If you already run a company abroad and want to trade in Portugal, the real choice is between a branch (sucursal) and a subsidiary (filial). A branch is the parent company itself, registered here as a permanent representation, so the parent carries every Portuguese liability. A subsidiary is a new Portuguese company that carries its own. Both are taxed on the profit earned in Portugal at 19% in 2026, with 15% on the first €50,000 of taxable income for a qualifying SME, plus a municipal surcharge of up to 1.5%. A foreign company that has no fixed presence here is taxed instead at a flat 25% on its Portuguese-source income, with no deductions — which is usually the worst of the three outcomes. You can hire staff under either structure, but not before you have a Portuguese tax number, an employer record at Social Security and a workers' compensation policy in force.
The choice in one table
This is not the same question as opening a company in Portugal from scratch. You already have a trading entity, a balance sheet and probably a group structure, and the Portuguese operation has to fit inside it. The table below sets out what actually differs.
| Branch (sucursal) | Subsidiary (Lda or SA) | |
|---|---|---|
| Legal personality | None of its own — it is the foreign company operating here | A separate Portuguese legal person |
| Who answers for the debts | The parent, without limit | The Portuguese company; the parent risks its capital contribution |
| Share capital | None required | Freely set; no legal minimum, but at least €1 per quota |
| What is registered | A permanent representation at the Commercial Registry, with its representatives and their powers | Incorporation of a new company |
| Corporate tax | IRC on the profit attributable to the branch | IRC on the company's own profit |
| Accounts filed in Portugal | The foreign company's accounts, plus the branch's own tax returns | Portuguese statutory accounts and tax returns |
| Sending profit home | Not a dividend — an internal transfer | A dividend, so withholding and treaty or EU relief must be checked |
| Chosen when | The activity is an extension of the parent and the group wants one set of accounts | The activity carries real risk, needs local partners, or may be sold separately |
In practice the tax bill rarely decides this. Liability does. A branch exposes the whole parent balance sheet to a Portuguese customer claim, a labour dispute or a tax assessment; a subsidiary ring-fences it. Clients who come to us having already chosen a branch for its apparent simplicity are often surprised that the simplicity is administrative, not legal.
Before anything else: do you have a permanent establishment?
A non-resident company is liable to Portuguese corporate income tax only on income obtained in Portugal — Article 4(2) of the Corporate Income Tax Code (CIRC, approved by Decree-Law no. 442-B/88). Whether that income is taxed on a net basis, like a local business, or gross at a flat rate depends entirely on whether you have a permanent establishment.
Article 5(1) of the CIRC defines it as any fixed installation through which a commercial, industrial or agricultural activity is carried on, and Article 5(2) lists the obvious cases: a place of management, a branch, an office, a factory, a workshop. Article 5(3), in the wording given by Law no. 75-B/2020, adds three duration tests that catch people out:
- a construction, installation or assembly site, including its coordination and supervision, becomes a permanent establishment once it lasts more than six months;
- prospecting installations, platforms or vessels, after 90 days;
- services, including consultancy — after 183 days in any twelve-month period.
That last one matters most to foreign companies that think they are simply selling into Portugal. Send consultants here on a rolling project and you can create a taxable presence without ever signing a lease. Article 5(4) adds that the six-month clock for a site starts with preparatory works and is not reset by temporary interruptions, and Article 5(5) gives a subcontractor on site for more than six months its own permanent establishment.
A registered branch is a permanent establishment by definition, so this question is really about the alternative: operating here informally. The Tax Authority's own binding ruling on the point (Process no. 28555, decision of 14 October 2025) puts it plainly — a branch has no legal personality of its own, but it does have tax personality and standing for the income it generates in Portugal.
What each route costs in corporate tax
Portuguese corporate tax rates changed for 2026 under Law no. 64/2025 of 7 November, which amended Article 87 of the CIRC and set a transitional path down to 17% by 2028. The figures that apply to a tax period beginning in 2026 are these.
