2023–2024 Window of Opportunities for R&D, Impact Startups, and VC Funds in Portugal
We spoke with David Carvalhão, a tech expert with 20 years of experience in doing business in Portugal and 21 exits. David shared valuable insights about starting a business in Portugal and current support programs. Whether you’re an aspiring entrepreneur, investor, or simply curious about the tech scene in Portugal, you don’t want to miss this interview!
From Corporate Climbing to Impactful Entrepreneurship: David’s Journey of Creating Companies that Solve Societal Problems
I graduated from Aveiro University in 2003 with a degree in electronics and telecommunications. My first job out of college was at Siemens, where I worked for a short while before moving on to new opportunities.
Over the course of my career, I’ve had four different jobs, always pushing myself to learn and grow. However, my average stay in a job was only about nine months. Whenever I felt like I had reached the limits of what I could learn or achieve, I would either ask to be reassigned within the company or look for a new challenge elsewhere.
Eventually, this led me to create my first company in 2006, a consulting firm called Edge Consulting. It went well, and the following year, I started another consulting company focused on open-source. As these companies grew and thrived, I began to create a group of companies.
By 2012, I had developed a group with 16 companies under its umbrella, including a research and development arm called E.Gen Ventures. Our mission was to identify new technologies and ideas, conduct in-house research and development, and then spin them off as their own companies.
However, I left that group in December 2015 to start with a blank slate.
I wanted to focus more on projects that aimed to solve societal problems, businesses, and technologies that had a positive impact on the large societal problems that the world had.
Today, I not only continue to be involved in startups but have also ventured into venture capital as an evaluator and assessor for private equity funds, social ventures, and the EIT of the European Commission. I divide my time among my own companies, venture capital endeavors, social ventures, and social work, and creating new technologies and patents. As a co-inventor, I currently hold five patents.
Current Portfolio – R&D & impact startups
Currently, my main focus is on developing products for hospitals and hospital care in general with IHCare. Our technology focuses on avoiding cross-infections and hospital infections in bedridden patients, which we are now rolling out to the market.
Alongside that, I hold a share in CO2 Offset, which generates carbon credits based on satellite analysis of forest imagery to reward forest owners and carers for keeping their forests in good shape.
In addition, I have a small stake in Circular Unity, a company that helps large event and football match organizers offset their carbon emissions.
Furthermore, I am also involved in UNION Venture Builders, a venture builder that focuses on helping start-ups get off the ground.
Lastly, being an animal lover, I hold a small share in Petable, a company that has an app for managing pets.
Where to find entrepreneurs with ideas? Universities, research labs, startup events around the world, network
I always keep a close eye on where ideas are coming from.
The cure for cancer is not in the mind of someone my age. I’m not that young anymore. The great, new ideas most of the time are in the heads of younger people.
Often they might not have the necessary tools to bring the ideas to full fruition, that’s why the average successful entrepreneurs are in their forties, although most of the startups are created by someone in their twenties.
— I try to hang around universities, research labs, and people that are bringing new ideas and that are in these contexts, that are exciting and full of energy.
— I travel a lot, not only around Portugal but abroad, to attend startup events as a mentor and conferences as a speaker. Usually, this affords me a great deal of interaction with people with ideas.
Thankfully, at this point in my career, most of the time, people with exciting ideas come to me through LinkedIn or recommendations from my network.
Strategy for a Successful Startup Exit. How to sell 21 startups?
So far, I’ve exited 21 companies.
According to the Valley of Death graph, the scale-up period is where the slope of growth is the steepest. It’s during this period that I usually aim to exit, get some cash, invest it in the next venture, and keep a small position in the company.
That’s my sweet spot. This approach helps me hedge against the risk of the company not scaling fast enough, or not acquiring enough market share, making it unviable in the future.
I get some cash out, and if eventually, it becomes a unicorn or something really big, I will still have a small steak there, and it will still pay for my breakfast.
From Labs to the Market: My Approach to Evaluating Technologies
To evaluate technologies coming from labs to the real world, I typically follow two major lines of work:
— I’m an evaluator of disruptive technologies for the EIT of the European Commission. My role involves assessing the potential of technologies that could disrupt the market or the technology space, and influence change in the industry.
