Starting a business in Portugal

news: Starting a business in Portugal

Part one – choosing a structure

IF YOU are starting a business in Portugal, there are a number of steps that you will need to take. First and foremost, you’ll need that ‘better mouse trap’ idea, the brilliant concept which might make you the next Bill Gates. However, if your business is to be truly successful, you will need to follow the laws of the land. This begins with choosing which form of company to create. You have three basic choices: Empresário em Nome Individual (self-employed or sole trader), Companhia Limitada (limited company, either in one name or as a partnership) or Sociedade Anónima (corporation).

Most people find that the Empresário em Nome Individual status is the cheapest and easiest way to get started. Why go through all of the work and expense of forming a proper company when you don’t even know whether the world will come to your door? Your business can simply be registered at the local Finanças office, where no social capital is required to be deposited with a bank and no company bylaws need to be recorded. Thus, formation costs are minimal and, until the business grows substantially, only the simplest of bookkeeping requirements need to be followed. Most entrepreneurs will fall into this simplified regime. As we will see in part three, this accounting tax regime usually lives up to its name and most people find it easy and advantageous. At tax time, a simple annex is all that is required to supplement your regular IRS individual income tax return.

However, all is not so simple. You still have to sign up with Social Security, although you will be exempt from payments (as well as benefits) in your first year of operation IVA (value added tax) must be filed and paid quarterly in most cases, once your gross income is over 10,000 euros. More importantly, you have full personal liability for your business. This may be acceptable in certain activities where debt load is low and the likelihood of court action slim.

For other business areas, a Companhia Limitada with a fixed liability, limiting your responsibility to the social capital of 5,000 euros in most cases, is highly desirable. As a proper company, you will need an accountant (TOC) to file your IRC tax returns and you will have a minimum tax to pay (PEC). Of special importance in many business activities, a full-fledged company structure gives your business a standing that may be necessary to compete in your business environment.

The last option is the Sociedade Anónima, a corporation. This choice is necessary for larger businesses and for certain regulated activities. Establishment costs are significantly higher, starting at 50,000 euros of social capital. Other costs are in proportion. Unless you are setting up a Portuguese branch of an existing corporation, this is unlikely to be the route that you will want to take initially, although, with a little luck and some hard work, you’ll grow into this solution.

Returning to the premise that the best place to start is as an Empresário em Nome Individual, professional advice is a must. Not only is it important to make the right choices, you will want to avoid as many pitfalls as possible, common to new businesses.

• Dennis Swing Greene is Senior Partner and International Fiscal Consultant for EuroFinesco S.A., with offices in the Algarve and in Lisbon.Appointments may be scheduled in Guia (Albufeira) at 289 561 333 or in Lisbon (Chiado) at 21 342 4210