| Situation | 2026 rate | Legal basis |
|---|---|---|
| Branch or subsidiary, standard rate | 19% | CIRC art. 87, via the transitional rule in art. 3(2) of Law no. 64/2025 |
| First €50,000 of taxable income, where the company qualifies as an SME or Small Mid Cap | 15% | CIRC art. 87(2), wording of Law no. 64/2025, applicable from 1 January 2026 |
| Municipal surcharge (derrama municipal), on taxable profit | Up to 1.5%, set by each municipality | Art. 18 of Law no. 73/2013 of 3 September |
| State surcharge (derrama estadual), on taxable profit above €1,500,000 | 3%, then 5% above €7,500,000 and 9% above €35,000,000 | CIRC art. 87-A |
| No permanent establishment: Portuguese-source income of a non-resident | 25% | CIRC art. 87(4) |
Read the last row carefully. The 25% is charged on income, not on profit — you do not deduct the costs of earning it. A company with thin margins can easily pay more Portuguese tax with no establishment than it would pay with one. The municipal surcharge applies expressly to non-residents with a permanent establishment in the municipality (Article 18(5) of Law no. 73/2013), as does the state surcharge under Article 87-A, so a branch is inside both.
The 15% band is worth checking against the group, not just the Portuguese numbers: it requires the taxpayer to qualify as an SME or Small Mid Cap under the annex to Decree-Law no. 372/2007, and that test looks at linked and partner enterprises. A small Portuguese subsidiary of a large foreign group will usually fail it.
What has to be registered before you trade
For a branch, the obligation comes from company law, not tax law. Article 4(1) of the Companies Code (CSC, approved by Decree-Law no. 262/86) requires a company whose effective seat is outside Portugal but which intends to carry on activity here for more than one year to set up a permanent representation and comply with Portuguese commercial registry law. Article 4(2) is the sanction worth knowing: failure does not void what the company did, but the people who acted, and the company's directors, become jointly and severally liable alongside it.
Registration itself is mandatory and time-limited. Article 10(c) of the Commercial Registry Code (Decree-Law no. 403/86) makes the creation, alteration and closure of a permanent representation registrable, together with the appointment, powers and termination of its representatives; Article 10(d) adds the filing of the accounts of companies seated abroad with a permanent representation here. Article 15(1) makes both compulsory, Article 15(2) gives you two months from the event, and Article 15(4) sets the accounts deadline at the 15th day of the seventh month after the year end.
On the tax side, a branch registers as an IRC taxpayer under Article 118 of the CIRC within 15 days of filing at the registry, then files the annual Modelo 22 return by the last day of May (Article 120) and the IES by 15 July (Article 121(2)). For VAT, the declaration of commencement of activity must be filed before activity starts — Article 31(1) of the VAT Code (CIVA). The standard mainland rate is 23%, under Article 18(1)(c) of the CIVA.
A fiscal representative for VAT is optional if the company is established in another EU Member State (CIVA Article 30(1)) and mandatory if it is not (Article 30(2)). This is the single most common piece of misinformation we correct for EU parents, who are routinely sold a representation service they do not need. Our fiscal representation page sets out when it is genuinely required.
For a subsidiary, incorporation is the simpler half of the job, and there is no capital barrier: Article 201 of the CSC leaves the share capital to the articles, and Article 219(3) only requires that no quota be below €1. Our guide to company formation in Portugal covers the mechanics.
Hiring your first employee here
You can employ someone in Portugal through either structure. What you cannot do is treat the hire as a formality bolted on afterwards — several of the obligations below bite on or before day one, and one of them changed in 2026.
The contract
An open-ended contract does not have to be in writing, but the duty to inform does: Article 106 of the Labour Code (Law no. 7/2009) lists what the employer must tell the employee, including the workers' compensation insurer and policy number, and Article 107 requires it in writing — the core items within seven days of work starting and the rest within one month. A fixed-term contract must be in writing and must state the term and the facts justifying it (Article 141); getting that justification wrong is a serious administrative offence and typically converts the contract into an open-ended one.
Social Security — the 2026 change
Employers must report a new hire through Segurança Social Direta. The deadline used to be 24 hours before work began. Since 1 January 2026 Article 29(2)(a) of the Contributory Regimes Code (Law no. 110/2009), in the wording given by Article 2 of Decree-Law no. 127/2025 of 9 December, requires it by the start of performance of the employment contract, with the 24-hours-after window in point (b) now reserved for duly justified exceptional cases such as very short contracts or shift work. Miss it and Article 29(4) presumes the employee started on the first day of the third month before the breach was found — a presumption you then have to rebut with evidence.
