International Company Relocation Opportunities: Portugal
The article below will discuss the financial climate of Portugal, so any organization wishing to move part or all of its operations there will have a more complete picture of the country’s prospects. For specific information, you may scroll down to the subheadings which most interest you.
The Portuguese economy has gone through a gradual recovery from recession. Still, it’s recovering, and in 2014, it exited its EU-IMF program. The crisis has been considerably reduced and their fiscal condition has stabilized, though unemployment remained high in 2014 to 2016.
In 2011, Portugal has undertaken a structural reform program that bolstered and modernized the economy, providing growth and a favorable external environment conducive for multinational companies. A further improvement in wage settings, a reduction in taxes and inducements for new investments have been enforced. The Portuguese government has executed two draft laws (IP and the Code of Civil Procedure) to improve the efficiency of the judiciary and social justice.
Portugal is an EU member country since 1986 and is highly integrated in the Eurozone. Portugal continues to be a major investor and trade partner of the member states of the European Union. Through the Portugal Government act, in accordance with the European Union law (EU Law) equal treatment between domestic and foreign investors is exercised. Aside from Europe, Portugal sustained a good relationship and bond with its former colonies Mozambique, Angola, and Brazil.
The European Central Bank (ECB) manages Europe’s single currency (€) euro and implements an EU economic and monetary policy for the entire Eurozone member states. In the past few years, there were episodes of financial crisis in the Portuguese banking sector. The Banco Espirito Santo (the Central Bank) has intervened despite the high cost of bailing out of Banif in 2015 and 2014’s bailing in of Novo Banco.
The government has taken steps to facilitate the recapitalization or restructuring of the largest banks to address the problems in the banking sector. The Millennium BCP is one of the largest banks in Portugal, and in 2016, it approved the capital hike of up to 1.33 billion euros and settled the full amount of 750 million euros borrowed from the government in 2012.
The acquisition of BPI by Caixa Bank in Spain happened in 2016. BPI used to be the 4th largest bank in Portugal. Lone Star sealed the deal for stake in rescuing Novo Banco in 2017, while Portugal and the EU reached a deal to recapitalize Portugal’s largest bank - Caixa Geral de Depositos. This was the key to strengthening the Portuguese banking sector.
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On the 9th of March 2017, the government of Portugal created a new financial supervisor that would carry out bank rescues to ensure the banking sector’s system consistency. The CMVM stock market regulator and the authority that supervises pension funds and insurance is the new entity that would rank above the Bank of Portugal (above the central bank). The proposition is subject to approval from the Portuguese government and the authorities of the EU and followed by a regulatory process of public involvement in laws and policies or public consultations. The modifications could potentially work against efforts to provide more supervision in the Eurozone of the European institutions.
The EU-US Privacy Shield was announced as a replacement for the Safe Harbor Framework, a political agreement and framework for transfers of personal data between the U.S and European member states. Moreover, the GDRP will replace the current Data Protection Directive, which is applicable to all the member states of EU to turn it into national law on May of 2018, just two years after its entry into force on May of 2016.
Portugal’s total amount of land not being used or vacant in 2013 was around 20% - 30%. According to the draft law and proposition of land banking in 2016, any land with unknown owners that has not been registered, after 2 years, will be acquired by the land bank which will hold the land for fifteen years. If no one claims it until such time, the land will be reverted to the State; the process will be made by the “Single Land Office” which is facilitated by the Portuguese Land Registration Office.
The minority government has overcome skepticism since it was formed after the 2015 National Legislative Election. Their aim is to stop the privatization drive and contracts to public transport. The parliament supported foreign investments and promoted economic growth and stability that enabled the country to exceed the EU economic forecast. Portugal’s 2016 budget deficit is at its lowest since democracy was restored in 1974. There is no ongoing procedure for Portugal as the Excessive Deficit Procedures were closed in June 2017.
- Portugal is ranked the 29th least corrupt nation out of 176 countries in 2016’s Corruption Perceptions Index reported by Transparency International.
- Portugal is ranked 25th among 190 economies in the ease of doing business in 2016, reported by the World Bank’s Doing.
- Portugal is ranked 30 among 128 countries and economies in 2016’s Global Innovation Index.
Restriction and Openness on Foreign Investments
Foreign Direct Investments Policies: Portugal’s government recognizes the importance of foreign investments and sees this as a substantial factor in its economic growth. The Portuguese law uses the non-discrimination principle. Same rules apply to both domestic and foreign investors. Foreign investments are commonly not subjected to certain registrations nor do the investors have to notify any specific authority. A special case is provided on some particular activities.
The AICEP or Portuguese Agency for Foreign Investment and Commerce leads the promotion for investment and trade. AICEP’s responsibility is to attract foreign investors (FDI), promoting Portuguese trademarks internationally and the exportation of services and goods. It is also the main contact point for capitalists with projects worth €25 Million and above or businesses that have a combined turnover of €75 Million and above.
For international investors that don’t meet the requirements, AICEP conducts an initial analysis. Investors are then referred to assisting agencies, like IAPMEI, a local agency that’s under the Ministry of Economy. AICEP’s Capital Global provides support for technology transfer, startup programs, and enterprise capital support.
Investment promotion from specific sectors is not favored by AICEP. However, it provides a “Prominent Cluster” guidelines found on its online site where it recommends investing in Portuguese enterprises by category.
The government preserves its regular connection with its investors with the help of the Portuguese Chamber of Commerce, the Confederation of Portuguese Business, and the AICEP.
