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Hiring in Portugal
Portugal, officially known as the Portuguese Republic, is a country in south-western Europe. Lisbon is the capital and the largest city of Portugal. Portuguese is the official language. Portugal is a developed high income country. Banking, tourism, automotive industry, and cement industry are important drivers of economic growth. Portugal’s key trading partners are Spain, France, Germany, United States and United Kingdom. Global PEO or Employer of Record (EOR) play a pivotal role in providing companies with services related to hiring employees, and ensuring compliance with Portugal’s legal and tax regulations. Employment regulations including probation, holidays and termination are covered by the Labor Code. Labor Code stipulates that employees are entitled to 22 days of annual leave. Residents are taxed on their worldwide income; non-residents are taxed on Portuguese-source income only. Global PEO’s or Employer of Record (EOR) facilitate companies by ensuring compliance with Portugal’s Labor Code and tax laws.
statutory labor requirements
Probation Period
- In fixed-term contracts of employment for 6 months or more the probation period is 30 days.
- In fixed term contracts of employment for less than 6 months or for an unspecific term if it does not exceed that limit, the probation period is 15 days.
- For senior executives and managers, the probationary period may be extended to 240 days.
Annual Leave
- Statutory minimum is 22 work days (20 in the first year of employment with the company).
- At least 15 days of annual leave must be taken in the year accrued; the remainder can only be taken until April of the following year.
Public Holidays
- New Year’s Day (1st January)
- Good Friday (10th April)
- Freedom Day (25th April)
- Labor Day (1st May)
- Portugal Day (10th June)
- Assumption Day (15th August)
- Immaculate Conception Day (8th December)
- Christmas Eve (24th December)
- Christmas Day (25th December)
Maternity Leave
- Female employees are eligible for 30 days of maternity leave at full pay before a child’s birth, and 6 weeks following.
- Maternity leave in Portugal can be taken all at once or in two separate leaves of 30 days prior to the birth and 90 days after. If the employee has twins she’s entitled to an additional 30 days.
Paternity Leave
- Fathers in Portugal are entitled to 10 days of paid paternity leave to be taken within 30 days of the birth of the child.
- 5 of these days must be taken consecutively.
Sick Leave
- Portuguese social security pays employees a sick leave benefit for employees who are absent from work as a result of illness or injury.
- Employees can receive sick pay for up to 1,095 days. Pay is generally 55% to 75% of the employee's salary.
Work Hours
- A typical working day in Portugal starts at 9am until 1pm with a two-hour break for lunch, and then resumes at 3pm until 7pm.
- The maximum legal working week in Portugal is 40 hours.
Overtime
- Overtime work is paid at the normal hourly rate plus 25% for the first hour or part thereof, and plus 37.5% for every subsequent hour or part thereof, on working days
- 50% for the first hour or part thereof, on weekly rest, compulsory or complementary, or on bank holiday
Notice Period
- Termination notice by the employee is dependent upon the number of years of service.
-
- 15 days is required for employees with less than 1 years’ service
- 30 days for those between 1 and 5 years’ service
- 60 days for those between 5 and 10 years’ service
- 75 days for employees with over 10 years’ service
Severance
- Disciplinary dismissals do not give rise to severance pay.
- Severance pay amounts to one-month basic salary for each full year of seniority, with a minimum three-month payment.
- The compensation cannot exceed 20 times the minimum national wage (€700 as at November 2019) with a maximum amount equivalent to 12 times the monthly base salary or 240 times Portuguese minimum wage.
13th / 14th Month Pay
- Yes (Mandatory)
- There is a statutory requirement to pay the 13th month salary which is paid during the holidays.
- There is a statutory requirement for a Christmas bonus is the 14th month.
income tax
- Residents of Portugal are subject to tax on their worldwide income.
- Nonresidents are subject to personal income tax on income arising in Portugal.
- Personal income tax (IRS) is imposed on the earned income of employed individuals.
- Residents in Portugal for tax purposes are taxed on their worldwide income at progressive rates varying from 14.5% to 48% for 2019.
- In 2019, an additional solidarity rate, which varies between 2.5% and 5%, applies to taxpayers with a taxable income exceeding EUR 80,000.
- Non-residents are taxed at a flat rate of 25% on their taxable remuneration in 2019.