The same decree-law rebuilds monthly reporting. During 2026 employers migrate to a new contributory communication model and may request to join at any time (Article 5(1) and (2)); from 1 January 2027 every employer is covered by it (Article 5(5)). Under it, the monthly declaration becomes a confirmation of the figures the system has already computed, due by the 20th of the following month (Article 40(8)), and contributions are paid between the 1st and the 25th of the following month (Article 43).
Contributions and insurance
The global contribution rate for employees is 34.75% — 23.75% employer and 11% employee — under Article 53 of the Contributory Regimes Code. There is no longer any rate difference by contract type: the old Article 55 was repealed by Article 10 of Law no. 93/2019 with effect from 1 October 2019, and what replaced it is the additional contribution for excessive turnover in Article 55-A. The Labour Compensation Fund contribution that employers used to pay at 0.925% no longer exists either: Article 4(a) of Decree-Law no. 115/2023 of 15 December extinguished the obligation, and Article 9 repealed the provision carrying the rate.
Workers' compensation insurance is compulsory and must be transferred to a licensed insurer — Article 283(5) of the Labour Code and Article 79(1) of Law no. 98/2009 of 4 September. Article 79(4) caps the insurer's liability at the pay declared to it, which cannot be below the minimum wage, and Article 79(5) leaves the employer personally liable for any shortfall. Under-declaring pay to save premium is therefore a false economy with an unlimited downside.
Pay and the 14 payments
The national minimum wage for mainland Portugal is €920.00 a month in 2026, set by Article 3 of Decree-Law no. 139/2025 of 29 December with effect from 1 January 2026, under the enabling rule in Article 273 of the Labour Code. Budget on fourteen payments a year, not twelve: the Christmas allowance is one month's pay, due by 15 December (Article 263), and the holiday allowance is due before the leave starts (Article 264(3)). Minimum annual leave is 22 working days (Article 238(1)).
A meal allowance is not a statutory entitlement in the private sector unless a collective agreement provides one — but if you pay it, the exempt ceiling matters. Under Article 2(3)(b)(2) of the Personal Income Tax Code (CIRS), in the wording of Law no. 45-A/2024, the allowance is taxable only above the legal limit, or above that limit plus 70% when paid by meal card. The reference amount for 2026 is €6.15 a day (Portaria no. 51-B/2026/1 of 30 January, with effect from 1 January 2026), so the exempt ceiling is €6.15 in cash or €10.455 on a card. Within those limits it also stays outside the social security contribution base.
What an employee really costs
The figure that matters for a hiring budget is not the salary. Below is a hire on €1,500 gross a month, with a meal allowance paid in cash at the exempt ceiling over eleven months of 22 working days. Workers' compensation premium is priced by the insurer against the declared payroll and the risk class, so it is listed but not quantified.
| Component | Annual cost | Basis |
|---|---|---|
| Gross pay, 14 payments | €21,000.00 | €1,500 × 14 (Labour Code arts. 263 and 264) |
| Employer social security, 23.75% | €4,987.50 | Contributory Regimes Code art. 53 |
| Meal allowance at the exempt ceiling | €1,488.30 | €6.15 × 22 days × 11 months (Portaria no. 51-B/2026/1) |
| Workers' compensation insurance | Insurer-priced | Law no. 98/2009 art. 79 |
| Total before insurance | €27,475.80 | ≈ €2,289.65 a month spread over twelve months |
So a €1,500 salary is roughly a €2,290 monthly commitment — about 53% above the headline figure — before you count recruitment, equipment or the cost of running payroll. Our article on social security rates in 2026 breaks the contribution side down further.
What must exist before the first day
- A Portuguese tax number for the entity — a NIPC for the branch or the new company — and tax numbers for the people who will represent it.
- The registration itself: the permanent representation entered at the Commercial Registry, or the subsidiary incorporated.
- The declaration of commencement of activity, filed before activity begins (CIVA art. 31(1)), and IRC registration where a branch is concerned (CIRC art. 118).
- An employer record at Social Security, and access to Segurança Social Direta — you cannot report the hire without it.
- The workers' compensation policy, live on day one, with the correct declared pay.
- A certified accountant (contabilista certificado) appointed. A permanent establishment and a Portuguese company both keep organised accounts, and the returns are signed by a certified accountant.
- The hire reported to Social Security by the start of the contract, under the 2026 rule.
- Occupational health arrangements and the written information required by Article 106 of the Labour Code.
Items 4, 5 and 7 are the ones that go wrong. They have no grace period and they are not things your foreign payroll provider will do for you.