It has been an interesting experience, especially because since I started doing it, I started having my computer attacked by Chinese IP addresses.
— I work closely with universities to identify technologies they’re developing and explore viable spinoffs that can bring those technologies to the market.
I focus on technologies that are TRL 5 to TRL 9 in terms of technology readiness levels indicator.
UNION Venture Builders: A Solution to the Startup Failure Problem – Bringing Highly Skilled Mentors
UNION Venture Builders appeared as a response to a problem that the founders and I were feeling in the market as mentors, co-founders, and investors — you have a huge failure rate in startups.
There is a part of that failure rate, which is understandable and easy to explain when you consider that you’re pushing the envelope and the state of the arts of some technologies. And it often happens that the market’s just not ready for innovation. You may even have something amazing that will really be something in 10 years, but the market’s just not ready now. That is a part of the problem.
But there’s a huge problem, which is the founders and co-founders often don’t have the skillsets that are necessary to make a running company successful. These are management skills, and financial skills, a plethora of things that they are really not qualified to do. And often they even resist handing over these aspects of running their companies to someone else.
Having identified this, we tried to build something that would make sure that we would be bringing these skills into the company, but more importantly that we would keep these skills because we also saw this problem with most acceleration programs.
I usually try to compare this to getting someone new into a Formula One car. As an accelerator, you are there, pressing the gas and you’re getting that car up to 300 km/h. And then when the acceleration program ends, you just go away and another guy is driving a car 300 km/h and there’s the first turn and they don’t know what to do when they crash.
Most acceleration programs are time-limited, so you get through that experience, you may have some skills at the end of it, and you may be moving fast, but you really don’t have the skills to keep that going in a safe way for your company.
We tried to address that by:
— bringing highly skilled mentors that would help the companies while we were preparing them to be investible
— making sure that these mentors would get a small stake that would keep them involved.
We’ve been able to get highly qualified people. These are people that are highly motivated because they feel that they’re getting a share of the company they’re mentoring. It’s not a one-time thing, they get involved in management, they advise all the way through, they are providing introductions, and they’re bringing in other highly qualified people into the company. And this has really been working out.
This approach has earned us the trust of several investment funds who recognize the benefits of our structured, skillset-rich approach that lowers the probability of failure.
UNION Venture Builders typically gets 5% of equity plus 3% equity tops on top, which will be distributed at 0.5% per mentor. So if we have six mentors, which is the maximum that we consider, there will be 3% additionally that will be distributed through these mentors.
Usually, two-three mentors are enough to plug the main shortfalls of the company. So in reality, the company will be giving about 6.5%, and in return, they get not only the participation of these mentors but the structure of the entire project. We do proper due diligence, we prepare the company, we create the management structure behind it, and then we put it in front of the investor.
Examples of UNION Venture Builder startups:
Circular Unity and CO2 offset, as I mentioned earlier.
Another example is Famel, which is a company that develops electric motorbikes.
There are three more companies that are now about to get invested, but I have some confidentiality agreements that don’t allow me to talk about those.
The Artificial Intelligence Revolution: Opportunities and Challenges in the Labor Market
This is a topic that I’ve been addressing throughout Europe since 2015.
I think that there will be a major impact in the same way that the Industrial Revolution impacted the repetitive labor industries, and later the informatics revolution revolutionized office productivity.
First, we are going to see more and more AI affecting things like driving, not only cars, but flying planes, boats, and so forth.
But also we are going to be seeing, even higher echelons of human activity, such as engineering, and creative arts, are now already under attack by these tools.
What I believe is going to happen is not necessarily that people are going to be replaced by these tools, but they will for sure be replaced by the people that know how to use these tools.
The people that know how to use these tools correctly, and how to squeeze what is needed out of them, are the ones who are going to be getting the positions. They’re gonna be getting highly paid because there’s gonna be fewer of them. And they’re gonna be a lot more productive.
This will create a huge barrier for new entrants, such as trainees or people now leaving universities.
For example, a copywriter for social media posts. For the entry-level, the technology is already there. Nowadays you don’t need to hire an entry-level copywriter to write your post. You go to ChatGPT, you put there what you want to say, and you get pretty good results with hashtags and everything. So I have absolutely no doubt that these jobs are going to go away.
