here, let’s discuss different EODB indicators and their ranks in Portugal. 

  • Starting a Business: To start a business, one has to meet certain requirements, go through formalities, etc., to register a business and get it officially identified. The Doing Business scrutinizes the number of procedures, time, and costs involved in starting a business. Portugal was ranked 63 while scoring 90.9 out of 100 in this sub-index. In 2008, the country eliminated outdated procedures, streamlined company registration requirements, and implemented an online business incorporation system to be used by attorneys.
  • Managing Permits: Permits and licenses are required to operate a business legally. To evaluate the strength of this indicator, the Doing Business assesses the formalities, number of procedures, cost, and time it takes to construct a warehouse. Furthermore, it also checks the safety mechanism and quality control in construction permitting systems. Portugal received the 60th position while scoring 73.2 out of 100 according to the 2020 Doing Business report. In 2010, dealing with permits was made easier by adopting an enhanced fire safety appraisal system for rapid registration of new buildings and for new construction projects.
  • Getting Electricity: You cannot imagine a business thriving without electricity. Thus, the Doing Business also regards Getting electricity as one of the indicators of the overall EODB rank of an economy. It probes the time, formalities, cost, and number of procedures involved in getting a business connected with the electricity grid. On top of this, through the evaluation process, transparency of tariffs and reliability of electricity supply is also analyzed. Portugal got 52nd position in this sub-index while scoring 83.3 out of 100. In 2017, the country pared down the time needed to sanction electrical connection requests, thereby rendering the process faster.
  • Getting Credit: With credit, a business can find and work on ways of expanding its base. Furthermore, credit facilitates meeting overheads easily, and if needed, new staff can be recruited. Getting credit, thus, qualifies as another Doing Business indicator where it looks into the efficiency and strength of its credit reporting set-ups, time, cost, and formalities involved in getting credit. Portugal was ranked at 119th position in this sub-index while scoring 45 out of 100.
  • Managing Payroll: As the company grows, one has to deal with and manage even a larger workforce. The staff and employees need to be paid their salaries. Not only this, but one also has to take care of other activities like unemployment tax, social security, and income tax. Thus, the best way to handle the situation is to integrate a structured and efficient payroll management system in the company with the help of experienced consultants at Zimyo. This will help you in compensating employees timely while adhering to the tax laws of the country.
  • Paying Taxes: The taxes you need to pay as a company depends on several factors such as the type of activity your business undertakes, the legal structure of the company, etc. In order to operate smoothly, one has to take the utmost care of paying taxes on time. The Doing Business analyzes the time, cost, and formalities involved before, during, and after-tax filing. Portugal was ranked at 43rd position while scoring 83.7 out of 100. In 2008, the country lowered the corporate income tax rate, which made the process less expensive.
  • Enforcing Contracts: Enforcing is another of the Doing Business Report indicators which evaluates cost, formalities, and time involved in resolving a business-related and commercial dispute in the court. It also studies the quality and efficiency of judicial processes. Portugal came at 38th position while scoring 67.9 out of 100 according to 2020 the Doing Business Report. In 2008, the country improved its case management system and simplified its regulations for small claims, thereby making the process of enforcing contracts easier.
  • Resolving Insolvency: How efficiently a business can resolve and recover from insolvency depends upon the efficiency of insolvency regulations of the country. The Doing Business report evaluates the time, procedure, strength, and quality of insolvency laws in an economy. Portugal secured 15th position while scoring 80.2 out of 100, according to the Doing Business 2020 report. The country created fast-track processes for voluntary liquidation of commercial firms, thereby rendering the process of resolving insolvency smoother.

Portugal, so far, has emerged as a place of golden opportunities for starting a new business. Did you know that the country got the third rank in the Global Peace Index 2020 as well as received a high position on the Human Development Index (HDI). HDI studies and ranks countries based on education and other human development aspects. Furthermore, the country’s economic power promises a great market and additional stability. The businesses that enjoy the most scope at this time in Portugal are Cooking Oil manufacturing business, Papercraft Business, Tomato processing business, Paper Prototyping business, Fruit processing business, Essential Oil Extraction business, Food Delivery Business, and more. 

Zimyo is a leading HR and Payroll management services provider in Portugal with multiple years of experience. The company helps businesses hire the best talent and takes care of the financial requirements of employees, such as advances or credit for a hassle-free work experience.