Transparency of the Regulatory System
The Government of Portugal employs transparent policies and effective laws to foster competition and establish clear rules of the game. The legal system is quite welcoming with respect to FDI. Regulations are drafted by ministries or other regulatory agencies. Drafts must be approved by Parliament, and, in some cases, by European authorities. All proposed regulations are subject to a public consultation period during which the proposed measure is published on the relevant ministry or regulator’s website.
Typically, the consultation period is 30 days (or 20 days in urgent cases). Only after ministries or regulatory agencies have conducted an impact assessment of the proposed (not yet adopted) regulation, the text can be enacted and published at: www.parlamento.pt .
Ministries or regulatory agencies report on the results of the consultations on proposed regulations through a consolidated response published on the website of the relevant ministry or regulator.
There are no informal regulatory processes managed by nongovernmental organizations or private sector associations; all procedures are managed by government entities.
Rule-making and regulatory authorities exist within several sectors including the Energy, Telecommunications, Securities Markets, Financial and Health sectors. Regulations are enforced on the local level through District Courts, on the national level through the Court of Auditors and at the supra-national level through European Union mechanisms including the European Court of Justice, the European Commission, and the European Central Bank.
The legal, regulatory, and accounting systems are transparent and consistent with international norms. Since 2005, all listed companies have been required to comply with International Financial Reporting Standards as adopted by the European Union (“IFRS”). The IFRS closely parallels the U.S. GAAP (Generally Accepted Accounting Principles). See more at: http://ec.europa.eu/finance/company-reporting/standards-interpretations/index_en.htm#related-information .
Parliament publishes draft bills on its website, http://www.en.parlamento.pt and at http://www.portugal.gov.pt/pt/pm/documentos.aspx , allowing for public review of proposals before they are voted on and become law. UTAO, the Parliamentary Technical Budget Support Unit, is a nonpartisan body composed of economic and legal experts that supports parliamentary budget deliberations by providing the Budget Committee with quality analytical reports on the executive’s budget proposal(s). More information on UTAO can be found here: https://www.parlamento.pt/OrcamentoEstado/Paginas/UTAO_UnidadeTecnicadeApoio
Orcamental.aspx . In addition, the Portuguese Public Finance Council conducts an independent assessment of the consistency, compliance with stated objectives, and sustainability of public finances, while promoting fiscal transparency, and publishes all of its assessments online at: http://www.cfp.pt/?lang=en .
The government regularly publishes key regulatory actions here: http://www.en.parlamento.pt/ . The OECD, EC and IMF also publish key regulatory actions and/or summaries thereof at: https://www.oecd.org/portugal/ , https://ec.europa.eu/info/business-economy-euro/economic-performance-and-forecasts/economic-performance-country_en and http://www.imf.org/external/country/PRT/index.htm .
Portugal’s Competition Authority enforces adherence to domestic competition and public procurement rules. The European Commission further ensures adhesion to EU administrative processes among its member states.
The European Commission has highlighted Portugal’s progress in addressing recommendations made by the EC itself since the beginning of the 2011 financial bailout program.
According to an IMF review published in October 2014, Portugal’s fiscal practices meet most principles of transparency at good or advanced levels. Fiscal reporting is consistent with EU standards, and forecasting and budgeting have improved significantly since the beginning of the bailout program in June 2011. The government publishes budget proposals and execution reports online, and created a user-friendly web application to explain the 2016 budget, available here: http://online.dgo.pt/DadosCidadao/Orcamento_CG.Entrada.aspx .
On March 9, 2017, the Portuguese Finance Minister announced that the government intends to create a new supervisory institution for overseeing bank bailouts and ensuring the overall stability of the banking system. The proposal comes after a series of high-profile bank collapses and bailouts in recent years, including that of Portugal’s largest private sector bank Banco Espirito Santo (BES) in 2014 and Madeira-based Banif in 2015. The envisioned entity would be independent, and be tasked with reinforcing coordination among the central bank (Bank of Portugal), the securities market regulator (CMVM) and the insurance and pension funds supervisor (ASF). Creation of the new body would require the approval of both the Portuguese Parliament and European authorities, following a public consultation period. It remains to be seen how this body would affect the existing authority of European-level supervisory bodies like the ECB.
The Portuguese Public Finance Council conducts regular, independent assessments of the consistency, compliance with the stated objectives and the sustainability of public finances, while promoting fiscal transparency. All assessments are published online at: http://www.cfp.pt/?lang=en .
International Regulatory Considerations
Portugal has been a member of the EU since 1986, a member of the Schengen area since 1995, and joined the Eurozone in 1999. Portugal complies with EU directives regarding equal treatment of foreign and domestic investors. Portugal has been a member of the World Trade Organization (WTO) since 1995. With the Treaty of Lisbon’s entry into force in 2009, trade policy and rules on foreign direct investment became exclusive EU competencies, as part of the block’s common commercial policy.
