The Portuguese economy bounced back from the pandemic, expanding by 4.9 percent in 2021 after an 8.4 percent contraction the prior year, benefitting from EU fiscal and monetary stimulus and a very high vaccination rate. The labor market has shown remarkable resiliency, with unemployment at 6 percent in January 2022, down from 7 percent a year before. GDP is expected to grow again by an estimated 5 percent in 2022, despite the economic shocks from the Russian war against Ukraine
The country will have a chance to boost its economic recovery, deploying more than €16 billion in EU grants and credit expected to fund state coffers between 2021 and 2026. It is expected these funds will be allocated in support of energy and digital transitions.
Increased flows of fossil fuels contributed to a 40 percent jump in trade in goods and services between Portugal and the United States to a record $10 billion in 2021. However, bilateral trade remains lop-sided with a large U.S. trade deficit of around $2.2 billion. Many U.S. companies nvest in business/service delivery centers in Portugal, taking advantage of Portugal’s relatively low-cost, talented, and multilingual labor force.
The country continues to push to improve market attractiveness. Portugal’s export and FDI promotion agency (AICEP) celebrated a record €2.7 billion of contracted FDI in 2021, double that locked-in during the last (2019) high mark. Portugal’s metalworking, auto component, and machinery industries predominate the recent FDI trends, accounting for about 30 percent of the contracted flows, according to the Government.
Portugal’s tech startup scene is thriving, featuring at least six fast-growing firms with ‘Portuguese-U.S. DNA’ that achieved ‘unicorn’ status with valuations above $1 billion– Outsystems, Talkdesk, Feedzai, Remote, SwordHealth and Anchorage. These high-tempo firms are flourishing after tapping into opportunities in the U.S. startup ecosystem that provides not only funding but also knowhow, networks, and customers, ultimately producing jobs on both sides of the Atlantic.
Established in 2012, Portugal’s “Golden Visa” program gives fast-track residence permits to foreign investors who meet certain conditions, such as making substantial capital transfers or certain real estate acquisitions. Between 2012 and February 2022, Portugal issued 10,442 ‘Golden Visas’, representing €6.2 billion of investment, of which more than €5.6 billion went to real estate. Chinese nationals have been the main beneficiaries of the special program for residence permits, accounting for almost 50 percent (5,066) of the 10,442 total, followed by Brazilians with 1,072. Russian citizens were assigned 431 Golden visas since 2012. As of January 2022, Portugal modified the “Golden Visa” program to restrict the purchase of real estate to regions outside urban hotspots such as Lisbon, Porto, and overbuilt areas of the popular Algarve with the aim of boosting rural investment. Loopholes in the program appear to be enabling urban purchases in any event. On March 28, the European Commission urged member states to immediately repeal existing investor citizenship schemes, which the Commission claimed pose inherent risks.
In terms of risks, the independent Portuguese data protection agency (CNPD) has targeted U.S. companies by issuing a succession of judicial opinions warning against the use of U.S. technology firms – including Cloudflare, Respondus, and Amazon Web Services (AWS), arguing that as they are headquartered in the United States and therefore subject to U.S. law, by definition, they have inadequate data privacy standards. CNPD has not found any specific wrongdoing by any U.S. technology firm but bases its rulings on the grounds that a target company is headquartered in the United States. On March 25, President Biden and EU Commission President von der Leyen announced a deal in principle on the Trans-Atlantic Data Privacy Framework, which will supplement the U.S.-EU Privacy Shield Framework (Privacy Shield). However, it remains to be seen how this new Trans-Atlantic Data Privacy Framework will affect EU-U.S. data flows in Portugal.
Portugal ranks second highest in terms of PRC investments in Europe (in relation to GDP). These investments are predominantly in the premier Portuguese companies, which the PRC leverages to reach other markets in Europe, Latin America, and Africa. Portugal’s investment screening regime was established in 2014, but the Government of Portugal has never strictly enforced it.
Despite the security risks, the Government continues to allow investments by and collaboration with untrusted vendors in 5G and Artificial Intelligence (AI). Huawei is using its educational and gender-equity programs to increase influence with high achieving students and access to key technology policymakers in the Government and private sector. The PRC is also attempting to gain a foothold in Portuguese 5G, AI, solar, and related infrastructure industries.
Portugal’s public debt, estimated at 127percent of GDP at the end of 2021, remains an issue, particularly if there is a shift in the benign monetary and sovereign risk sentiment that enabled Lisbon to enjoy issuing debt at record low prices in the last few years. The pace of corporate and household indebtedness has also increased.
Portugal’s primary trading partners are Spain, France, Germany, the United Kingdom, and the United States. Portugal suffers an acute brain drain, with high emigration rates among professionals leaving for higher paying careers in Switzerland, France, the UK, and elsewhere.
Beyond Europe, Portugal maintains significant links with Portuguese-speaking countries including Brazil, Angola, Mozambique, Cape Verde, and Guinea-Bissau. Portugal has one of the lowest fertility rates in Europe and net immigration (from Ukraine, Brazil, and other Portuguese-speaking countries) has prevented a fall in population.
Russia’s invasion of Ukraine will impact the Portuguese growth curve. Except for grain imports from Ukraine, energy intermediate goods, and liquified natural gas (LNG) imports from Russia, the country’s trade and investment relationship with both countries is limited. In LNG specifically, Russia accounted for 15 percent of imports, well below the 45 percent EU average. However, Portugal is a net importer of energy products, fully dependent on outside supply of crude and refined fossil fuels. It also imports natural gas for energy and generation, which acts as a key complement to the fast-growing renewable energy footprint of its solar, wind and hydro power assets. The country’s commercial balance will be negatively impacted by a long period of high global energy prices.