Foreign Control Limitations and Private Ownership & Establishment Rights
Portugal doesn’t have any legal restrictions regarding foreign investments. In establishing a new company, a foreign investor should adhere to the same regulations applied to domestic investors, which include compulsory registration and complying with obligations required for particular activities. There’s no specific nationality required and no restraint on dividends or profit repatriations.
Stockholders that are non-residents must acquire a Portugal’s taxpayer number used for tax functions. European residents may get this number straight from the tax agency (personally or through a chosen proxy). Foreign immigrants must assign a Portuguese citizen as a representative that will deal with tax officials.
Limitations are set for both domestic and foreign investments regarding certain economic actions. An approval from the Portuguese government is necessary for the corresponding key sectors: defense, railways, water management, maritime transportation, public telecommunications, and air transportation. For economic activities that include an act of public jurisdiction, a company needs to seek government approval as well.
Companies in the private sector can engage in these fields by way of a yielding contract. The acquisition of the Atlantic Gateway Consortium to Portugal’s flag carrier airline TAP and the expected selling of Novo Blanco to American foreign investors are the current SOE sales examples.
Portugal also limits international investment in producing, transmitting, and distributing electricity, gas, pipeline transport of fuels, retailing, electric power, non-bottled gas, natural gas, and other services related to electricity. Any concession on power and gas division is provided to selected companies with headquarters and powerful operations in Portugal.
Foreign investments are also limited to recruitment and placement services for the office staff personnel and for social services funded publicly.
Capitalists that wish to set up new credit companies or financial institutions require a majority of stocks on such financial companies, and/or must set up a subsidiary authorized by Portugal’s Bank (for European firms) or by the Finance Ministry (for firms outside of Europe).
In either case, authorities carefully review proposed transactions. However, for non-European companies, the Finance Ministry greatly considers the effect on the financial structure and economic internalization. Non-European insurance agencies that want to establish a business in Portugal should post a certain deposit and collateral, and the Ministry of Finance should have authorized such an activity for five years at least.
Other Investment Guidelines
For the past years, Portugal hasn’t gone through WTO, OECD, or UNCTAD reviews.
Business assistance: For the last 10 years, particularly at the beginning of the financial downturn in the year 2010, the parliament prioritized policies that will increase Portugal’s position as a foreign investment destination. The taxation process has been simplified, transport logistics and effective warehouses were developed (specifically the Sines Port terminal in the southwestern part of Lisbon), as well as the infrastructure for telecommunication has been enhanced. It was in 2007 when the government initiated the AICEP, an agency that specifically handles foreign trade and investments.
A program called “Golden Visa” that was established in 2013 speeds up the residence permit process for foreign investors that comply with specified pre-established requirements. Currently, there were 3,207 Chinese citizens that were granted residency permits out of 4,200.
Alternative measures were carried out to help entice foreign investors, like easing some work regulations to help increase workplace pliability. Also, an exclusive EU financed scheme “Portugal 2020” was created for immense projects (greater than €25 Million).
Lastly, to fight the anticipation of an unwieldy regulatory atmosphere, the Portuguese government created a website called “Cutting Red Tape,” detailing measures used since 2005 that lessen bureaucracy and Business (Empresa na Hora), a program which facilitates business incorporation within 60 minutes or less.
The government has 214 “Empresa na Hora” sites where both Portuguese native and non-residents can register their business personally.
Portuguese natives can also register online using the “Citizen’s Portal”. Businesses should also register at the DGAE (Directorate General for Economic Activity), the Social Security, and the AT (Tax Authority). The online enrollment procedure may take 1-2 days.
In accordance with the European Union, Portugal describes a business as Medium, Small, or Micro-sized depending on its number of people, yearly turnover, and the expanse of their balance sheet. A micro-business firm must have 10 or fewer employees and assets or revenue not exceeding €2 million. Small enterprises have 50 or less workers and below €10 million worth of assets or revenue. Medium-sized companies must have lower than 250 workers with revenue below €50 million or assets of less than €43 million. The IAPMEI (SME Support Institute) provides training, financing, and other assistance for SMEs in Portugal.
External investments: The Portuguese government doesn’t restrict its domestic capitalist to invest outside of the country. In contracts, it incentivizes and promotes outward investments via AICEP, whose primary tasks are promoting the globalization of Portuguese enterprises, supporting their exportation and attracting investors aiming to create an advantage for the country.
With the help of the External Commercial Network, Export Stores, and Customer Managers, which with the help of the consular and diplomatic network exist within 80 trade markets, AICEP offers advisory and support services on how to best deal with approaching foreign investments, identifying global business opportunities for Portuguese companies, specifically SMEs.
Mutual Investment Treaties and Taxation Agreements
Portugal and the US do not share any investment concurrence. In 2009, when the Treaty of Lisbon commenced, the European Commission expected exclusive competence in negotiating investment and trade concessions for all European Union members. In 2013, the Transatlantic Trade, Investment Partnership and negotiation with the US was launched.
Portugal has over 100 markets that are currently in an investment agreement, which include: Argentina, Angola, Algeria, Albania, Bosnia and Herzegovina, Bulgaria, Brazil, Chile, China, Cape Verde, Democratic Republic of Congo, Croatia, Congo, Czech Republic, Cuba, Equatorial Guinea, Egypt, Germany, Gabon, Guinea-Bissau, India, Hungary, Jordan, Kuwait, Republic of Korea, Libya, Lithuania, Latvia, Macau, Mexico, Mauritius, Mozambique, Morocco, Pakistan, Peru, Paraguay, Poland, Philippines Qatar, Russian Federation, Romania, Sao Tome and Principe, Serbia, Senegal, Slovenia, Slovakia, Tunisia, Timor- Leste, Turkey, UAE, Ukraine, Uzbekistan, Uruguay, Zimbabwe and Venezuela.
