Non-resident entities in Portugal
Currently, the taxation of non-resident entities, their reporting and tax obligations still raise many issues that need to be clarified.
The COVID-19 pandemic has given rise to a new wave of foreign entities intending to start their activities in Portugal.
For a non-resident to establish itself in Portugal, its important to understand what activity the company intends to develop in national territory in order to register as a «non-resident with permanent establishment» or «non-resident without permanent establishment», and it is always possible to subsequently change its tax framework.
What can we understand as stable establishment?
Article 5 of the IRC Code defines the concept of permanent establishment:
» A permanent establishment is considered to be any fixed installation through which an activity of a commercial, industrial or agricultural nature is exercised. “
A place of management; | A branch office; | An office; | A Factory; | A Workshop;
Attention: If it is a construction site, installation or assembly site, it is only considered a permanent establishment if its duration and the duration of the work or activity exceeds six months.
If a non-resident company hires a person who performs its functions in Portugal and has powers of intermediation and to conclude contracts that bind the company within the scope of its activities, this is seen as a «permanent establishment».
Paragraph 7 of art. 5 also tells us the following:
«A company shall not be deemed to have a permanent establishment in Portuguese territory merely because it carries on its activity there through a commission agent or any other independent agent, provided that these persons act within the normal scope of their activity, bearing the entrepreneurial risk of the business.“
That is, in fact, there can be a person with powers to conclude contracts as long as the risks are not assumed by the company.
What is not considered a permanent establishment?
If the company’s activity in Portugal is provided through a commission agent or other independent agent such as a representative of that brand, but acts in the normal scope of its activity and bears all the entrepreneurial risk, then in these cases it does not have a permanent establishment in Portugal.
Examples of what is not considered a permanent establishment:
– Premises which are acquired solely for storing, displaying or delivering goods;
– Warehouse of goods for the same purpose;
– Warehouse of goods that will be transformed by another company;
– Among others…
Is taxation in Portugal applicable?
For these entities the taxation in Portugal only applies to the income obtained here, the tax liability only applies to the income obtained in Portugal, not susceptible of being imputed to a permanent establishment.
Is it possible to hire employees?
Yes, it is possible to hire employees even without incorporating a company or other legal form in Portugal.
However, prior to hiring it is necessary to comply with some obligations:
– Registration of the entity in the National Register of Companies;
– Tax and Customs Authority;
– Social Security.
The entity must respect the obligations imposed by Portuguese legislation regarding employees, namely:
– Activate a Work Insurance Policy;
– Adhesion to Compensation Funds;
– To apply, within the limitations, the rules of Health and Safety at Work (SST);
– To deliver annually the Single Report;
– Make monthly contributions to Social Security and withholdings to the Tax Authority.
Non-resident entities wishing to carry out business in Portugal for more than one year must set up a permanent representation (e.g. subsidiary, branch, permanent establishment). After this period, the entity operating in Portugal must change its classification before the Portuguese authorities and become resident in Portugal.
If the non-resident company in Portugal directly generates invoicing for the foreign entity, the Portuguese authorities may consider it as a permanent establishment.
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