Portugal’s low installed solar capacity of about 7 percent of the energy mix is expected to reach 8 GW of solar capacity, or 27 percent of the mix by 2030. The Government is promoting significant investments in wind and solar energy development to meet its target of 47 percent energy from renewables by 2030. By 2021 the country reduced its external energy dependence by 9 percentage points (from 2005), seeking greater supply security by increasing domestic energy generation and reducing the consumption of primary energy by 17 percent. The Government has also talked about plans to launch a 2-5 GW offshore wind auction this summer (without providing details), in hopes of speeding up the deployment of large-scale offshore wind capacity to reduce energy dependence on Russia.
Portugal’s path to a carbon neutral economy includes incentives for energy efficiency; promoting diversification of energy sources; increasing electrification; reinforcing and modernizing infrastructure; developing more interconnections; market stability for investors; reconfiguring and digitalizing the market; incentives for research and innovation, promoting low-carbon processes, products and services; and improving energy services and information for consumers.
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Toward Foreign Direct Investment
The Government of Portugal (GOP) actively pursues and protects foreign investment, seeing it as a driver of economic growth, with a very positive attitude toward foreign direct investment (FDI). Portuguese law is based on non-discrimination principles, meaning foreign and domestic investors are subject to the same rules. Foreign investment is not subject to any special registration or notification to any authority, with exception of a few specific activities.
The Portuguese Agency for Foreign Investment and Commerce (AICEP) is the lead for promotion of trade and investment. AICEP is responsible for attracting FDI, global promotion of Portuguese brands, and export of goods and services. It is the primary point of contact for investors with projects over € 25 million or companies with a consolidated turnover of more than € 75 million. For foreign investments not meeting these thresholds, AICEP will make a preliminary analysis and direct the investor to assistance agencies such as the Institute of Support to Small- and Medium- Sized Enterprises and Innovation (IAPMEI), a public agency within the Ministry of Economy that provides technical support, or to AICEP Capital Global, which offers technology transfer, incubator programs, and venture capital support. AICEP does not favor specific sectors for investment promotion. It does, however, provide a “Prominent Clusters” guide on its website, where it advocates investment in Portuguese companies by sector. Additionally, Portugal has introduced the website Simplex, designed to help navigate starting a business.
The Portuguese government maintains regular contact with investors through the Confederation of Portuguese Business (CIP), the Portuguese Commerce and Services Confederation (CCP), the Portuguese Chamber of Commerce and Industry (CCIP) and other industry associations.
Limits on Foreign Control and Right to Private Ownership and Establishment
There are no legal restrictions in Portugal on foreign investment. To establish a new business, foreign investors must follow the same rules as domestic investors, including mandatory registration and compliance with regulatory obligations for specific activities. There are no nationality requirements and no limitations on the repatriation of profits or dividends.
Non-resident shareholders must obtain a Portuguese taxpayer number for tax purposes. EU residents may obtain this number directly from the tax administration (in person or by means of an appointed proxy); non-EU residents must appoint a Portuguese resident representative to handle matters with tax authorities.
Portugal enacted a national security investment review framework in 2014 which gave the Council of Ministers authority to block specific foreign investment transactions that would compromise national security. Reviews can be triggered on national security grounds in strategic industries like energy, transportation, and communication. Investment reviews can be conducted in cases where the purchaser acquiring control is an individual or entity not registered in an EU member state. In such instances, the review process is overseen by the relevant Portuguese Ministry based on the assets in question. Portugal has yet to activate its investment screening mechanism.
Portuguese government approval is required in the following sensitive sectors: defense, water management, public telecommunications, railways, 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.
Portugal additionally limits foreign investment with respect to the production, transmission, and distribution of electricity, the production of gas, the pipeline transportation of fuels, wholesale services of electricity, retailing services of electricity and non-bottled gas, and services incidental to electricity and natural gas distribution. Concessions in the electricity and gas sectors are assigned only to companies with headquarters and effective management in Portugal.
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). Non-EU insurance companies seeking to establish presence 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.
Other Investment Policy Reviews
In the past five years, the Government has not undergone any third-party investment policy reviews (IPRs) through a multilateral organization such as the OECD, WTO, UNCTAD, or UN Working Group on Business and Human Rights.
To combat the perception of a cumbersome regulatory environment, the government has created ‘cutting red tape’ measures described in the website Simplex (simplex.gov.pt) that details steps taken since 2005 to reduce bureaucracy, and the Empresa na Hora (“Business in an Hour”) program that facilitates company incorporations by citizens and non-citizens.
In 2007, the government established AICEP, a promotion agency for investment and foreign trade that also manages industrial parks and provides business location solutions for investors through its subsidiary AICEP Global Parques.