In 1994, Portugal countersigned an Income Tax Agreement with the US to prevent tax evasion and double taxation. Also, the two countries signed a treaty to improve foreign tax adherence and enforce the FACTA (US Foreign Account Tax Compliance).
Administration of Laws
Transparence of administrative schemes: Portugal implements definite regulations for businesses to be competitive within the country. The imposed laws are beneficial to Foreign Direct Investments.
With regard to its policies, they are proposed either by a government agency or by a ministry. The proposals are reviewed by the Parliament. However, the majority of them are decided by an authority in Europe. Proposals for certain policies are consulted with the community. The information is disseminated to the ministries and it becomes available for viewing online.
Ideally, the time frame for this process is approximately a month or twenty days when it’s a special case. When a government agency or a ministry has assessed the possible outcomes of its proposal, data will be released on their website.
The outcome of recent proposals on policies will then be combined and become part of the website related to applicable ministries and regulators in the country.
The process is based on a decision within government agencies and no reports indicated that non-government sectors have participated in the regulation of policies.
There are different agencies which compose the decision-making body to create these laws. They come from the Economic sector, Energy Resources, Accounting, Security Market, and the Telecommunication department. The regulation starts at a domestic level, like a local court. However, when it comes to something with a nationwide impact, the Auditor's Court takes part in it. It may also require the involvement of several entities, like the EU Commission office, the EU Central Bank and the EU Court of Justice.
When it comes to laws, regulations, and auditing courses, the entire processes guarantees transparency and consistency with foreign policies. It has been noted that in 2005, registered businesses were obliged to follow the IFRS, which was chosen by the EU as part of their ideas. The principles embedded in the IFRS are similar to those of the United States of America's Generally Accepted Accounting Principles or GAAP.
The legislative body forms a proposed bill and makes it available online for everyone to read. There is a department called UTAO, comprised of experts in economy or law, who participate in the law-making process. The Public Finance Council in Portugal performs a separate evaluation of its regulation, particularly if it pertains to being compliant to each objective and if it is viable to be implemented, financially.
Portugal created an authority to implement fairness in business industries. Whether it engages local or national policies set by the country. EU in general makes sure the process is regulated and observed by all members.
The EU was impressed by the country's development in terms of addressing proposals by the Commission in 2011 regarding the finance assistance project.
The International Monetary Fund has released a statement around 2014 that the country's use of government revenue adheres and was very transparent in all aspects. The reports submitted showed compliance to the standard set by the European Union, and the forecast and budget for project proposals have developed into something significant in 2011. Portugal has shown transparency to the public by creating an online page for a proposal, process, and even for the minute details concerning public money.
In 2017, a financial officer from Portugal made an announcement regarding an intention to put up a department to regulate the bank industry. Its recommendation came after some serious bankruptcy and loss in the financial industry, which happens to include one of the biggest banks in Portugal, Banco Espirito Santo.
When this commission was established, one of its functions was to create an organized and stable banking industry with Portugal's Central Bank, market, and securities commission, and its insurance part in the banking system. It was a combination of efforts between Portugal and the EU authority, observing the timeline for the community's disposition on the proposed policies. This commission was expected to maintain standards since it would have an impact on the current authorities from the EU who are from the management team.
There are constant evaluations for accuracy, and ensuring guidelines are followed to achieve stability in the industry as well as create an impression that being transparent is non-negotiable.
Foreign Policies Concerns
In the year 1986, Portugal became a member of the European Union. It became one of the members in Schengen in 1995 and a part of the Eurozone around 1999. Portugal's presence in the EU has shown compliance with the policies of the European Union with regard to either international or local businesses. It became one of the members of World Trade Organization in 1995.
The EU's Central Bank is responsible for deciding the policies with regard to the financial aspect for its 19 members of the Euro zone that include this country.
Regulation of Laws and Court Matters
Portugal is using the civil law approach. The following details are the regulations pertaining to it:
- Constitutional Law and Amendments;
- Principles and Rules of Common or General Foreign Laws and Foreign Agreements;
- Common Laws implemented;
- Foreign conferences and Decision of Judicial Court;
- Policies imposed to support proposed bills.
Portugal has a Corporate Laws and Civil Code reference it uses as a tool to guide companies, including each contract they enter. The country has a special court for domestic issues, employment concerns, business matters, IP, etc.
The functions of courts are not influenced by the administrative or by the legislative body. They have a separate department, which decides independently to remove biases which may relate to tax implementation and pension concerns.
The decisions made by the judicial courts may still be appealed to higher courts up to the EU's courts.
Policies for International Investments
Portugal’ central banking institution considers foreign investments as an opportunity to increase the economy. A foreign individual that has about 10% of the corporation's shares and takes part in making decisions is known as an international financier.
The laws implemented in the country are non-biased, particularly where investments are concerned, and most of the time, foreign individuals have been allowed to be part of investment activities to contribute to its economic growth. The country also seeks legal permission to different divisions, like the military, the telecommunication industry, railways, marine matters, and airline transportation. Corporations must secure an agreement from the government before the business can be operational.
Some businesses that express an intention to create financial corporations can obtain control of these corporations as long as they have an agreement with the Central Bank of Portugal (applicable to European companies) or with the Department of Finance (applicable to non-European businesses). Portugal is very meticulous in reviewing the proposals they get from investors.