How we handle this at HVR
We act for Portuguese SMEs and for foreign-owned entities operating here, and we work in English throughout. For an inbound expansion that normally means mapping the permanent establishment risk before anything is registered, choosing branch or subsidiary with the group's liability position in view, handling the registry and tax registrations, and then running the monthly accounting and payroll. Monthly accounting for companies starts at €150 a month; startups at seed stage also start at €150. Payroll and the hiring set-up are quoted on headcount.
See our accounting services and, for group reorganisations and acquisitions in the €5–50M range, our cross-border deal advisory.
Frequently asked questions
Is a branch or a subsidiary better for expanding into Portugal?
A subsidiary is better whenever the Portuguese activity carries real risk, because the parent's exposure is limited to its capital contribution, whereas a branch makes the parent liable without limit for everything the Portuguese operation does. A branch is the sensible choice when the activity is a genuine extension of the parent and the group wants a single set of accounts. The corporate tax rate is the same either way in 2026: 19% under Article 87 of the CIRC, as set by Article 3(2) of Law no. 64/2025.
Can I sell in Portugal without registering anything?
You can, but you may be taxed worse for it. A non-resident company with no permanent establishment is taxed at 25% on its Portuguese-source income under Article 87(4) of the CIRC, charged on income rather than profit, with no deduction for the costs of earning it. And a presence is easier to create than most people expect: under Article 5(3)(c) of the CIRC, supplying services here for more than 183 days in any twelve-month period creates a permanent establishment on its own.
How much share capital do I need for a Portuguese subsidiary?
There is no legal minimum. Article 201 of the Companies Code leaves the amount to the articles of association, and Article 219(3) only requires that no individual quota be below €1. In practice that means €1 for a single-member company and €2 for a two-member Lda, though a capital figure that bears no relation to the business can make banking and credit harder.
When must I report a new employee to Portuguese Social Security?
By the start of performance of the employment contract. That is Article 29(2)(a) of the Contributory Regimes Code in the wording given by Article 2 of Decree-Law no. 127/2025 of 9 December, which applies from 1 January 2026 and replaced the old rule of 24 hours beforehand. Reporting within the following 24 hours is now allowed only on duly justified exceptional grounds. If you miss it, Article 29(4) presumes the employee started on the first day of the third month before the breach was detected.
What does an employee on €1,500 a month actually cost?
About €2,290 a month. Pay is due over fourteen payments a year, giving €21,000 on a €1,500 salary, plus 23.75% employer social security under Article 53 of the Contributory Regimes Code, which is €4,987.50, plus a meal allowance if one is paid and a workers' compensation premium priced by the insurer. That is roughly 53% above the headline salary.
Does a foreign company need a fiscal representative in Portugal?
Not if it is established in another EU Member State. For VAT, appointment is optional under Article 30(1) of the VAT Code for companies established elsewhere in the EU and mandatory under Article 30(2) for those established outside it. A branch has a permanent establishment here in any case, which changes the analysis again. Many EU parents are sold a representation service they are not required to have.
Sources
- Corporate Income Tax Code (CIRC), Article 5, Article 4, Article 87, Article 87-A, Articles 118, 120 and 121
- Law no. 64/2025 of 7 November — reduction of the general IRC rates (19% in 2026)
- Companies Code, Articles 4, 201 and 219; Commercial Registry Code, Articles 10 and 15
- Law no. 73/2013 of 3 September, Article 18 — municipal surcharge
- VAT Code, Article 30, Article 31 and Article 18
- Labour Code (Law no. 7/2009), Articles 106, 107, 141, 238, 263, 264, 273 and 283
- Decree-Law no. 127/2025 of 9 December — amendments to the Contributory Regimes Code, in force 1 January 2026
- Contributory Regimes Code (Law no. 110/2009), Articles 29, 40, 43, 53 and 55-A
- Law no. 98/2009 of 4 September, Article 79 — workers' compensation insurance
- Decree-Law no. 139/2025 of 29 December — minimum wage €920.00 for 2026
- Portaria no. 51-B/2026/1 of 30 January — meal allowance €6.15
- Decree-Law no. 115/2023 of 15 December, Articles 4 and 9 — extinction of the Labour Compensation Fund contribution
- Tax Authority binding ruling, Process no. 28555, decision of 14 October 2025 — tax personality of a branch