Also, why should you hire a trainee programmer if you have a tool that can produce simple code for you?
I think we are going to be witnessing a real revolution in the way the job market and labor market are organized.
What you need now is someone who’s highly qualified, who can ask for a tool to do all of this entry-level work, which would be done by trainees or more inexperienced workers. And then they’ll just pick it up, just for the final fine-tuning.
Development of the VC industry in Portugal
The VC industry in Portugal is still quite new compared to other countries. Before 2012–2013, it wasn’t as developed, but things started to change when some experienced investors brought new ideas from overseas.
Today, I can confidently say that Portugal has a strong and knowledgeable group of VC fund managers. They are on par with the best in Europe, and even rival those in the United States.
Creating a VC Fund in Portugal: What You Need to Know
Creating a regulated VC fund in Portugal involves a few key steps.
Firstly, it’s important to contact CMVM, which is our regulator, and stay up to date with the current laws as they can change frequently.
💡 The Portuguese Securities Market Commission, CMVM (Comissão do Mercado de Valores Mobiliários) is a legal entity governed by public law and endowed both with administrative and financial independence and its own assets.
It is important to have the interaction with CMVM early on, not to prepare your entire thing and then just show up with all the work done, it’s important to involve them in this process. And, of course, involve a proper lawyer’s office too, to support you in this process.
For an investment fund, you’ll need to create a vehicle entity, such as a limited liability company or anonymous society, to function as an intermediary that invests in the target company. Individuals can then purchase shares of this entity, which in turn owns a portion of the target company.
Both types of funds can benefit from various co-investment and voucher programs available in Portugal. You can find more information about these programs on the online portal called “portal dos incentivos” or with the PRR program, although the PRR is primarily focused on incubators and accelerators.
PRR Program: Supporting Economic Recovery in Portugal
The PRR program was created to support various aspects of the Portuguese economy after the COVID-19 pandemic. While it focuses primarily on infrastructure and other areas, it can still be interesting for companies looking to develop their activities in Portugal, especially if they coordinate with local government entities.
For instance, there’s an application that finished in November or December, that was for digital neighborhoods in which the municipalities could apply to get funding for the digitization of their local commerce and their local economic activities. Usually in co-participation with IT companies or technology companies.
💡 PRR — Recovery and Resilience Plan. A set of reforms and investments aimed at boosting the country on the path of recovery sustained economic growth and convergence with Europe over the next decade.
It has 3 elements:
The Resilience plan takes into account nine components to strengthen our country’s social, economic, and territorial resilience: health, housing, social responses, culture, capitalization, and business innovation, qualifications and skills, infrastructure, forestry, and water management.
The Climate Transition plan results from Portugal’s commitment and contribution to the climate goals that will allow the achievement of carbon neutrality by 2050. 6 Components with intervention in strategic areas were considered, such as the sea, sustainable mobility, the decarbonization of industry, the bioeconomy, energy efficiency in buildings and renewable energies.
The Digital Transition plan, significant reforms, and investments are planned in the areas of digitalization of companies, in the state and providing digital skills in education, health, culture, and forest management.
Support for Startups in Portugal
There are two types of support for startups:
1. Co-Investment Programs
There are co-investment programs available that allow you to leverage your investment and hedge your risk. The investor can purchase back the equity purchased by the co-investor at very interesting conditions later in the future. This helps to reduce risk. If the business goes well, you buy it at a discount. If it goes wrong, you don’t owe anyone anything.
2. Tax Breaks
There are tax breaks available to lower your operation cost in Portugal, specifically for investing in certain areas of the economy. If you’re investing in social impact, green economy, ocean economy, or environmentally friendly social impact companies, you have a number of funds that provide you with both co-investment and fiscal benefits. The most relevant of which recently is called the SIFIDE fund, with which a number of funds are currently operating in Portugal with very interesting conditions. They reduce the risk associated with investments and make it very interesting to invest in Portugal through the use of these funds.