However, when it comes to non-European businesses, they look more into the economic impact of the investment to its community. With regard to security provider companies which are not part of the European Union, the government asks to secure money or bonds that guarantee they are able to operate for 5 years at a minimum.
With regard to any updates, news, and other international business related concerns, they may visit AICEP for more information.
Anti-Trust and Conflict Regulations
The Competition Authority of Portugal (Autoridade de Concorenccia) is the local bureau that audits activities concerning conflicts, while the European Commission’s Directorate General for Competition is the global bureau. There were no crucial conflict lawsuits affecting international entrepreneurs or financial expenditures being approved last year.
The directive of the competition authority is adopted from Law number 19-2012. It overrules Law 18/2003, which categorically forbids conspiracies involving businesses to manipulate the cost and accessibility of supply, employ personal biases in business dealings, collude with competitors to gain an advantage in marketplaces, or compel other entities to satisfy unreasonable demands on the business or entity.
The decree also obligates a previous federal notice of coalitions or procurements that would result in a 30% profit for the entity in a specific market, or coalitions and procurements that yield an overall profit of more than 150 million Euros in the last business year. The agency has sixty days to decide if the coalition or acquirement can advance. Multinational conflicts that involve big corporations that have substantial marketplace investments may also be presided over by the European Commission.
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Appropriation and Settlements
The Appropriation law of Portugal, after concluding that it’s beneficial for the people, may allow the state to claim legal possession of assets and of their corresponding liberties upon providing timely, competent, and sufficient monetary reparations. The Act provides a market-based benchmark to determine the proper remuneration. Federal Court systems may oversee disputes in relation to the expropriation and equity of reparation.
Portugal’s legislative body approved the Water Resources bill in 2005 obligating property landowners along coastal areas, riverbanks, and water reserves to provide proof of individual proprietary rights beginning in 1864 to date, and gave January 2014 as a cut-off date, to avoid land confiscation by the state. The regulation evoked massive revolts from landowners, many of whom are emigrants from Britain, which eventually compelled the government during the second quarter of 2014 to impose broader exclusions and remove the cut-off date of presenting proof of private proprietary rights.
No appropriation lawsuit concerning estate ownership has been filed to this day. No recent lawsuits regarding government confiscation of offshore properties or entities have been filed in Portugal.
Resolution of Arguments
Convention in New York and the ICSID: Portugal is part of the ICSID, a.k.a the Washington Convention starting in 1965. It has also participated in the convention in New York in 1958. The country’s domestic adjudication bill number 63/2011 enacted on Dec.14, 2011 provides accolades within the convention of New York in 1958.
Shareholder - government agreement on settlements: Portugal has upheld the Geneva Convention of 1927 in relation to the Foreign Arbitral Awards Execution, which subsequently endorsed the Inter-American convention of 1975 on International Arbitration.
The Voluntary Arbitration Bill of Portugal, promulgated in 2011, is derived from the UNCITRAL Model bill and is applicable to settlement transactions in the country. Portugal’s Commerce Chamber and Industry’s Arbitration Centre is the pre-eminent financial mediation agency.
Portugal’s parliament sponsors non-administrative settlements of disputes via the Alternative Dispute Resolution’s Office (GRAL) of the Ministry of Justice, which includes reconcilement, negotiation, and adjudication.
There is no mutual financing or open-market arrangements that include ISDS groundwork with the US.
The financial directory of the UNCTAD (United Nations’ Conference on Trade and Development) as well as the index of the ICSID by the World Bank reflects zero lawsuits involving either settled or unsettled financial disagreements between Portugal and international financiers.
Portugal’s judiciary acknowledges and requires multinational adjudication grants administered in the state.
Currently, non-judiciary undertakings have not been implemented against international shareholders.
Offshore Financial Determinations and International Tribunals
A dispute settlement is the elected substitute to the current framework employed to resolve financial disagreements in the country. Portugal has an enduring practice of, and achieved progress in, exploiting regulatory and settlement squabbles involving both non-public individuals or corporations and levy administrators, as well as drug control misunderstandings.
Portugal’s state and economy has 4 national adjudicatory agencies: first is the Arbitration Centre of the CAC (Commerce and Industry Chamber), second is the CONCORDIA, third is the Arbitratre, and fourth is the Instituto de Arbitragem Commercial de Porto.
Each mediation agency provides its individual laws. However, all adhere to Portugal’s Arbitration Bill 63-11 that was enacted in March of 2012. The protocols set forth under the convention in New York, Washington, and Panama was adopted by the Centre for Commercial Arbitration’s Arbitration Council.
The UNCITRAL Model Law‘s entrenched specifications have been observed by the Arbitration Law 63-11. However, it isn’t an identical reproduction of its content.
Based on the CCP (Civil Code of Procedure), the Convention in New York, as well as the CPR (Constitution of the Portuguese Republic) grants accomplished abroad should be acknowledged by Portugal’s Judiciary system prior to their enforcement in the country. No constitutional body exists in Portugal that enforces rewards appropriated at the centre of adjudication.
The CCP outlines the statutory framework of tribunal transactions in relation to adjudications (which includes designation of mediators, deciding over mediator’s salaries, interrogation of mediators, permissible overtures, prescribing and objections to prescribing, as well as the acknowledgement of international adjudicatory grants).
Throughout Portugal’s history, their judiciary body has been regarded as incompetent. The nation, however, has recently employed significant advancements to boost productivity and performance of constitutional transactions. The Index of Doing Business of the World Bank stated that, on average, administrating a financial obligation in Portugal consumes 547 days (compared to the OECD’s average of 553) and it’s worth 13.8% of the claim’s market price (in comparison to OECD’s 21,3%).