The European Central Bank (ECB) is the central bank for the euro (€) and determines monetary policy for the 19 Eurozone member states, including Portugal. Portugal has incorporated U.S. FACTA regulations, into its banking system.
Legal System and Judicial Independence
The Portuguese legal system is a civil law system, based on Roman law. The hierarchy among various sources of law is as follows: (i) Constitutional laws and amendments; (ii) the rules and principles of general or common international law and international agreements; (iii) ordinary laws enacted by the Parliament; (iv) instruments having an effect equivalent to that of laws, including approved international conventions or decisions of the Constitutional Court; (v) regulations used to supplement and implement laws.
The country’s Commercial Company Law and Civil Code define Portugal’s legal treatment of corporations and contracts. Portugal has specialized family courts, labor courts, commercial courts, maritime courts, intellectual property courts, and competition courts.
The judicial system is independent of the executive branch. Indeed, adverse Constitutional Court rulings during the country’s bailout period served as a check on the government’s ability to implement many austerity measures, including pension cuts and tax increases.
Regulations or enforcement actions are appealable, and are adjudicated in national Appellate Courts, with the possibility to appeal to the European Court of Justice.
Laws and Regulations on Foreign Direct Investment
The Bank of Portugal (Portugal’s central bank) defines FDI as “an act or contract that obtains or increases enduring economic links with an existing Portuguese institution or one to be formed.” A non-resident who invests in at least 10 percent of a resident company’s equity and participates in the company’s decision-making is considered a foreign direct investor.
The Portuguese legal system is based on non-discrimination with regard to the national origin of investment, and foreigners are permitted to invest in all economic sectors open to private enterprise. However, there are limitations on both foreign and domestic investments with regard to certain economic activities. Portuguese government approval is required in the following sectors: defense, water management, public telecommunications operators, railway, maritime transportation and air transport. Any economic activity that involves the exercise of public authority also requires government approval. Private sector companies can operate in these areas only through a concession contract.
Investors wishing to establish new credit institutions or finance companies, acquire a controlling interest in such financial firms, and/or establish a subsidiary must have authorization from the Bank of Portugal (for EU firms) or the Ministry of Finance (for non- EU firms). In both cases, the authorities carefully consider the proposed transaction, but in the case of non-EU firms, the Ministry of Finance especially considers the impact on the efficiency of the financial system and the internationalization of the economy. Non- EU insurance companies seeking to establish an agency in Portugal must post a special deposit and financial guarantee and must have been authorized for such activity by the Ministry of Finance for at least five years.
Post is not aware of any new laws over the last 12 months that regulate FDI, or significant decisions that have changed how foreign investors or their investments are treated. Current information on laws, procedures, registration requirements, and investment incentives for foreign investors in Portugal is available here, at AICEP’s website: http://www.portugalglobal.pt/EN/InvestInPortugal/investorsguide2/howtosetupa
Competition and Anti-Trust Laws
The domestic agency which reviews transactions for competition-related concerns is the Portuguese Competition Authority (Autoridade de Concorrência) and the international agency is the European Commission’s Directorate General for Competition (DG Comp). Post has no knowledge of significant competition cases with implications for foreign investors or investments being introduced or decided upon during the past year.
The Competition Authority’s mandate derives from Law No. 19/2012 (dated May 8, 2012) which superseded Law No. 18/2003. It specifically prohibits collusion between companies to fix prices, limit supplies, share markets or sources of supply, discriminate in transactions, or force unrelated obligations on other parties. Similar prohibitions apply to any company or group with a dominant market position. The law also requires prior government notification of mergers or acquisitions that would give a company more than 30 percent market share in a sector, or mergers or acquisitions among entities that had total sales in excess of €150 million in the preceding financial year. The Competition Authority has 60 days to determine if the merger or acquisition can proceed. The European Commission may claim authority on cross-border competition issues or those involving entities large enough to have a significant EU market share.
Expropriation and Compensation
Under Portugal’s Expropriation Code, the government may expropriate property and its associated rights if it is deemed to support the public interest, and upon payment of prompt, adequate, and effective compensation. The code outlines criteria for calculating fair compensation based on market values. The decision to expropriate as well as the fairness of compensation can be challenged in national courts.
In 2005, the Portuguese Parliament passed a Water Resources Law that required owners of properties bordering coasts, rivers, and reservoirs to present evidence of private ownership dating to at least 1864 by a deadline of January 2014, or otherwise face government seizure of the land. The law elicited public protests from property owners, including many British expatriates, which in turn pressed Parliament in May 2014 to establish broad exemptions and eliminate the deadline for presentation of evidence of ownership. To date, there have been no public cases of expropriation of such properties.
There have been no other cases of expropriation of foreign assets or companies in Portugal in recent history.
ICSID Convention and New York Convention
Portugal has been a member of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention – also known as the Washington Convention) since 1965. Portugal has been a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards since January 1995. Portugal’s national arbitration law No. 63-2011, of December 14, 2011 enforces awards under the 1958 New York Convention and the ICSID Convention.