Established in 2012, Portugal’s “Golden Visa” program gives fast-track residence permits to foreign investors who meet certain conditions, such as making substantial capital transfers, creating and certain real estate acquisitions. Between 2012 and February 2022, Portugal issued 10,442 ‘Golden Visas’, representing €6.2 billion of investment, of which more than €5.6 billion went to real estate. Chinese nationals have been the main beneficiaries of the special program for residence permits, accounting for almost 50 percent (5,066) of the 10,442 total, followed by Brazilians with 1,072. Russian citizens were assigned 431 Golden visas since 2012. As of January 2022, Portugal modified the “Golden Visa” program to restrict the purchase of real estate to regions outside urban hotspots such as Lisbon, Porto and overbuilt areas of the popular Algarve with the aim of boosting rural investment. Loopholes in the program appear to be enabling urban purchases in any event. On March 28, the European Commission urged member states to immediately repeal existing investor citizenship schemes, which the Commission claimed pose inherent risks.
Other measures implemented to help attract foreign investment include the easing of some labor regulations to increase workplace flexibility and EU-funded programs.
Portuguese citizens can alternatively register a business online through the “Citizen’s Portal” available at Portal do Cidadão. Companies must also register with the Directorate General for Economic Activity (DGAE), the Tax Authority (AT), and with the Social Security administration. The government’s standard for online business registration is a two to three day turnaround, but the online registration process can take as little as one day.
Portugal defines an enterprise as micro-, small-, and medium-sized based on its headcount, annual turnover, or the size of its balance sheet. To qualify as a micro-enterprise, a company must have fewer than 10 employees and no more than €2 million in revenues or €2 million in assets. Small enterprises must have fewer than 50 employees and no more than €10 million in revenues or €10 million in assets. Medium-sized enterprises must have fewer than 250 employees and no more than €50 million in revenues or €43 million in assets. The Small- and Medium-Sized Enterprise (SME) Support Institute (IAPMEI) offers financing, training, and other services for SMEs based in Portugal.
More information on laws, procedures, registration requirements, and investment incentives for foreign investors in Portugal is available at AICEP’s website.
The Portuguese government does not restrict domestic investors from investing abroad. On the contrary, it promotes outward investment through AICEP’s customer managers, export stores and its external commercial network that, in cooperation with the diplomatic and consular network, are operating in about 80 markets. AICEP provides support and advisory services on the best way of approaching foreign markets, identifying international business opportunities for Portuguese companies, particularly SMEs.
2. Bilateral Investment and Taxation Treaties
Portugal does not have a bilateral investment agreement with the United States. However, it has investment agreements with more than 100 countries. For a complete list of investment agreements currently in force, please see the UNCTAD Navigator.
Portugal signed an Income Tax Treaty with the United States in 1994 to prevent double taxation and tax evasion. In 2015, Portugal signed an agreement with the United States to improve international tax compliance and implement the U.S. Foreign Account Tax Compliance Act (FATCA).
Portugal is a member of the OECD Inclusive Framework on Base Erosion and Profit Shifting and party to the Inclusive Framework’s deal on the two-pillar solution to global tax challenges, including a global minimum corporate tax.
3. Legal Regime
Transparency of the Regulatory System
The government of Portugal employs transparent policies and effective laws to foster competition, and the legal system welcomes FDI on a non-discriminatory basis, establishing clear rules of the game. Legal, regulatory, and accounting systems are consistent with international norms. Public finances and debt obligations are transparent, with data regularly published by the Bank of Portugal, the IGCP debt management agency, and the Ministry of Finance. Regulations drafted by ministries or agencies must be approved by Parliament and, in some cases, by European authorities. All proposed regulations are subject to a 20-to-30-day public consultation period during which the proposed measure is published on the relevant ministry or regulator’s website. Only after ministries or regulatory agencies have conducted an impact assessment of the proposed regulation can the text be enacted and published. The process can be monitored and consulted at the official websites of Parliament and the Official Portuguese Republic Journal. Ministries or regulatory agencies report the results of the consultations through a consolidated response published on the website of the relevant ministry or regulator.
Rule-making and regulatory authorities exist across sectors including energy, telecommunications, securities markets, financial, and health. Regulations are enforced at the local level through district courts, on the national level through the Court of Auditors, and at the supra-national level through EU mechanisms including the European Court of Justice, the European Commission, and the European Central Bank. The OECD, the European Commission, and the IMF also publish key regulatory actions and analysis. UTAO, the Parliamentary Technical Budget Support Unit, is a nonpartisan body composed of economic and legal experts that support parliamentary budget deliberations by providing the Budget Committee with quality analytical reports on the executive’s budget proposals. 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.
The legal, regulatory, and accounting systems are transparent and consistent with international norms. Since 2005, all listed companies must comply with International Financial Reporting Standards as adopted by the European Union (“IFRS”), which closely parallels the U.S. GAAP-Generally Accepted Accounting Principles. 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.
Public finances are generally deemed transparent, closely scrutinized by Eurostat and monitored by an independent technical budget support unit, UTAO, and the Supreme Audit Institution ‘Tribunal de Contas.’ Over the last decades, Portugal has also consolidated within the State accounts many state-owned enterprises, making budget analysis more accurate.
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. With the Treaty of Lisbon’s entry into force in 2009, trade policy and rules on foreign direct investment became mostly EU competencies, as part of the bloc’s common commercial policy. The European Central Bank is the central bank for the euro and determines monetary policy for the 19 Eurozone member states, including Portugal. Portugal complies with EU directives regarding equal treatment of foreign and domestic investors. Portugal has been a member of the World Trade Organization since 1995.