The Ombudsman of Portugal confirmed 6 certified criticisms in 2015 that involve SOEs. However, no figures were revealed the succeeding year. The post is not familiar with any accusations of inequity or administrative controversies implicating the SOEs.
Portugal’s Code of Corporate Recovery and Insolvency describes bankruptcy as the borrower’s impotence to fulfil his financial obligations in a timely manner. Businesses will be regarded as bankrupt when their debts and expenses eclipse their profits. Debtors, creditors, or any individuals liable for debt may launch the bankruptcy process in a financial tribunal.
The judiciary system adopts the primary function of guaranteeing acquiescence to administrative laws over bankruptcy processes, specifically the accountability for deciding on the lawfulness of the bankruptcy and settlement arrangements sanctioned by the creditor.
The creditor generally has thirty days to surrender their plea to the delegated bankruptcy tribunal judge for a specified duration succeeding the bankruptcy notification. Detailed accounts of price, aging, collateral, and essence of their case must be submitted. The order of petitions is:
- Rights demanded over the debtor’s property, for example, repayments of cost associated with the bankruptcy processes;
- Protected collections;
- Entitled petitions;
- Unprotected collections;
- Auxiliary claims, inclusive of investors’ petitions.
Portugal is eighth out of 190 nations in the “Resolving Insolvency” scale of the World Doing Business Directory of the World Bank.
Incentives for investment: The Portuguese government provides investment incentives to individual investors that can be customized depending on the capital and the needs of an industry, its investment expanse, and project viability. For example, minor investors can get deductions from their future tax responsibility, from 20% of assets up to €5 million maximum.
Madeira and the Azores offer investment incentives as well. For instance, profits acquired from foreign operations by authorized industrial, shipping, financial companies, and foreign services that were established within the Madeira’s International Business Centre (an international trade district) are amenable to a 5% lowered corporate tax percentage.
Being a European Union Member State, Portugal’s potential investors are eligible to European help plans that offer further incentives for investing in the country. Portugal has acquired €2,6 billion funds from the EU in 2015 used to finance essential investments within the area of communications and information technology, research and development, transportation, water, renewable energy, and energy efficiency, solid waste urban regeneration, education, health, and culture.
Trade Facilitation, Free Ports and International Trade Zones
Portugal has a free port / Foreign Trade Zone (FTZ) in Madeira that was established back in 1987. The operation continues in this free port / FTZ, which was authorized in agreement with EU guidelines on providing incentives to its member states.
Commercial and industrial activities, as well as international services, trust management establishments, and overseas financial divisions are eligible. The companies established within the free port / FTZ enjoy perks, like financial incentives, importation and exportation-related perks, a tax incentive for companies and investors.
Under Portugal’s terms of agreement with the European Union, the companies integrated with the Madeira FTZ may enjoy a lowered 5% corporate tax percentage until 2020.
Data Localization and Performance Requirements
There is no performance qualifications or directive of the local state employment for international investors imposed in Portugal. Same qualifying measures are applied consistently on both foreign and domestic investors.
As part of the European Union, its member states have a top-level labor mobility with Portugal. To get employed in Portugal, a non-EU citizen should be sponsored by a local employer to get a work license.
There are no citizenship restrictions that prevent the ability of a foreign national to be part of a board of trustees or senior management. Expatriate or foreign workers with suitable work permits have equal rights and are liable to the same responsibilities as Portuguese employees.
While there is no data localization implemented in Portugal, in accordance with the Data Protection law of Portugal, the data controllers, or people and companies that deal with personal data, are required to register through the CNPD (National Data Protection Authority). External data transfers are only permitted if the receiving company or country ensures a competent level of security.
The US - EU Privacy Shield was launched in February 2016, which will take the place of the former Safe Harbor structure for transferring data between the EU’s member states and the US. Additionally, Portugal is subjected to new guidelines specified in EU’s Data Protection Regulation that was enforced on May 5 2016. European Union state members will have to convert this directive to a nationwide law by the 6th of May 2018.
International IT providers have no prerequisites in turning over source codes or / and providing encryption access. The same rules are applicable to IT providers, both foreign, and national.
Data transfer within EU countries does not require preceding authorization from CNPD, though Data Transfers outside EU countries may only materialize if the recipient country provides adequate security to protect personal data.
In the event receiving countries do not guarantee adequate security protection, the transfer can still be authorized by the CNPD under particular conditions, if:
- The data subject has acquired clear consent on the projected transfer;
- The data transfer is essential for the accomplishment of the agreement between the controller and the data subject;
- Pre-contractual steps taken in answer to the request of the data subject are executed;
- It is compulsory for the execution or completion of the agreement between the data controller and the third party, to be concluded, in the interest of the data subject;
- It is legally required or compulsory on chief public interest reasons, or to exercise, establish, or protect legal claims;
- It’s compulsory to safeguard the vital interest of the data subject;
- The registration is made with the intention to provide public information and is approachable to consultation by any person who can show a valid interest, given the conditions for consultations are lawfully fulfilled.
Also, the CNPD may still permit a transfer of personal information to a state that doesn’t provide an adequate security level. It can be accomplished when adequate safeguards are given by the controller to secure the fundamental rights, privacy, and freedom of individuals.
The CNPD ascertain all rules for local data storing are implemented.
Financial marketplaces and portfolio capital: Portugal acknowledges the financial worth of foreign investments and considers them as crucial drivers of industrial development. Its major firm is Portugal’s Foreign Investment and Commerce Agency (AICEP) which is tasked with promoting business and boosting revenue.