Investor-State Dispute Settlement
Portugal ratified the 1927 Geneva Convention on the Execution of Foreign Arbitral Awards, and in 2002 ratified the 1975 Inter-American Convention on International Commercial Arbitration.
Portugal’s Voluntary Arbitration Law enacted in 2011 is based on the UNCITRAL Model Law, and applies to all arbitration proceedings based in Portugal. The leading commercial arbitration institution is the Arbitration Centre of the Portuguese Chamber of Commerce and Industry: http://www.centrodearbitragem.pt/index.php?lang=en
The government promotes non-judicial dispute resolution through the Ministry of Justice’s Office for Alternative Dispute Resolution (GRAL), including conciliation, mediation, or arbitration. More information is available in English at AICEP’s website: http://www.portugalglobal.pt/EN/InvestInPortugal/investorsguide2/howtosetupa
The GRAL website, in Portuguese, is here: http://www.dgpj.mj.pt/sections/gral
Portugal has no bilateral investment or free trade agreements containing ISDS provisions with the United States.
The UN Conference on Trade and Development (UNCTAD) “investment navigator” database and the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) database show no cases of investment disputes, pending or concluded, between foreign investors and Portugal.
Portuguese courts recognize and enforce foreign arbitral awards issued against the government.
There have been no recent extrajudicial actions against foreign investors.
International Commercial Arbitration and Foreign Courts
Arbitration is the preferred alternative dispute resolution mechanism in Portugal. The country has a long-standing tradition of and success in utilizing arbitration in administrative and contract disputes. In recent years, it has also become the standard mechanism for resolving tax disputes between private citizens or companies and tax authorities, as well as in pharmaceutical patent disputes.
There are four domestic arbitration bodies within the country/economy: 1) The Arbitration Center of the Portuguese Chamber of Commerce and Industry (CAC); 2) CONCÓRDIA (Centro de Conciliacao, Mediacao, de Conflictos de Arbritragem); 3) Arbitrare (Centro de Arbitragem para a Propriedade Industrial, Nomes de Dominio, Firmas e Denominacoes); and 4) the Instituto de Arbitragem Commercial do Porto.
Each arbitration body has its own regulations, but all of them comply with the Portuguese Arbitration Law 63/11, which came into force in March 2012. The Arbitration Council of the Centre for Commercial Arbitration also follows New York Convention, Washington Convention and Panamá Convention guidelines.
Arbitration Law 63/11 follows the standard established by the UNCITRAL Model Law, but is not an exact copy of that text.
Under the Constitution of the Portuguese Republic (CPR), the Civil Code of Procedure (CCP) and the New York Convention (applied in Portugal since 1995), awards rendered in a foreign country must be recognized (i.e., an exequatur is obtained) by the Portuguese courts before they can be enforced in Portugal. There is no legal authority in Portugal on the enforceability of foreign awards set aside at the seat of the arbitration.
The Code of Civil Procedure (CCP) sets forth the legal regime applicable to all judicial procedures related to arbitration, including appointment of arbitrators, determination of arbitrators’ fees, challenge of arbitrators, appeal (where admissible), setting aside, enforcement (and opposition to enforcement) and recognition of foreign arbitral awards.
While Portugal’s judicial system has historically been considered inefficient, the country has taken several important steps to increase the efficiency and quality of judicial proceedings in recent years. According to the World Bank’s 2016 Doing Business Index, enforcing a contract in Portugal takes an average of 547 days (the OECD average is 553 days), and costs 13.8 percent of the value of the claim (OECD average 21.3 percent).
According to Portuguese Ombudsman, only six complaints involving SOEs were registered in 2015; no numbers have been disclosed for 2016. Post is unaware of any judicial disputes involving SOEs, or any complaints of discrimination. Further information can be found at: http://www.provedor-jus.pt/?idl=2 .
Portugal’s Insolvency and Corporate Recovery Code defines insolvency as a debtor’s inability to meet his commitments as they fall due. Corporations are also considered insolvent when their liabilities clearly exceed their assets. A debtor, creditor, or any person responsible for the debtor’s liabilities can initiate insolvency proceedings in a commercial court.
The court assumes the key role of ensuring compliance with legal rules governing insolvency proceedings, with particular responsibility for ruling on the legality of insolvency and payment plans approved by creditors.
After declaration of insolvency, creditors may submit their claims to the court-appointed insolvency administrator for a specific term set for this purpose, typically up to 30 days. Creditors must submit details regarding the amount, maturity, guarantees, and nature of their claims. Claims are ranked as follows: (i) claims over the insolvent’s estate, i.e. court fees related to insolvency proceedings; (ii) secured claims; (iii) privileged claims; (iv) common, unsecured claims; (v) subordinated claims, including those of shareholders.
Portugal ranks highly (8th of 190 countries) in the World Bank’s Doing Business Index “Resolving Insolvency” measure.