- Taxable income includes all earned income of a professional individual, including commissions and profits from a trade.
- Business and professional income is taxed at the personal income tax rates listed in Rates and may be subject to one of the following two regimes:
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- Simplified regime
- Organized bookkeeping regime
- Income may be taxed under the simplified regime if the taxpayer does not choose to use, and is not required to use, organized bookkeeping and if the annual gross business and professional income of the taxpayer did not exceed EUR200,000 in the preceding year
|
Taxable income (EUR*) |
Tax rate (%) |
Deductible amount (EUR) |
|
|
Over |
Not over |
||
|
0 |
7,091 |
14.5 |
0 |
|
7,091 |
10,700 |
23 |
602.74 |
|
10,700 |
20,261 |
28.5 |
1,191.23 |
|
20,261 |
25,000 |
35 |
2,508.11 |
|
25,000 |
36,856 |
37 |
3,008.25 |
|
36,856 |
80,640 |
45 |
5,956.67 |
|
80,640 |
48 |
8,376.08 |
|
deductible expenses
- For 2019, employees may deduct an amount of EUR4,104.
- Compulsory social security contributions in excess of EUR4,104 are deductible without limitation.
- Union contributions and indemnities paid to employers may also be deducted, subject to applicable limits.
- Taxpayers earning income from professional activities or other services rendered can deduct from taxable income compulsory social security contributions, in excess of 10% of the gross business and professional income, which have not been claimed as deductions for any other purpose.
- Union fees paid to Portuguese trade unions (in the part that does not constitute a direct contribution for health, education, elderly support, home, insurance, or social security benefits) may be deducted against employment or pension income.
- The deduction is 150% of total fees, up to a limit of 1% of the taxpayer’s gross employment or pension income.
- The concept of deductible expenses encompasses all the expenses effectively incurred and paid by taxpayers in order to obtain or assure rental income, excluding the financial costs, depreciation, furniture, household appliances, decorations, and comfort accessories. Regarding properties in a horizontal proprietorship, other mandatory expenses incurred by the owner of each fraction will be also deductible.
- The expenses incurred in the 24 months prior to the beginning of the lease/rent, concerning repair and maintenance expenses of the property, can also be deducted, provided that during such period the property has not been used for another purpose than the lease.
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Deductible Expenses |
|
|
Employment |
|
|
Self-employed |
|
|
Personal Deductions |
|
immigration
- Non-EU nationals must enter Portugal with the proper visas if they intend to carry out professional activities.
- The type of work permit and visa required and the required procedures to obtain these items differ depending on how the work relationship is classified (for example, as a self-employment activity, an employment activity or an activity considered to be a high qualified activity or research).
- The procedure for obtaining an employment visa for a foreign national is initiated by the prospective Portuguese employer (or the Portuguese entity for which the employees are assigned to work), which must first request a declaration to the Instituto de Empregoe Formação Profissional proving that the job offer is covered by the quota limits and has not been filled by a worker who enjoys preference.
- The approval and issuance of such declaration usually requires up to three months.
- This procedure is usually followed to fill available vacancies within the quota limits, which are established by a resolution taken by the Council of Ministers.
- The initial residence visa is issued for four months.
- As soon as the holder of the visa arrives in Portugal, he or she should apply to the immigration authorities in Portugal for a residence card (autorização de residência).
- The initial residence card is issued for one year and can be renewed for successive periods of two years.
- Portugal is one of the countries that has implemented the EU Blue Card Directive, which enables companies to locally hire executives and high-skilled workers.
- To obtain the EU Blue Card, an individual must prove the following:
-
- For regulated professions specified in the employment contract, the adequate professional certification document, if applicable
- For professions that are not regulated, proof of higher professional qualifications in the occupation or sector specified in the employment contract
- The application for the EU Blue Card should be submitted by a national of a third state or by the employer with the regional offices of the immigration authorities.
- The EU Blue Card is issued for an initial term of validity of one year, renewable for successive periods of two years.
