What you need to know to start a business in Portugal / Unsplash
What you need to know to start a business in Portugal / Unsplash

Red tape and bureaucracy can be an impediment to any foreigner who lives in Portugal and barely knows the language. You need to be able to understand all the documents that find their way into your hands and the paperwork associated with starting a business in Portugal ranks among the most exhausting in the western world (even worse than France and Spain).

Since Portugal joined the EU, the procedures and regulations have improved but we still recommend you arm yourself with patience if you are planning to start your own business in Portugal.

Portugal is a country of small companies, sole traders and family-run businesses that employ most of the population. If you're thinking of getting in on it, the best place to ask for help and information is the local chamber of commerce (Câmara do Comércio) and the local town hall (Câmara Municipal).

Self-employment

If you’re an EU-citizen or a permanent resident with a residence card (Autorização de Residência), you can work as a self-employed person/sole trader in Portugal.

If you want to be self-employed in a profession or trade in Portugal, you must meet certain legal requirements and be registered with the appropriate organisation. Under Portuguese law, a self-employed person may require an official status and it is illegal to simply hang up a sign and start a business.

Members of some professions and trades must possess professional qualifications and certificates recognised in Portugal and are usually required to sit a written examination in Portuguese. These qualifications are extremely important in fields like law, for example.

As a self-employed person, you don’t have the protection of a limited company should your business fail, but you can get some tax advantages. It may be advantageous to operate as a limited company such as a Sociedade por Quotas (Lda).

Obtain professional advice before deciding whether to operate as a sole trader or form a company in Portugal, as it has far-reaching consequences for social security, tax and many other things. All self-employed persons must register for income tax, social security and VAT (IVA), and anyone with an income in Portugal requires a foreigner’s identification number (número de contribuinte), obtainable from your local tax office ( Departamento de Finanças).

What to expect

Most of the Portuguese self-employed businessmen work long hours (especially if they are in the hospitality sector), with very few days off and little financial profit.

Self-employment is a great way (at least in theory) to organise your schedule without depending on your bosses' will and to live a freer (and more stress-free) life.

However, if you want to make money you need to start with a small, manageable plan that allows you to stay within budget. Be prepared to spend a few years adapting and getting established and to spend a little bit more than you make to get the business going. Also make sure that you have enough to get by until you start turning a profit, especially if you are renting or if you invest in property in Portugal.

Employees

Hiring employees shouldn’t be taken lightly and must be considered before starting a business. You must enter into a contract under Portuguese labour law and employees enjoy extensive rights. It’s also a very expensive process since you must consider that in addition to salaries you must usually pay social security contributions plus 14 months’ salary a year, five weeks paid annual holidays and around 14 paid public holidays.

Legal Advice

Before setting up a business or undertaking any business transactions in Portugal, it’s important to obtain legal advice in order to avoid any fines.

Expert legal advice is also necessary to make the most of any favourable tax and business breaks and to make sense of all the rules and regulations. It’s imperative to ensure that contracts are clearly defined and water-tight before making an investment, because if you become involved in a legal dispute it’s likely to take years to resolve.

Before starting a business in Portugal, you should obtain advice from a lawyer (advogado) and an accountant (contabilista). Many foreigners also employ an intermediary, to act as a middleman between them and the bureaucracy. This perfectly illustrates the Portuguese system, which is so complicated that it’s necessary to employ a special official to do business with the government!

Many Portuguese lawyers, accountants and agents speak English and other languages, particularly in resort areas, so you will be able to find help even if you don't speak Portuguese.

Avoiding the crooks

In addition to problems with the Portuguese authorities, assorted criminals are, unfortunately, fairly common, particularly in touristic resort areas. You should always have a healthy suspicion regarding the motives of anyone you do business with, particularly your fellow countrymen.

It’s generally best to avoid partnerships as they rarely work and can be a disaster. In general, you should trust nobody and shouldn’t sign anything or pay any money before having a contract checked by a lawyer.

In most cases, you’re better off dealing with a long-established Portuguese company with roots in the local community (and therefore a good reputation to protect), rather than your compatriots.