Currently, there’s a significant amount of money in the market. Now you will find that the market has had a significant influx of new funds that were created by existing fund managing entities, the new funds that were created under the umbrella of these SIFIDE funds.
The only caveat with these SIFIDE funds other than the industries is that you need to show that the majority of your investment will be in the research and development of novel technologies or market approaches with your startup. So you cannot pick up a startup that is a social impact but is not conducting intensive research and development activities.
The Social Innovation Fund: Co-investment Opportunities with Banco Português de Fomento
Banco Português de Fomento right now is conducting investment through this concept called the Social Innovation Fund, the FIS. They co-invest. You invest as an investor, and then the investor (not a startup) applies for co-investment from this fund once the investment has been performed.
Once it is approved, it has some requirements:
— You need a certification from the National Innovation Agency that certifies that the activity that you’re conducting with your company is in fact, innovative, and that you are doing research and development within what is the norm considered research and development. Once you have the certification, the investor can then apply for co-investment, which allows you to repurchase equity back.
— You need to be incorporated in Portugal. And you should avoid incorporating in the regions of Porto and Lisbon if you are conducting R&D-intensive tasks.
If your company is R&D intensive, you don’t want to incorporate in Lisbon and Porto not only because of these funds, but the grants that you have to support research and development on top of this. These are grants that are assigned to the startup, not as part of the investment process, to support the R&D effort. Those are mostly focused on what are considered lower development regions of Portugal, which pretty much excludes Lisbon and Porto.
💡 R&D — Research and development is the set of innovative activities undertaken by corporations or governments in developing new services or products, and improving existing ones.
As a founder, you have a lot of advantages of incorporating and operating your startup outside Porto and Lisbon to access these grants.
Support Programs for Research and Development (R&D) in Portugal
As a startup founder in Portugal, you have access to various support programs for research and development (R&D) activities.
One of the main co-investment programs available is called SIFIDE. It focuses on R&D and can help you leverage your investment. Additionally, if your startup has a social impact, you can also benefit from the Social Innovation Fund.
Under the larger Portugal 2030 group of programs, you can also apply for IDT programs. These can provide up to 70% funding for your R&D activities, which is essentially free money for your startup.
💡 IDT (“Investigação, Desenvolvimento e Transferência de Tecnologia”) — “Research, Development, and Technology Transfer”. Portuguese abbreviation for R&D.
Also, there are vouchers for startups, accelerators, and incubators that you can find on portal dos incentivos. These vouchers can provide up to 30K euros (for startups) and up to 150K euros(for incubators / accelerators) and can fund up to 70% of your activities.
If you’re creating an incubator that focuses on innovation, there is also a voucher available.
When someone asks me, “Should I create my startup in Portugal?”
If your startup is R&D heavy, and if the outcome has a positive social impact, definitely yes, because the number of programs that you have are considerably large, and all of them are focused just on R&D, and most of them are in social impact companies. Therefore, given that this is just a subset of the overall number of startups and companies out there, it means that your chances of getting a significant amount of funding, either as a startup or as a fund, getting co-investment support, and fiscal tax credits, is significantly high.
Government Programs That Can Help You Multiply Your Money
If you want to get more returns on your investments, there are some programs you can participate in. As an investor, you can create a fund under the SIFIDE program.
If you have a startup, you can begin with the startup voucher, and if you’re doing research and development, you can follow through with IDT and Portugal 2030 when your product is ready.
The Demonstradores program can help you demonstrate your new products and innovations in companies and run pilots.
When you’re ready to expand internationally, the internationalization funds can cover up to 70% of your expenses.
You can also apply for European funding, such as the Horizon Europe programs, which offer grants and equity deals up to 2.5M euros.
By combining these programs, you can increase your returns up to 4x, especially for the research and development components from TRL1 to TRL9. While these programs may not be entirely free, they can be an excellent way to maximize your investments.
Why Portugal is a Great Place to Start Accelerators and Incubators: Advantages for Entrepreneurs
If you’re thinking about starting an accelerator or incubator in Portugal, now is a great time to do so. Many companies are still coming to Portugal, attracted by the country’s strong education system and cheap human resources. Although the supply of local talent is decreasing, Portugal is implementing programs that allow high-tech workers from Brazil to move to Portugal, which will make the country more attractive for foreign investment.