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 Parliament; (iv) instruments having an effective equivalent to that of laws, including approved international conventions or decisions of the Constitutional Court; and (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 a Supreme Court and specialized family courts, labor courts, commercial courts, maritime courts, intellectual property courts, and competition courts. Regulations or enforcement actions are appealable, and are adjudicated in national Appellate Courts, with the possibility to appeal to the European Court of Justice. The judicial system is independent of the executive branch and the judicial process procedurally competent, fair, and reliable. Regulations and enforcement actions are appealable.
Laws and Regulations on Foreign Direct Investment
The Bank of Portugal 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. Current information on laws, procedures, registration requirements, and investment incentives for foreign investors in Portugal is available at AICEP’s website.
Competition and Antitrust Laws
The domestic agency that reviews transactions for competition-related concerns is the Portuguese Competition Authority and the international agency is the European Commission’s Directorate General for Competition. Portuguese law 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 whose total sales exceeded €150 million during 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.
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 has 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 in Portugal. The leading commercial arbitration institution is the Arbitration Center of the Portuguese Chamber of Commerce and Industry.
The government promotes non-judicial dispute resolution through the Ministry of Justice’s Office for Alternative Dispute Resolution (GRAL), including conciliation, mediation or arbitration. 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 arbitration in administrative and contract disputes. 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.
Portugal has four domestic arbitration bodies: 1) The Arbitration Center of the Portuguese Chamber of Commerce and Industry (CAC); 2) CONCORDIA (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 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 Panama 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 Portuguese Constitution, 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 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 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 relatively slow and inefficient, the country has taken several important steps, including simplifying land registry procedures and increasing the portfolio of online services.
Portugal’s Insolvency and Corporate Recovery Code defines insolvency as a debtor’s inability to meet 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; and (v) subordinated claims, including those of shareholders.
4. Industrial Policies
The Portuguese government offers investment incentives that can be tailored to individual investors’ needs and capital, based on industry, investment size, and project sustainability, including grants, tax credits and deferrals, access to loans, and reduced cost of land. Investment agency AICEP actively recruits investors across the globe, intermediating the terms on a case-by-case basis for the larger investments. The Autonomous Regions of Madeira and the Azores also offer investment incentives. Since Portugal is an EU Member, potential investors may be able to access European funds, providing further incentives. Such support has been used by Portugal to co-finance key investments in the areas of research and development, information and communications technology, transport, water, solid waste, energy efficiency and renewable energy, urban regeneration, health, education, and culture.
In 2020, Portugal merged ‘PME Investmentos’ and the ‘Instituição Financeira de Desenvolvimento’ (IFD) to create the Banco Português de Fomento. The IFD is a national promotion bank tasked with providing credit to companies, managing State-guarantee schemes and supporting companies by helping them strengthen their capital structure, exports, and internationalization. It manages a €200 million co-investment fund. Through Portugal Ventures, a state-financed private equity company, the government has a risk capital arm that finances the growth of the Portuguese entrepreneurship ecosystem. This entity is part of the public business sector, operating under the same terms and conditions that apply to private companies and subject to the general domestic and community competition rules. As a venture capital firm, its funds are under the supervision of the Portuguese Securities Market Commission, CMVM.
The pandemic-response 2022-2026 Recovery and Resiliency Plan (RRP) devotes over €180 million to finance hydrogen and renewable gases investment projects, to be allocated to proposed capex via a competitive bidding process. The Government also offers a wide range of incentives for clean energy and sustainability via the Environmental Fund, attributing grants to projects that include electric charging points and purchase of low emission vehicles, namely public transport operators. As the portfolio of renewable energy choices quickly improves its commercial attractivity without need for public support, particularly solar, Portugal is shifting the focus of incentives to up and coming technologies, namely hydrogen.
Foreign Trade Zones/Free Ports/Trade Facilitation
Portugal has one foreign trade zone (FTZ)/free port in the Autonomous Region of Madeira, established in 1987. Continued operation of the International Business Centre of Madeira’s corporate tax regime is authorized by EU rules on incentives granted to member states. Industrial and commercial activities, international service activities, trust and trust management companies, and offshore financial branches are all eligible. Companies established in the foreign trade zone/free port enjoy import- and export-related benefits, financial incentives, tax incentives for investors and companies.
In December 2020, the European commission said that companies on the island of Madeira illegally benefitted from tax cuts under the FTZ, as they failed to meet the key requirement of contributing to the region’s growth. Portugal was asked to reimburse funds deemed incompatible with EU state aid rules, plus interest, from companies that failed to meet the conditions, the Commission said in a statement.
Under EU rules, company profits benefitting from income tax reductions must originate exclusively from substantive activities carried out in Madeira and these companies must create and maintain jobs in Madeira, conditions the Commission is concerned Portuguese authorities may have failed to respect.
Performance and Data Localization Requirements
Portugal does not impose performance requirements or mandate specific local employment conditions for foreign investors. Qualification standards for investment incentives are applied uniformly to domestic and foreign investors. There is a high level of labor mobility between Portugal and other EU member states. To work in Portugal, non-EU foreign nationals must be sponsored for a work permit by a Portuguese employer. An investor may also obtain permission to reside and work via the ‘Golden Visa’ scheme. There are no nationality-related restrictions that affect a foreign national’s ability to serve in senior management or on a board of directors. Foreign or expatriate workers with appropriate work authorizations are entitled to the same rights and subject to the same laws as employees with Portuguese citizenship.