- The renewal of the EU Blue Card must be requested by the interested party within 30 days before the expiration of its validity
- The rules governing the granting of a Residence Permit for Investment (known as an ARI/Golden Visa), which entered into force on 8 October 2012, enable third-country nationals to obtain a temporary residence permit to conduct business activities with visa waiver to enter Portugal.
|
Type of Visa/Permit |
Documentation |
Validity |
Eligibility |
|
Residence Card |
|
1 year |
|
|
Golden Visa/ ARI |
|
5 years |
One of the following: -
reconstruction or refurbishment of the national heritage |
|
EU Blue Card |
|
1 year |
|
value added tax
- The standard VAT rate in Portugal is 23%; with a reduced rate of 6% and intermediate rate of 13%.
- There are also different VAT rates applicable in the Portuguese Islands (Azores and Madeira).
- In Azores the standard VAT rate in Portugal is 18%, with reduced rate of 5% and intermediate rate of 10%.
|
VAT Rates |
|
|
Standard Rate |
23% |
|
Reduced Rate |
13% |
|
Reduced Rate |
6% |
withholding tax
Dividends
- Dividends paid to a nonresident company are subject to a 25% withholding tax (35% if paid to a resident of a listed tax haven)
- The rate may be reduced to 0% where the conditions for the domestic participation exemption regime are fulfilled and the recipient of dividends is resident in the EU/ EEA or in a tax treaty jurisdiction
- If the participation exemption does not apply, the rate may be reduced under a tax treaty
- Dividends paid by resident companies are subject to a 28% final withholding tax.
Interest
- Interest paid to a nonresident company is subject to a 25% withholding tax (35% if paid to a resident of a listed tax haven), unless reduced under a tax treaty
- Under the EU interest and royalties’ directive, payments to qualifying EU recipients are exempt
Royalties
- Royalty payments made to a nonresident company are subject to a 25% withholding tax (35% if paid to a resident of a listed tax haven), unless the rate is reduced under a tax treaty.
- Under the EU interest and royalties’ directive, payments to qualifying EU recipients are exempt
Technical Service Fee
- Technical service fees paid to a nonresident company are subject to a 25% withholding tax, unless the rate is reduced or eliminated under a tax treaty
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WHT |
|
|
Dividends |
|
|
Interest |
|
|
Royalties |
|
|
Technical Service Fee |
|
termination
In addition to other procedures provided for by law, an employment contract may terminate due to:
-
- Expiration
- Revocation
- Dismissal for cause attributable to the employee
- Collective dismissal
- Dismissal due to elimination of job
- Dismissal for inability to adapt
- Unilateral termination of the contract by the employee without just cause
- Unilateral termination of the contract by the employee with just cause.
- Dismissal of the employee without just cause or for political or ideological reasons is forbidden
- There are 3 methods of terminating employment agreement in Poland:
-
- termination by mutual consent
- termination with notice
- termination without notice
statutory benefits
- These are benefits as postulated by law
- These include probationary period, annual leave, public holidays, sick leave, maternity leave, paternity leave, notice period, severance period, 13th month and 14th month pay
- Statutory benefits also include social security benefits
|
Statutory Benefits |
|
Probationary Period |
|
Annual Leave |
|
Public Holidays |
|
Sick Leave |
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Maternity Leave |
|
Paternity Leave |
|
Notice Period |
|
Severance Pay |
|
13th Month pay |
|
14th month pay |
|
Social Security Benefits |
payments and invoicing
- The tax year in Portugal is the calendar year.
- However, it is possible to split the year for tax purposes.
- Residents, as well as nonresidents who have filing obligations, must file their personal income tax returns between 1 April and 30 June of the following year.
- Any balance of tax due or excess tax paid is payable or refundable when the Portuguese tax authorities issue the respective tax assessment.
- An extension to the filing of personal income tax returns with foreign tax credit is granted until 31 December of the year following the tax year.
- For that purpose, individuals must report the nature of the income and the country of source by the standard deadline for the personal income tax return filing (through Form 49) and subsequently file the return when the foreign tax assessment is available.
- Nonresidents who receive rental income from Portugal or who realize a capital gain in Portugal that is not excluded from taxation must file tax returns between 1 April and 30 June of the year following the year of receipt.
ease of doing business
- The ease of doing business index is an index created by Simeon Djankov, an economist at the Central and Eastern Europe sector of the World Bank Group.