There are two main reasons why companies are still moving to Portugal:
First, the country offers a great lifestyle with access to the European market.
Second, Portugal has high levels of funding, with a lot of European money invested in Portugal to support R&D funding. This makes Portugal a great place for startups looking for funding.
Another advantage of starting in Portugal is that it has a small, but highly educated market. Although Portugal is not a large market, it is a great test market for digital products. Portuguese consumers are highly evolved and are used to using digital tools for everything. This means that if you have a digital product, you can get a lot of feedback from an educated audience.
Government Programs and Support for Creating Incubators and Accelerators in Portugal
Creating incubators and technological hubs in Portugal can be supported through various programs under the PRR recovery program, which was designed after the pandemic.
It is important to note that the structure you create will determine which programs you can apply to, especially if you want to create a fund associated with an incubator or acceleration program. It is better to keep things separate and apply to different programs to avoid complications in justifying your investment.
There are still many smaller cities in Portugal that are open to hosting incubator and acceleration programs, offering not only financial resources but also access to space and other necessities.
It is worth considering working outside of Lisbon and Porto. For example, Arruda dos Vinhos is a city that is considered Lisbon offshore, as they offer the unique benefits of being outside the metropolitan area while still being close to Lisbon. The local government authorities are usually supportive of new economic activities and can provide resources to aid your work.
Key Considerations for Structuring a Successful Startup Studio in Portugal
I would separate everything.
I would have an incubator. I would have the acceleration program run by and managed by a different entity and the fund as another entity. So the fund would have access to the support that I already mentioned. And you will have individual support for both the incubator as providing infrastructure services and whatnot, and for the acceleration program, which will be servicing the incubator and investment fund would be having in its investment thesis, investing in the startups that span out of the acceleration program.
So I’d create these entities separately.
You’re creating basic infrastructure for people that have an idea, a program that helps these people once their idea is matured, grow from here to being investible. And now you have here someone that invests and then keeps supporting the startup throughout its life cycle.
So I’ll try to cover the entire life cycle. I would choose a smaller city to create this, preferably closer to a university, because it’s a place where usually you have a lot of new technologies coming along and a lot of new ideas coming from students. So you can probably create a good interaction with the university.
Also, when you’re doing research and development, you can support yourself and do programs in co-promotion with the university itself to get some know-how from the university into your company.
And then, I would use this infrastructure. In the acceleration program, I would have a small company that could be a partnership, which could be my own company that would be focused just in creating tailor-made grant support programs for the startups that were being accelerated.
So if you have an innovative idea at the incubator level, you’re going to be addressing the vouchers on the acceleration level. You are going to be running for grants and R&D support from this company, providing financial leverage and bringing the money in.
Depending on your type of industry, depending on your R&D level, depending on where you are located, depending on even the number of doctorate professionals that PhDs that you have working for you. Depending on the way you structure it, there are going to be some programs you don’t have access to and others that you have.
So this becomes almost an art more than a science.
If you are able to access all of these funds, first, you can leverage your R&D money, and second, as an investor, you can hedge your bets in terms of risk by using several tools of co-investments and fiscal benefits.
Types of legal structures for startups in Portugal
There are different types of structuring options available for entrepreneurs.
One of the most common legal structures for startups in Portugal is the Limited Liability Company, LDA. This type of company can either be a Limitada, which is owned by a single person, or a regular limited liability company, with multiple shareholders. The majority of companies in Portugal are structured as LDA.
If you are looking to establish a larger and more complex business, you might consider a corporation, known as a Sociedade Anonima. To set up a Sociedade Anonima, you need a minimum of €50K of social capital and a chartered accountant. Additionally, you will also need an accounts reviewer, which can be costly, especially for startups with a smaller budget. Once established, corporations have corporate structures, a board of directors, and other complex structures in place.
💡 Sociedade Anonima (S.A.) — is a type of legal entity with two or more shareholders (owners).
It’s important to note that while LDA is sufficient for Series A funding, most investment funds in Portugal require startups to become a Sociedade Anonima to receive further investments. This means that you may need to restructure your company if you plan to grow and seek more funding in the future.