Euronext Lisbon, a constituent of New York Stock Exchange’s Euronext Group, oversees Portugal’s stock exchange and grants an indexed entity admission to a multinational and diverse group of shareholders. Inaugurated in 1993, PSI20, Portugal’s Stock Index-20, provides the country’s directory of extensive and marketable corporations within the network.
The stock exchange provides its constituents a multifarious commodity profile: investments, capital, transferred assets, collaterals, as well as regulated commodities, such as licenses. Numerous market strategies and resolutions were implemented to satisfy the various conditions of providers and merchandise. The members of the Euronext Lisbon exchange liquidated financial commodities recorded on its marketplaces in Amsterdam, Brussels, and Paris.
There are ample cash reimbursements for substantial exit and entry posts. March 2017 saw Euronext Lisbon achieve a staggering 2.3billion Euro in contracts, compared to PSI 20 BCP Bank Millennium which markets to about three million shares a day.
Portugal’s Commission on the Securities Market governs insurance trading places and acts as a constituent of the European Securities Regulators Committee and of the International Organization of Securities Commissions.
The country recognizes Article VIII of the IMF and thereby inhibits limitations on restitutions and transmission for ongoing overseas enterprises. Assets are designated on stipulations by the market and multinational shareholders are qualified for domestic market investments. Private corporations are admitted to diverse stock mechanisms, which include securities and collaterals.
Financial and Investment Structure
There is a high rate of penetration among financial services, and Portugal’s National Bank has indexed 35 banking institutions and 15 investment companies. Conducting bank transactions online has achieved much popularity, with a reported 29% of people using their bank’s online system in 2016.
June 2016 saw an overall financial capital of approximately 404.9 billion euros, which represents a steadfast decline in 2015 from thirteen billion euros to four hundred thirty billion euros the year before. Caixa Geral de Depositos is Portugal’s biggest state financial institution in terms of capital and profit, with a net worth of ninety-three billion euros in shares in 2016.
BBVA of Spain declared in 2014 its intention to withdraw from Portugal’s banking division, although this has yet to happen. 2015 saw Bankinter of Spain acquire Portugal’s Barclay retail financial firm for one hundred million euros after the latter’s call to exit Europe’s retail banking exchange. Deutsche Bank has been reportedly speculating on selling its Portuguese businesses as well.
Portugal’s banking process reached a Tier 1 Investment ratio of 7.5%. It stood at 12.3% in Common Equity during 2016’s third quarter. The European Banking Authority reported Portugal’s banks reached 19.82% in the NPL ratio during 2016’s 3rd quarter, and reached a 41.78% coverage scale.
The IMF urged Portugal’s financial sector during a post-bailout presentation control audit in Feb 2016 to bolster its annual assets and liabilities report and hinder adverse impacts on the taxpaying populace. It also remarked that banks have to decrease their deficits and liabilities because they disrupt the economy’s progress. Portugal’s state authorities have taken measures to discuss the issues within the country’s financial banking system, and assist in the remodelling of and in the re-investment in 4 of the 5 large domestic banks in 2017 and the previous year.
Portugal permits multinational financial institutions to conduct businesses in the country. There’s a typical ‘four-eyes’ policy imposed on administrative dealings by banks running their businesses in Portugal, regardless of whether they’re considered as overseas extensions of multinational or domestic banking institutions.
Subsidiaries conducting business in the country are obliged to possess administrative powers that authorize them to do business locally. However, this prerequisite does not hinder them from gaining control of internal policies regarding loss mitigation and regulatory controls, as traditionally practiced by foreign financial companies.
Any financial business involving public operations necessitates constitutional approval, hence international and local assets have restrictions imposed on them in relation to certain commercial practices. Private enterprises may operate in certain regions for as long as there is permission to contract.
Shareholders and financiers wanting to create new investment companies, gain substantial control over such financial entities, or erect a local business extension, must acquire a Bank of Portugal’s endorsements (for companies in the EU) and the Finance Ministry (for companies outside the EU). The government deliberates carefully any proposed business activity, although for non-EU entities, the Finance Ministry specifically takes into consideration the possible implication on the investment sector. Non-EU businesses involved in warranties and insurance that want to build a local firm should post an exclusive pledge and must gain endorsement from the Finance Ministry to conduct such activities for a minimum duration of 5 years.
Foreigners are not restricted to creating bank accounts, and both local and international residents are permitted to establish accounts in their preferred currency. Transfers of at least ten thousand euros or more require a declaration to Portugal’s custom administrators.
Forex and Returns
Exchange protocols are non-existent in Portugal, and the country does not restrict the flow of imported or exported investments. The conversion of money into any medium of exchange is permitted on assets linked to any type of investment.
A constituent of the Eurozone, Europe’s Monetary Union, Portugal adopts the euro as its currency, a volatile currency exchange rate governed by the ECB, or by the Central Bank of Europe. Portugal’s national financial institution is the Bank of Portugal, and its Governor is a participant in ECB’s board.
Repatriation protocols: Investments and assets do not have remittance restrictions, and no time limits are imposed on remittances.
Autonomous Asset Funds
With the overall assets amounting to approximately 13.5 billion euros, Portugal’s FEFSS (Social Security Financial Stabilization Fund) is governed by the Ministry of Labour, Solidarity, and Social Security. Technically speaking, it is not a SWF (Sovereign Wealth Fund) and doesn’t defer to the Santiago Principles, a voluntary system of acceptable practices, nor does it engage in SWF’s International Working Group hosted by the IMF.