While Portugal does not force data localization, according to the Portuguese Data Protection Law (pursuant to the EU’s 1995 Data Protection Directive) “data controllers,” i.e., people or corporations that process personal data, must register with the National Commission for Data Protection (CNPD). Data transfers outside the EU are only allowed if the recipient country or company ensures an adequate level of protection. Portugal is subject to new rules stipulated in the EU’s General Data Protection Regulation.
There are no requirements for foreign IT providers to turn over source code and/or provide access to encryption; the same rules apply to foreign IT providers as apply to national providers.
Data transfers to other countries within the EU do not require prior authorization from the CNPD. However, data transfers to countries outside the EU can only take place in compliance with the Data Protection Law, meaning the receiving state must also provide an adequate level of protection to personal data. If the receiving state does not ensure an adequate level of protection, the CNPD can authorize the transfer under specific conditions, as outlined in Act 67/98. CNPD can also authorize a transfer or a set of transfers of personal data to a receiving state that does not provide an adequate level of protection only if the controller provides adequate safeguards to protect the privacy and fundamental rights and freedoms of individuals. As members of the EU, business entities operating in Portugal are asked to comply with the bloc’s General Data Protection Regulation (GDPR).
CNPD issued a set of orders for private firms to halt or refrain from data transfers to the United States, implying that U.S. technology companies subject to sending data to the United States may risk being non-compliant with EU General Data Protection Regulation (GDPR), justifying the enforcement with a narrow interpretation of the Schrems II decision and Privacy Shield invalidation.
Generally, there are no excessively onerous visa, residence, work permit, or similar requirements inhibiting mobility of foreign investors and their employees.
5. Protection of Property Rights
Portugal reliably enforces property rights and interests. The Portuguese Constitution ensures the right to private property and grants Parliament the power to establish rules on the renting of property, the determination of property in the public domain, and the rules of land management and urban planning. The Civil Code of 1967 provides the right to absolute and full ownership, which can be restricted by mortgage, liens, or other security interests. Additional laws have established or modified rules on time-sharing, condominiums, and land registration.
Property registration can be undertaken online at Predial Online. Foreign investors can directly own/purchase property freehold or leasehold, to build industrial and commercial premises or can purchase through a real estate company.
If legally purchased property is unoccupied, Portuguese law allows ownership to revert to other owners, including squatters, through an adverse domain process set out in Chapter VI of the Portuguese Civil Code (CCP), Article 1287.
Intellectual Property Rights
Intellectual property rights (IPR) infringement and theft are uncommon in Portugal. It is fairly easy for investors to register copyrights, industrial property, patents, and designs with Portugal’s Institute of Industrial Property (INPI) and the Inspectorate-General of Cultural Activities (IGAC). Intellectual property can be registered online for a small fee. For more details, consult: https://inpi.justica.gov.pt/Servicos and https://www.igac.gov.pt/.
The Portuguese government became party to the World Trade Organization’s (WTO’s) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) and provisions of the General Agreement on Tariffs and Trade (GATT) in 2003. Portuguese legislation for the protection of IPR has been consistent with WTO rules and EU directives since 2004. The Arbitration Centre for Industrial Property, Domain Names, and Company Names (ARBITRARE) was established in 2009 to facilitate voluntary arbitration of IPR disputes in English or Portuguese, and in 2012, the government created an IPR court with two judges. In 2019, Portugal brought into force a new industrial property package of legislation, enhancing the protection of a wide range of IPR, including patents, geographical indications, trademarks and designs. See more at https://wipolex.wipo.int/en/members/profile/PT .
Portugal is a participant in the eMAGE and eMARKS projects, which provide multilingual access to databases of trademarks and industrial designs. Portugal’s Food and Economic Security Authority (ASAE), in partnership with other national law enforcement agencies, provides statistics on seizures of counterfeit goods at: https://www.asae.gov.pt/inspecao-fiscalizacao/resultados-operacionais.aspx .
Portugal is not included in the U.S. Trade Representative’s (USTR’s) Special 301 Report or Notorious Markets List.
The Portuguese stock exchange is managed by Euronext Lisbon, part of the NYSE Euronext Group, which grants listed companies access to a global and diversified pool of investors. The Portuguese Stock Index-20 (PSI20) is Portugal’s benchmark index representing the largest (only 19, not 20) and most liquid companies listed on the exchange. The Portuguese stock exchange offers a diverse product portfolio: shares, funds, exchange traded funds, bonds, and structured products, including warrants and futures.
The Portuguese Securities Market Commission (CMVM) supervises and regulates securities markets, and is a member of the Committee of European Securities Regulators and the International Organization of Securities Commissions. Additional information on CMVM can be found here: http://www.cmvm.pt/en/Pages/homepage.aspx .
Portugal respects IMF Article VIII by refraining from placing restrictions on payments and transfers for current international transactions. Credit is allocated on market terms, and foreign investors are eligible for local market financing. Private sector companies have access to a variety of credit instruments, including bonds.
Money and Banking System
Portugal has 145 credit institutions, of which 61 are banks. Portugal’s banking assets totaled €431 billion at the end of June 2021. Portuguese banks’ non-performing loan portfolios improved markedly since the global financial crisis. Total loans stood at around €244 billion in mid-2021, 4.3 percent of which constitute non-performing loans, above the Eurozone average of around 2.2 percent.
Banks’ return on equity was 4.6 percent in the first half of 2021 versus 0.3 percent the year before. In terms of capital buffers, the Common Equity Tier 1 ratio stabilized at 15.3 percent as of June 2021.