Advantages for startups in Portugal: A favorable environment for R&D and testing new products
First of all, it depends on the type of startup that you are creating. Looking at industries, there are certain industries that in Portugal are going to be obviously more interesting. Anything that is related to the blue economy, to the ocean economy. Portugal has one of the largest ocean economic areas in the world because of a new UN agreement.
Any impact startup, especially if it has a large component of R&D — definitely Portugal because there are currently a very large number of funds that due to having accessed leveraging and co-investment from European and Portuguese programs, must invest in companies that are R&D heavy. And given that there is a limited supply of companies that check all these boxes, then it’s natural that, you have over demand and not enough supply. It is much easier for a startup under those conditions to get funding in Portugal.
Other advantages:
The average cost of setting up business here is lower, especially than in Northern Europe, while having the advantage of being inside the European economic zone and part of Schengen space, and part of the Eurozone.
We are inside all of the economic economically relevant zones in the world. We have a very close connection with the US and with South America through Brazil. A number of the agreements that we have both to bring talent from Brazil, which helps supply Portugal with their talent. But also it becomes a lot easier to set up shop there because there are trade agreements and the language barrier is much slower. They also speak Portuguese, although a slightly different type. New York is five hours away by plane — a direct flight.
If you exclude the running of grants, which is extremely bureaucratic, the normal operation of a startup is relatively simple and non-bureaucratic in Portugal. So in the early stages, you can bring those operational costs down and test your idea.
Funding is available. If you are R&D heavy, there’s a large number of funds and grants and other things you can access.
Portugal is a small country, so it’s easy for you to reach out to a university. Talk to the dean, talk to the mayors, talk to the ministers sometimes. Everything is quite accessible and that makes out for a fairly welcoming environment for a startup.
Also, if you’re testing new products, Portugal is an excellent test market because we have a relatively small population, 10 million. But it’s a population that is very much used to using digital services. In terms of consumer profile, it is a western profile. So you can test here and see if your product works. If it doesn’t work, your exposure in terms of the image is not that damaging. So it’s a good place for you to test your concepts and to try out new things.
A lot of people here speak English. I would say the generation that is up to 35 has started learning English fairly early in their school curriculum. The ones that haven’t, are still able to manage.
Actually, in a lot of my companies, the official working and documentation language is English because we always have foreign nationals that are working with us. Everyone’s comfortable with that. The vocabulary may not be perfect at all times, but it’s more than enough to operate and to work with without any major problems.
So you won’t find any difficulty in moving around Portugal doing business in Portugal, in English.
Obstacles for startups in Portugal
First, which is perhaps the biggest obstacle that Portugal has for every economic activity, is the law. Portuguese law is very good. Enforcing that law in Portugal is very hard. Our courts are extremely slow. It takes a lot of time to get the law enforced in general. Actually, Portugal has had a number of cases where the country was fined by the European Commission, by the European court because our justice takes a long time. That is a big issue.
The second issue we have is we are not very stable in regulatory and fiscal law. These changes can often lead to some insecurities, especially when trying to project your business in the long run. Sometimes the rules change and you need always to keep track. You need always to be informed, but it is an additional risk that you need to consider.
The next obstacle is the one that I mentioned earlier as an advantage. So on the one hand we do have 10 million people, which is a good test market, but it is definitely not a market to scale.
If you are in Portugal, your focus should not be that you’re going to be doing your business long-term In Portugal. This is a place to start. You need to look abroad because you will not find the scale and the money in Portugal.
The biggest obstacle nowadays, which again, I believe we are starting to overcome, is the lack of human resources. In general, in Portugal, you are still going to get cheaper qualified labor than in Northern Europe, so it’s still advantageous. But It’s converging towards that because there’s a generalized lack of qualified resources. With the programs that are being implemented and some luck, I believe that will be overcome.
Finally, I would say bureaucracy in general. All of these grants are great, but they are extremely bureaucratic once you actually get the grants approved. The application is the easy part, and it’s already most of the time complicated. The Portuguese grant application system is more complicated than the European one in most instances. And while you are operating the project, while you are undergoing the period of grant attribution, it is heavy, bureaucratically speaking.