- Higher rankings (a low numerical value) indicate better, usually simpler, regulations for businesses and stronger protections of property rights.
- According to the World Bank Portugal ranked 39th in the World in 2019 in terms of ease of doing business.
employee accruals
| Christmas Bonus% |
Based on one month bonus (paid in December) |
| Christmas Bonus Over Vacations % |
0% |
| Severance per Year % |
*Only if dismissal is sussessfully challanged in court, can range from 15 to 45 days per completed year, with a minimum of three months. |
| Vacations % | Employees are entitled to 22 days of annual leave (6.04% of annual salary) |
| Notice % |
Employees are entitled to a 15 day notice period for one year of service or more (4.28%) |
| Christmas Bonus Over Notifications% | |
| Vacations Plus% | Based on one month bonus (holiday bonus) 8.33% |
| Total percentage of Salary (yearly) | The total employment accruals as a percentage of salary per anum are equal to 26.98% |
employer accruals
Additional information (Country Accruals)
| Social Security | 23.75% |
| Maternity leave | 16-18 weeks |
| Christmas Bonus | 8.33% |
| Vacations | 9.59% |
| Description | Social security contributions are shared by the employee and the employer. The contributions are due on the employee’s gross remuneration at rates of 11% and 23.75% by the employee and the employer, respectively. These contributions cover family, pension, and unemployment benefits. Foreign residents may be exempt from social security in Portugal if they contribute to a compulsory social security system in a European Union (EU) country or a country that has a bilateral social security agreement with Portugal, provided they are in possession of the relevant certificate of coverage. In addition to social security contributions at a general rate of 23.75%, employers must buy an insurance premium to cover occupational accidents. The premium varies according to work and risk classification. Regarding members of the board, the social security rates correspond to 9.3% with respect to the individual contributions and 20.3% for employer contributions. However, the contribution rate applicable to members of statutory boards who are considered as managers or administrators is set at rates of 23.75% and 11% to employers and members of statutory boards, respectively. The contributions of members of statutory boards are based on their effective remuneration but subject to a monthly minimum income level of EUR 438.81. Members of statutory boards who are considered as managers or administrators, and some types of self-employees, become entitled to protection in the event of unemployment. The contributions rate applicable to self-employees corresponds to 21.4%. The monthly contribution basis for self-employees corresponds to 1/3 of the relevant remuneration determined in each reporting period and produces effects in that month and in the following two months. For the determination of the relevant remuneration of the self-employee, it is considered the income received in the three months previously to the reporting month. The relevant remuneration corresponds to 70% of the amount of services rendered and to 20% of the income related to the production and sales of products. Portugal Individual - Other taxes Last reviewed - 20 January 2021 A 10% contribution rate is due by employers if 80% or more of the fees earned by the self-employee come from services for the same company, for the same person with a business activity, or to the same group. A 7% contribution rate is due by employers when the economic dependence of the self-employee varies between 50% and 80%. The contribution is payable upon the issue of a tax assessment by the social security authorities. In 2020, the Portuguese monthly minimum wage is EUR 635. |
Employer Accruals Additional information
| Employment Accruals | ||
| Annual Leave | Statutory minimum is 22 work days (20 in the first year of employment with the company). | This equals 6% (22/365 days) of annual income |
| Maternity Leave | Female employees are eligible for 30 days of maternity leave at full pay before a child’s birth, and 6 weeks following. | This equals 8.22% (30/365 days) of annual income |
| Paternity Leave | Fathers in Portugal are entitled to 10 days of paid paternity leave to be taken within 30 days of the birth of the child. | This equals 2.7% (10/365 days) of annual income |
| Overtime | Overtime work is paid at the normal hourly rate plus 25% for the first hour or part thereof, and plus 37.5% for every subsequent hour or part thereof, on working days 50% for the first hour or part thereof, on weekly rest, compulsory or complementary, or on bank holiday |
Depends on the number of overtime hours worked |
| Severance | Severance pay amounts to one-month basic salary for each full year of seniority, with a minimum three-month payment. | This equals 8.33% (1/12 months) of annual income |
| Social Security | Social security contributions are payable on all salaries, wages, bonuses and other regular income, excluding lunch subsidies. The employer’s share is 23.75%, |
This equals 23.75% of annual income |