Foreign banks are allowed to establish operations in Portugal. In terms of decision-making policy, a general ‘four-eyes policy,’ with two individuals approving actions, must be in place at all banks and branches operating in the country, irrespective of whether they qualify as international subsidiaries of foreign banks or local banks. Foreign branches operating in Portugal are required to have such decision-making powers that enable them to operate in the country, but this requirement generally does not prevent them from having internal control and rules governing risk exposure and decision-making processes, as customary in international financial groups.
No restrictions exist on a foreigners’ ability to establish a bank account and both residents and non-residents may hold bank accounts in any currency. However, any transfers of €10,000 or more must be declared to Portuguese customs authorities. See more at: https://www.bportugal.pt/ .
Foreign Exchange and Remittances
Portugal has no exchange controls and there are no restrictions on the import or export of capital. Funds associated with any form of investment can be freely converted into any world currency.
Portugal is a member of the European Monetary Union (Eurozone) and uses the euro, a floating exchange rate currency controlled by the European Central Bank (ECB). The Bank of Portugal is the country’s central bank; the Governor of the Bank of Portugal participates on the board of the ECB.
There are no limitations on the repatriation of profits or dividends. There are no time limitations on remittances.
Sovereign Wealth Funds
The Ministry of Labor, Solidarity, and Social Security manages Portugal’s Social Security Financial Stabilization Fund (FEFSS), with total assets of around €22 billion. It is not a Sovereign Wealth Fund (SWF) and does not subscribe to the voluntary code of good practices (Santiago Principles), or participate in the IMF-hosted International Working Group on SWFs. Among other restrictions, Portuguese law requires that at least 25 percent of the fund’s assets be invested in Portuguese public debt, and limits FEFSS investment in equity instruments to that of EU or OECD members. FEFSS acts as a passive investor and does not take an active role in the management of portfolio companies.
7. State-Owned Enterprises
There are currently over 40 major state-owned enterprises (SOEs) operating in Portugal in the banking, health care, transportation, water, and agriculture sectors. Caixa Geral de Depositos (CGD) has revenues greater than one percent of GDP. The bank has the largest market share in customer deposits, commercial loans, mortgages, and many other banking services in the Portuguese market.
Parpublica is a government holding company for several smaller SOEs, providing audits and reports on these. More information can be found at: http://www.parpublica.pt/. The activities and accounts of Parpublica are fully disclosed in budget documents and audited annual reports. In addition, the Ministry of Finance publishes an annual report on SOEs through a specialized monitoring unit (UTAM) that presents annual performance data by company and sector: In 2020, Parpublica managed assets totaling €11 billion, employs 4,400 workers and the net income of the holding was €80 million.
When SOEs are wholly owned, the government appoints the board, although when SOEs are majority-owned the board of executives and non-executives’ nomination depends on the negotiations between government and the remaining shareholders, and in some cases on negotiations with EU authorities as well.
According to Law No. 133/2013, SOEs must compete under the same terms and conditions as private enterprises, subject to Portuguese and EU competition laws. Still, SOEs often receive preferential financing terms from private banks.
In 2008 Portugal’s Council of Ministers approved resolution no. 49/2007, which defined the Principles of Good Governance for SOEs according to OECD guidelines. The resolution requires SOEs to have a governance model that ensures the segregation of executive management and supervisory roles, to have their accounts audited by independent entities, to observe the same standards as those for companies publicly listed on stock markets, and to establish an ethics code for employees, customers, suppliers, and the public. The resolution also requires the Ministry of Finance’s Directorate General of the Treasury and Finances to publish annual reports on SOEs’ compliance with the Principles of Good Governance. Credit and equity analysts generally tend to criticize SOEs’ over-indebtedness and inefficiency, rather than any poor governance or ties to government.
Portugal launched an aggressive privatization program in 2011 as part of its EU-IMF-ECB bailout, including SOEs in the air transportation, land transportation, energy, communications, and insurance sectors. Foreign companies have been among the most successful bidders in these privatizations since the program’s inception. The bidding process was public, transparent, and non-discriminatory to foreign investors. On July 2, 2020, the government of Portugal nationalized a 71.7 percent stake in energy company Efacec, controlled by Angola’s Isabel dos Santos, given its strategic importance for the economy, in a move aimed at ending legal uncertainty and facilitating the sale of her shares. On February 24, 2022, the government approved the sale of Efacec to Portuguese group DST, which pledged to inject €81 million to strengthen the firm’s capital structure.
In December 2021, the European Commission approved a €2.55 billion state aid package for Portugal’s State-owned air carrier TAP. In exchange, the airline is executing a restructuring plan, reducing its workforce, and implementing pay cuts. It also pledged to reduce its fleet by twelve aircraft to 88 by the end of 2021. The plan expects TAP to produce €1.3 billion in operating cost reductions per year by 2025 and return TAP Portugal to profitability by 2023-2024. Infrastructure Minister Pedro Nuno Santos has flagged that the Government will look for private investors and there already several interested parties.
8. Responsible Business Conduct
There is strong awareness of responsible business conduct in Portugal and broad acceptance of the need to consider the community among the key stakeholders of any company. The Group of Reflection and Support for Business Citizenship (GRACE) was founded in 2000 by a group of companies, primarily multinational enterprises, to expand the role of the Portuguese business community in social development.
