Country report Portugal

Economic overview

The Portuguese Institute of Statistics confirmed that the country’s GDP grew by 2.6% on a quarterly basis and by 11.9% on an annual basis in the first quarter of 2022. The growth was driven by private consumption and tourism. 

At this rate of growth, Portugal experienced the fifth largest economic expansion among the 27 member states in the first quarter of this year. In the comparison on an annual basis, Portugal emerges as the country with the greatest growth (11.9%), followed by Ireland (11.3%) and Slovenia (9.6%). As regards forecasts for the current year, Portugal’s GDP will grow by 5.4% instead of the 5.8% expected in December last year. 

The estimate has been updated in the Economic Outlook of the Organization for Economic Co-operation and Development (OECD). This downward revision will repeat itself in 2023, with annual growth falling from 2.8% to 1.7%. 

The OECD is confident that “robust” public investment, fueled by European funds, and the return of tourism exports will support the economic recovery of the country. While Portugal is not heavily dependent on Russia and Ukraine, the country is no stranger to the effects of this situation on the world, so we are already seeing the speed of recovery slowing down. The Russian invasion of Ukraine, supply chain disruptions and rising energy and other commodity prices will impact economic activity, reducing business confidence and consumers’ purchasing power.

Main sectors of economy

The agricultural sector has a non-homogeneous land structure: small plots in the northern regions of the country and medium to large properties in the south. Despite government incentives, agriculture continues to suffer from low profitability, with costs that make products uncompetitive with those of neighboring Spain. The main productions are: wheat, grapes, millet, olives, tomatoes and sugar beets; the most important item, especially for export, is represented by table wines and Port wine.

The commercial sector, especially the hotel sector, and the manufacturing industry are also very important.

Fishing and wood are also worth mentioning (34% of the village’s surface is wooded). Portugal’s forests provide a large portion of the world’s supply of cork, a sector in which the country ranks second in the world, and whitewoods, from which pulp is extracted. Discreet mineral resources – copper, tungsten, iron pyrites and uranium – even if the role of the extractive sector is conditioned by the trend of international markets.

The industrial activity is mainly based on intermediate technologies, such as textile products, footwear, wood and cork processing, while the electrical, electromechanical and engineering sectors operate with more advanced technologies. The strong component of foreign investment, especially in the clothing, footwear and components for the automotive industry, has suffered a continuous decrease, due to the delocalization of such investments in Eastern countries, starting from their entry into the EU, which has caused a significant increase in unemployment.

A sector, on the other hand, which maintains a high technological level and which exports almost all of its production, is that of the manufacture of molds for plastic materials, while the biotechnology sector assumes growing importance.

We can also mention the centuries-old artisan tradition of ceramics, whose manufacturing throughout history has united European and Moorish tastes. Among the best known products, the typical tiles called azulejos, rigorously white and blue.

Taxation for businesses in Portugal

Corporate income taxation is governed by the Corporate Income Tax Code 1998, as amended. The tax also applies to public companies, cooperatives and non-profit organizations on actual profits, as indicated by the accounts. In the case of a foreign company that chooses to operate in Portugal through a branch, the concept of “permanent establishment” referred to in Article 5 of the IRC Code is applied. A permanent establishment is defined as any physical presence or permanent representation used for the exercise of a commercial, industrial or agricultural activity. These institutions are subject to the tax regime relating to domestic companies. Companies based in the autonomous regions of the Azores and Madeira benefit from tax reductions in accordance with the following legislation: Azores – Regional Legislative Decree 2/99/A of 20 January; Madeira – Regional Legislative Decree 2/2001/M of 20 February.

The income tax of legal persons (Imposto sobre o Rendimento das Pessoas Colectivas, also briefly known as “IRC”), according to the provisions of the tax code considers the following taxable subjects:

  • commercial companies and resident commercial civil companies of any kind, e.g. SA, Lda, partnerships with legal personality, cooperative – 
  • companies and any other entity having legal personality under public or private law with registered office or effective management in Portugal;
  • de facto resident entities whose income is not directly subject to IRS or CIR, for example undivided assets and unincorporated joint ventures;

non-resident entities with legal personality receiving Portuguese source income not subject to IRS. The IRC applies to both resident and non-resident companies.

The general rate of the IRC amounts to 23% (21% in 2015), with the exception of the first 15 thousand euros which are taxed at a rate of 17%, both for resident and non-resident taxpayers who, under the Portuguese territory, carry on a business activity of a stable nature. There is also a state surcharge (derrama estadual) levied on entities exercising as a principal activity of a commercial, industrial or agricultural nature and on non-resident entities exercising an economic activity with a stable nature in Portugal. 

The surtax amounts to 3% for the portion of taxable income between 1.5 million euros and 7.5 million euros, 5% for taxable income between 7.5 million euros and 35 million euros euro and 7% for income exceeding 35 million euro.

The calculation of the IRC is carried out by the taxpayer in the tax return which must be presented annually until the last working day of the month of May, by electronic transmission of data.

Investing in Portugal

According to data released by Engel & Völkers in its market report, in the first quarter of 2022, 5.9% of total real estate transactions involved buyers with tax domicile outside Portugal. In fact, around half of foreign buyers are members of the European Union and their real estate transactions increased by 72.3%. As for the regions, the Algarve is the favorite destination for foreign investors.

Electricity, gas, steam and air conditioning (also from renewable sources)

The Government’s effort to reduce dependence on foreign countries in the energy field is producing significant results. The Government has adopted a national strategy, the “Roteiro para a Neutralidade Carbónica (RNC2050)”, with very ambitious objectives: to cover 80% of the electricity demand with renewable sources in 2030, to move to 100% in 2050 (a target which the Government has recently declared that it can already reach 2040); cut carbon emissions by 85-99% compared to 1990 values, assigning precise targets to each sector of the economy. The sectors of renewables and energy efficiency therefore offer good opportunities. A significant fact is that Portugal, well before the 2030 deadline, has already definitively closed its two still active coal-fired power plants, Sines and Pego (respectively in January and November 2021).

Information and communication services

The good level of Portuguese technical universities, the ability to find specialized technicians at relatively low costs and the excellent level of technological infrastructure available in the main centers of the country have made Portugal an interesting destination for SMEs wishing to develop services in the sector. of telecommunications.

Articles in rubber and plastic materials

In the last decade, the Portuguese industrial mold industry has achieved global importance. Its growth has been favored by international demand and by the capacity for innovation and adaptation of national producers, associated with the economic and technological competitiveness of the productions.