The law enforces a minimum of 50% investment of assets in Portugal’s public debt, among other limitations. FEFSS profits in capital instruments are restricted to members of the EU and OECD. FEFSS operates as an acquiescent shareholder and takes no active engagement in managing portfolio entities.
Government Owned Sectors
Portugal has 44 government sectors in operation. 15 sectors are fully operated by the state which focuses more on healthcare, transport, financial, amusement, and publication subdivisions. Within 2016, the total properties were valued at around 14 Billion euros, the total revenue was about 46 Million euros, and about 600,000 individuals were hired by these sectors.
Whenever government sectors are fully owned, the management team is usually named by the executive department. Even though most state-owned enterprises are managed by the board of directors and a non-management staff is appointed, the decision is still dependent on the arbitration of the current administration and its shareholders. There are instances where the EU authority also participates in the process.
Portugal has one state-owned enterprise which produces more than 1% of Gross Domestic Product, named Caixa Geral de Depositos. It possesses a huge part of the financial industry, such as consumer deposits, mortgages, business loans, and several bank related operations within the country.
In terms of small businesses, the administration has delegated Parpublica as the representative to audit small state-owned enterprises and generate reports.
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Comprehensive reports are required for transparency since an audit report is performed yearly. The Finance Ministry releases a yearly record regarding the performance of state-owned enterprises, which is divided into the type of services and their departments. This is done by a special group of people called UTAM.
In terms of compliance, these enterprises are required to observe policies similar to that of privately-owned companies, and must adhere to Portugal and the European Union's regulations. However, these enterprises are usually favored by banking institutions when it comes to financial aspects.
In 2011, Portugal has been regarded as "a country that has the most effective authorities" when it comes to implementing policies in the state-owned enterprises' administration.
State-owned enterprises are mostly criticized by credit associates on their performance and are not related to how they are influenced by the current administration. In 2008, Portugal certified the regulation that gives the complete definition of having principles and an unbiased administration which is aligned with the OECD's policies.
State-owned enterprises are required to carefully categorize the roles of the people within the corporation, even in small businesses. It is also applicable to staff, suppliers, customers, and other people involved in the enterprise. It regulates trading by setting standards coming from different companies and sectors. A yearly record is published on the Department of Finance's website to confirm these rules are not just in writing but being implemented as well.
Transforming SOEs into Private Enterprises
In 2011, Portugal has decided to make some SOEs into private enterprises. These include airline businesses, land transport, energy, telecommunications, and insurance agencies. International corporations are often getting businesses since the government offered this proposal.
Foreign companies are invited to bid. The government has maintained a smooth, clear, and fair process to each investor. China, Oman, and France showed interest in bidding for utilities (electricity), for the airline business, and for insurance-related businesses. For the record, Portugal also allowed its post services to be acquired by interested individuals who would like to invest. 70% of it was sold in 2013.
With regard to a sense of responsibility in ethics, Portugal's administration has been keen on its society rather than on any shareholder. In 2000, many businesses decided to form a team, called the Group of Reflection and Support for Business Citizenship, to ensure the expansion of the companies' initiatives in promoting corporate social responsibilities in Portugal.
Portugal's economic policy encourages both international and domestic businesses to comply with the Organization for Economic Cooperation and Development. The Ministry of Economy and AICEP are designated to monitor its concerns related to these policies.
The Ethics Committee in Portugal facilitates any activities for CSR, which also collaborates with the Department of Economy. An activity like the Social Responsibility Week is an event being observed to ensure awareness of its responsibilities to society as part of the Labor Code.
Competition in the business market is encouraged as long as it is regulated and within its guidelines. The government is lenient when there is a minor violation of a business, as long as it corrects its mishaps.
So far, no reports relating to the violation of human rights has been associated to privately-owned businesses. Portugal's administration has an effective and fair approach in enforcing the law with the help of local courts and the EU's Court of Human Rights. The provisions included in Portugal's constitution are related to basic rights. These need to be aligned with the International Law relating to Human Rights.
Portugal has formed a regulatory commission to monitor and support the business community in provisional laws which is part of the company's code, as well as Portugal's Securities Code. The Securities Market Commission in Portugal was established to create financial security specifically to the corporations that are part of their listings. The mandate in this sector is intended to bind these corporations.
Non-government sectors are tasked to make an effort in promotion related to reputable administration concerns between the industries. Quercus Portugal helps in promoting a guide and arranges activities to restore the awareness of being responsible in their environment. TIAC is another association that creates reports on graft both in the government and in privately-owned businesses. People are encouraged to submit any corruption-related activities online without the need to disclose their identity.
The country has no participation in the EITI and Voluntary Principles on Security and Human Rights. In April 2017, the EU council gave a go signal on the latest European Union's regulations about conflict minerals. The said policy reinforces a strict process to corporations which involve the importation of minerals to the European Union. This recent update will be enforced around twenty days after its release, as well as the prerequisite for the affected companies to comply which is going to have a complete launch in January 2021.
Corruption / Bribery
The recent legislation shows Portugal is very dedicated to fighting corruption. The CPC was created in 2008. The Council for Prevention of Corruption is a self-governing administrative institution led by the Portuguese Court of Auditors, mandated for the prevention of corruption and other related infractions in the private and public sectors that use state revenue. The Transparencia e Integridade Associacao Civica is an active member of The Global Anti-Corruption Coalition (Transparency International) that broadcasts reports on bribery or corruption and supported the Portuguese whistleblowers.