The Ministry of Economy and AICEP encourage foreign and local enterprises to observe the due diligence approach of the OECD Guidelines for Multinational Enterprises, and both agencies jointly comprise the National Contact Point (NCP) to provide support for mediating disputes that may arise regarding the Guidelines. The Portuguese Business Ethics Association (APEE) is dedicated to promoting corporate social responsibility and works in collaboration with the Ministry of Economy’s Directorate-General of Economic Activities. It promotes events like Social Responsibility Week and celebrates protocols and agreements with companies to ensure they follow responsible business conduct principles incorporated into the labor code.
Portugal’s Competition Authority both encourages and enforces competition rules, including ethical business practices. The Competition Authority operates a leniency program for companies that self-identify lapses. There have not been any high profile, controversial instances of private sector impact on human rights. The Portuguese government enforces domestic laws effectively and fairly through the domestic courts system, and through the supra-national European Court of Human Rights. Within its constitution, Portugal states that constitutional precepts concerning fundamental rights must be interpreted and observed in harmony with the Universal Declaration of Human Rights.
The Portuguese legal and regulatory framework on corporate governance includes not only regulations and recommendations from the Portuguese Securities Market Commission (CMVM), but also specific legal provisions from the Portuguese Companies Code and the Portuguese Securities Code. CMVM promotes sound corporate governance for listed companies by setting out a group of recommendations and regulations on the standards of corporate governance. CMVM regulations are binding for listed companies.
Non-governmental organizations also promote awareness of environmental and good governance issues in business. These include Quercus Portugal, which publishes guidelines and organizes events to promote environmental responsibility in business practices, and Transparencia e Integridade Associacao Civica (TIAC), which produces reports on corruption on everything from soccer match-fixing to conflicts of interest in public and private enterprise. TIAC also allows whistle-blowers to anonymously submit reports of corruption through their website.
Portugal represents a success story in fighting child labor from its supply chain, as the public and private sector came together decisively to eradicate child labor issues from the 1990’s. However, Portugal remains a source, transit, and destination country for men, women, and children subjected to forced labor trafficking. In 2019, a series of large COVID-19 outbreaks unveiled how groups of migrant workers at berry farms were subject to poor housing and sanitary conditions.
Portugal does not participate in the Extractive Industries Transparency Initiative (EITI) or the Voluntary Principles on Security and Human Rights. The country’s two main umbrella unions, CGTP-Confederação Geral dos Trabalhadores Portugueses and UGT-União Geral dos Trabalhadores, also regularly denounce and combat non-compliant business practices, particularly related to labor rights violations.
Portugal potentially holds some of the largest lithium reserves in Europe and is preparing to advance with battery-grade ore mining. While some recognize the role of lithium for energy transition, several NGOs issued negative opinions of planned mine projects, warning about open-pit methods that will provoke dust, noise, and detonations around the clock, damaging the lifestyle and health of local population. Environmentalists also warn about the risks to local species such as water moles, the Iberian wolf and river mussels. In January 2020, 14 civil society and environmental associations signed a national manifest against Portugal’s mining plans
Portugal’s national climate strategy aims to reach net zero emissions by 2050. In its 2021-2030 National Energy and Climate plan, Portugal sets out goals for decarbonization, energy efficiency, energy security, internal energy markets and research, innovation, and competitiveness. Portugal’s installed solar capacity is now about 7 percent of the energy mix and is expected to reach 8 GW of solar capacity, or 27 percent of the energy mix by 2030. The Government is promoting significant investments in wind and solar energy development to meet its target of 47 percent energy from renewables by 2030. Portugal reduced its external energy dependence by 9.1 percentage points in 2021 versus 2005, increasing domestic energy generation and reducing the consumption of primary energy by 17 percent, ensuring greater supply security. Portugal’s path to a carbon neutral economy includes: incentives for energy efficiency; promoting diversification of energy sources; increasing electrification; reinforcement and modernization of infrastructure; development of interconnections; market stability for investors; reconfiguration and digitalization of the market; incentives for research and innovation, promotion of low-carbon processes, products and services; and improved energy services and information for consumers.
When it comes to public procurement and instruments for the State to accelerate the climate transition, Portugal has a ‘once-in-a-generation chance’ to boost its efforts. The country can use around €16.6 billion in European Union (EU) pandemic response funds expected to flow to state coffers between 2021 and 2026 to support its Recovery and Resilience Plan (RRP), of which the government will allocate 47 percent to efforts that help climate objectives. Public procurement and investment policies dictate that large infrastructure, industrial, mining, and other environmentally sensitive initiatives require the approval of impact assessment studies, supervised and assessed by the Portuguese Agency for the Environment (APA), before moving forward.
U.S. firms do not identify corruption as an obstacle to foreign direct investment. Portugal has made legislative strides toward further criminalizing corruption. The government’s Council for the Prevention of Corruption, formed in 2008, is an independent administrative body that works closely with the Court of Auditors to prevent corruption in public and private organizations that use public funds. Transparencia e Integridade Associacao Civica, the local affiliate of Transparency International, also actively publishes reports on corruption and supports would-be whistleblowers in Portugal.
In 2010, the country adopted a law criminalizing violation of urban planning rules and increasing transparency in political party funding. In 2015, Parliament unanimously approved a revision to existing anti-corruption laws that extended the statute of limitations for the crime of trading in influence to 15 years, and criminalized embezzlement by employees of state-owned enterprises with a prison term of up to eight years. The laws extend to family members of officials and to political parties.