I can tell you that in projects that I’ve managed that use these grants, usually we will have a trainee or an admin person that was focused just on gathering paperwork and sending it to the agency.
It’s still worth it, but yes, it’s a caveat, but I would say that at the moment these are the biggest challenges you have in the project.
Investment prospects for startups in Portugal
In Portugal, the amount of money a startup receives for pre-seed, seed stage, and series A funding rounds varies depending on several factors. However, on average, startups can expect to receive around €150K to €300K for pre-seed funding, while seed stage funding can range from €500K to €1.5M.
When it comes to series A funding, the stakes are higher. The investment deal a startup can secure will depend on its industry and its current position in the market.
To give you an idea, a pre-market company in Portugal with a valuation of €6.4M secured funding in a recent investment deal. Although valuations vary from case to case, this benchmark can give you an insight into the level of investment a startup can expect to receive at different stages of its development.
Steps for International Entrepreneurs to Succeed in Portugal’s Business Environment
The first step is to get your personal NIF, which is your fiscal number. This can be obtained by visiting one of the many Lojas dos Cidadão in Portugal. While you’re there, you can also get your digital signature, which is a must-have as it allows you to take care of most things online, including creating your company online.
To create your company, you can use the templates provided, and it will cost you around 325 euros. If you want to pick your company name, you’ll need to get it approved, which usually takes about a week. However, you can expedite the process by visiting one of the registration offices in Lisbon, Queensland, or Portu, where you can get your name approved immediately and create your company on the spot.
Once you’ve created your company, the next step is to find an accountant. A chartered accountant in Portugal should cost you around 150 euros per month, and there are plenty of them available online. With your company up and running, you can now invoice, work, and apply for any program.
If you’re looking for a place to set up your company, consider going outside Portu and Lisbon to access a larger offer of grants available. Places close to major universities such as Leiria, Coimbra, Aveiro, Braga, Covilha, Vila Real, and Evora are excellent options. Most of these cities have local incubators, which provide reduced-price services, including accountancy, legal services, mentoring, networking events, and more.
The next step is to reach out to someone who can give you support and access to the grant system. Most incubators have people who are specialized in this and can help you tailor your application to access potential tax breaks and funding sources. This is important to do before seeking investment as it demonstrates to investors that you are leveraging all available resources.
If you’re in specific industries such as energy, healthcare, and education, reach out to the branches of the National European Agency and EIT to access the network of operators across Europe. These networks include major players in your industry who may be interested in buying your products and provide access to European funds.
Finally, engage with the National Innovation Agency, even if you don’t submit anything right away. Just letting them know what you’re trying to achieve can help you access the several lines of funding that are available. With these steps, you can start developing your project and seek funding to bring your vision to life.
Portugal Business Taxation: Key Considerations
Corporate tax on profits in Portugal is 21%, usually.
We do have something which is a special case in Portugal, which we call Tributação Autonoma. With certain classes of expenses, even if you don’t have profit, you’ll still pay corporate tax, namely for restaurants and fuel for your car. You’ll pay 10% from revenue as a corporate tax regardless if you have a profit or not.
If you are R&D heavy, you can get some rebates on your tax expenses because all R&D activities are entirely debatable in corporate tax.
You can get a significant rebate on corporate tax, that you can use over a period of five years. From that moment on that’s the main tax that you’re going to be paying until you start invoicing.
Then you have VAT which in Portugal is 23% for local companies.
💡 VAT (Value-Added Tax) is a tax, which is payable on sales of goods or services within the territory of the Member States of the EU.
If you invoice inside the European Union or with countries that have double taxation agreements, which are the most economically relevant countries in the world, then you will not pay any VAT on those, those are covered.
In terms of revenue taxes, there are three components that you need to consider:
One is the IRS, which is the revenue tax, which depends on how much you pay to an employee.
💡 IRS — Personal income tax. It applies to the incomes of both Portuguese residents and non-residents who earn income in Portugal.
There is social security, which the company will have to pay separately from what the employee pays. So the company will pay 11% remainder, it’s from the employee’s wage.
And you have the Social Security Compensation Fund, which is next to nothing; it’s 1–2 euros per month.
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