In 2010, the Portugal parliament accepted the adoption of an anti-corruption package including the crime of violation of rules regarding urban planning as a new type of crime, as well as the party funding law amendment. There are particular statutes of limitations that the parliament approved and revised.
One is “insider trading,” which is punishable with imprisonment for up to fifteen years. The other is “embezzlement,” whereas the perpetrator does not have the ownership of an asset, but possesses it. The crime is punishable with imprisonment for a maximum of eight years.
Published in 2016, GRECO (Group of States against Corruption) criticized the Portuguese parliament because of its weak and incoherent asset declarations and conflict of interest legislation for judges, parliamentarians and prosecutors.
Corruption was reportedly widespread in the public procurement sector of Portugal according to the European Commission in 2014. In a perception survey in 2013, 90% of Portuguese responders thought that corruption / bribery is very rampant in Portugal. 36% of Portuguese responders thought that corruption affects their personal lives (against EU’s average: 26%).
Portugal has a legal framework that aims to improve public contract award to raise awareness and enhance the prevention of conflicts of interests within the public procurement.
The parliament proposed to private companies the creation of conflicts of interest monitoring or of an internal criminal code against corruption of public officials.
Many private companies have accounting and auditing systems that monitor and prevent any act of bribery of public officials. The Portuguese Competition Authority established the competition rules to pursue a strategy to enforce and improve a wide range of competition advocacy initiatives.
Portugal has ratified the OECD Anti-Bribery Convention, the United Nations Convention Against Corruption (UNCAC) and the Council of Europe’s Criminal Law Convention against Corruption.
Any Non-governmental Organization (NGO) that helps in the investigation of corruption is eligible for a pro Bono legal service provided by the parliament.
Some companies from the United States have claimed incidence of corruption while doing business in Portugal. Still, foreign investors are unstoppable despite the corruption.
A series of massive protests swept Portugal in 2012 in response to the country’s fiscal crisis, particularly the government’s tax hikes and austerity measures. It was the largest protest after the Carnation Revolution in 1974. The massive strikes were to protest the worsening economy and tax increases.
Some protesters showed direct acts of opposition to the government through vandalisms at the government facilities. In 2016, peaceful rallies were organized by government employees, teachers, physicians, pilots, nurses, and transport workers. They rallied against salary deductions and punishing austerity measures enacted by the government.
Employment and the Labor System
The Portuguese labor system has become more flexible after several years of legislative reforms, particularly in terms of organizing working time. Significantly, the major issues are the working time and difficulty of terminating laborers. The unemployment rate fell to 11.1% in 2016 from the 18% peak reached in 2013. This is still relatively high considering the youth unemployment rate of 28%.
Overall, Portugal’s economy is slow moving. Some labor market issues have gone up, predominantly the shortage of skilled workers in IT, tourism, and fields of engineering. The employment rate in the non- agricultural labor in 2016 was at 93% and 52% for qualified or skilled workforce in higher education, post-secondary and secondary education. The lowest qualified or unskilled workers were at 48%, including the 1.7% of the uneducated population.
Portugal has legally hired over 105,000 foreign nationals or overseas workers in 2015. Mostly were migrants from Asia that usually work in service and commercial sectors, and others were freelancers / self-employed. Many of the African migrants are wage earners or salaried employees.
Low qualified workers are in the industrial sectors, particularly in the construction industry for males and cleaning services for females. In general, qualified Europeans and Americans are skilled professionals, directorial, or administrative workers, and others involved in entrepreneurship. The agriculture in Portugal relies on foreign workers, mainly on European retirees (French, Dutch, and English expatriates) that invest in agricultural land.
There is a huge shortage and scarcity of technology professionals (IT), engineering, and tourism skilled workers.
A collective dismissal may be performed by the employer in relation to market reasons, structural reasons, and technological reasons. The employer may proceed to collective redundancies, but must announce this intention in advance (fifteen to seventy five days), and must offer a severance fee ranging from twelve to a thirty days wage / year worked. Before a labor court, the employee may be terminated without just cause.
The Portuguese parliament operates two free trade zone: the Madeira International Business Center and the Santa Maria Island FTZ, where labor laws are enforced and uniformly applicable.
The Portuguese legislation commonly provides collective bargaining in the sectors of public administration, insurance, and banking. Under collective bargaining agreements, 4,172 workers were terminated in Portugal.
There is a dispute resolution mechanism in Portugal through a legal system supported by Arbitration Centers and Labor Courts.
Short and non-violent labor strikes were very common in Portugal compared to the U.S. In the past few years, workers in the public sectors and transportation, nurses, teachers, and unions like longshoremen and taxi drivers have performed labor strikes.
The Portuguese government deposited with the ILO (International Labor Organization) the instrument of ratification of all 4 Governance Conventions and 8 Fundamental Conventions.
Under the labor code, 40 hours is the maximum legal working week in Portugal, 35 hours exclusively for workers in the public sector, in July of 2016. The minimum wage was 530 Euros per month and rose to 570 Euros per month in January of 2017. The annual leave entitlement for every employee is 22 working days, and all employees should receive a Christmas bonus equal to 1 month’s wage.
In 2016, the pension scheme with new transitory rules was approved, where pensions will be based on the total insurance payments which are limited to 40 years. But those 55 up to 60 years of age who chose early retirement before the transitory rules were amended may apply for pension before their retirement age as long as they have paid pension contributions for at least 30 years.
Program for investment insurance and the Overseas Private Investment Corporation (OPIC): The political risk in Portugal is very low, so it has no program such as the Overseas Private Investment Corporation (OPIC).