Despite being seen as generally aligned with the best international practices in terms of preventing and combating corruption, a June 2019 interim report by the Council of Europe’s Group of States against Corruption (GRECO) concluded that only one of the fifteen recommendations contained in GRECO´s Fourth Round Evaluation Report had been implemented satisfactorily or dealt in a satisfactory manner by Portugal at end-2019 in terms of compliance with GRECO anti-corruption recommendations addressed to lawmakers, judges and prosecutors.
Portugal ranked 32nd out of 180 countries in Transparency International (TI)’s 2021 Corruption Perception Index (CPI), an improvement of one position from the previous year.
Portugal approved a national anti-corruption strategy in December 2021. This legislative package includes a working group that prepares a national report, revises the whistle-blower protection framework, fraud-proofs legislation, improves public procurement processes, reinforces the transparency of political party financing, and ensures that companies have corruption prevention plans in place.
Portugal has laws and regulations to counter conflict-of-interest in awarding contracts or government procurement. Parliamentarians are required to declare their income, assets, and interests to the Authority for Transparency attached the Constitutional Court.
The Portuguese government encourages (and in some cases requires) private companies to establish internal codes of conduct that, among other things, prohibit bribery of public officials. Most private companies use internal controls, ethics, and compliance programs to detect and prevent bribery of government officials. As described above, the Competition Authority operates a leniency program for companies that self-identify infringements of competition rules, including ethical lapses.
Portugal has ratified and complies with both the UN Convention against Corruption and the OECD Anti-Bribery Convention.
Resources to Report Corruption
Contact at the government agency or agencies that are responsible for combating corruption:
Council for the Prevention of Corruption
Avenida da Republica,
651050-189, Lisbon, Portugal
+351 21 794 5138
Contact at “watchdog” organization:
Transparency International –
Transparencia e Integridade Associacao Civica
Rua dos Fanqueiros,
+351 21 8873412
10. Political and Security Environment
Since the 1974 Carnation Revolution, Portugal has had a long history of peaceful social protest. Portugal experienced its largest political rally since its revolution in response to proposed budgetary measures in 2012. Public workers, including nurses, doctors, teachers, aviation professionals, and public transportation workers organized peaceful demonstrations periodically in protest of insufficient economic support, low salary levels, and other measures.
11. Labor Policies and Practices
Numerous labor reform packages aimed at improving productivity were implemented after the 2011 bailout, but overall labor productivity remains a challenge. The annualized monthly minimum wage increased stands at €823.
After the difficulties of the eurozone debt crisis, when many Portuguese migrated out of the country along with some resident migrants, net-migration became positive again in 2017 and has strengthened since. The largest communities of workers come from Brazil, Cape Verde, Romania, Ukraine, UK, China, France, Italy, Angola, Guinea-Bissau, Nepal and India. In the Southern Algarve region, the tourism sector employs most of the migrant workers. Alentejo and the coastal regions of central Portugal, with their intensive agriculture sectors, host substantial Asian workers’ communities, especially from Bangladesh.
Employers are allowed to conduct collective dismissals linked to adverse market or economic conditions, or due to technological advancement, but must provide advance notice and severance pay. Depending on the seniority of each employee, an employer must provide between 15 to 75 days of advance notice, and pay severance ranging from 12 days’ to one month’s salary per year worked. Employees may challenge termination decisions before a Labor Court. Labor laws are uniformly applicable and enforced, including in Portugal’s foreign trade zone/free port in the Autonomous Region of Madeira.
Collective bargaining is common in Portugal’s banking, insurance, and public administration sectors. More information is available at the Directorate General for Labor Relations site.
Portugal has labor dispute resolution mechanisms in place through Labor Courts and Arbitration Centers. Labor strikes are not violent and of short duration. Labor laws are not waived in order to attract or retain investment.
Portugal is a member of the International Labor Organization (ILO), and has ratified all eight Fundamental Conventions as well as all four Governance (Priority) Conventions.
The Labor Code caps the work schedule at eight hours per day, and 40 hours per week. The public sector employee workweek, with certain exclusions, was capped at 35 hours in July 2016. Employees are entitled to at least 22 days of annual leave per year. Employers must pay employees a Christmas and vacation bonus, both equivalent to one month’s salary.
Gender pay gap inequality in Portugal worsened from 10.9 percent in 2019 to 11.4 percent in 2020, which is still better than the average EU difference (13 percent), according to Eurostat data. Portugal has shown progress in developing gender equality and gender mainstreaming policies, according to European Institute for Gender Equality (EIGE). The 2030 National Strategy on Gender Equality, aligned with the UN Sustainable Development Goals, established a plan to: promote gender equality; tackle violence against women and domestic violence; and, combat discrimination on the grounds of sexual orientation, gender identity and sexual characteristics.
Portugal’s Fraud Management and Economics Observatory estimates that the informal economy is worth about 27 percent of GDP, according to its last available analysis in 2015. The President of the Observatory said in 2020 that the weight of the informal economy has likely “increased significantly” with the onset of the pandemic.
12. U.S. International Development Finance Corporation (DFC), and Other Investment Insurance or Development Finance Programs
Portugal is a country with low political risk; there is no active DFC program in Portugal. However, DFC is authorized to operate in Portugal.
13. Foreign Direct Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source*
USG or international statistical source
USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
Host Country Gross Domestic Product (GDP) ($M USD)