Subsidiary vs. Branch in Portugal
Subsidiary vs. Branch in PortugalUpdated on Thursday 23rd January 2020
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Investors who want to open a permanent establishment can choose between a branch and a subsidiary in Portugal. The main difference between the two business forms is their level of independence from the parent foreign company. The decision of opening a subsidiary or a branch can depend on a number of factors such as the operations the company will undertake in Portugal, the available capital at the time of the incorporation as well as other business particularities. One of our lawyers in Portugal is able to provide you with detailed information on the business options and the legislation for foreign investments.
Key differences between the branch and the subsidiary in Portugal
The branch and the subsidiary are both suitable manners in which a foreign company can start doing business on the Portuguese market, but their key differences can be important for some corporations. Below you can find out some of the defining individualities for these two business forms, with the mention that legal support can be offered for any kind of incorporation:
|Independence||The branch is not an independent legal structure. The parent company abroad will be liable for its debts and obligations in the Portuguese city in which it operates.||The subsidiary is a separate legal entity, a resident Portuguese company that operates independently from the parent company, although it still operates in the same business field as the foreign company.|
|Incorporation||It is generally accepted that the branch needs to comply with fewer requirements for incorporation.The parent company still needs to register it but it will provide its own Articles of Association and the decision for incorporating the branch in Portugal.||The subsidiary is incorporated as any local Portuguese resident company. The founders need to go through all of the company formation steps.|
|Regulation||The branch observes the Portuguese corporate laws although it will have a slight advantage in terms of accounting and reporting: this process is less complex for resident companies.||The subsidiary complies with the Portuguese business and company laws, observes the Portuguese GAAP accounting principles and files its financial statements on an annual basis.|
|Taxation||The branch is subject to the same corporate income tax rate as any other resident company, although only for the income derived from Portugal. The provisions of the double tax treaties will apply.||The subsidiary is a resident company taxes on its worldwide profits (business income, passive income as well as capital gains).|
The branch in Portugal
The Portuguese branch is essentially an extension of the parent company. It is a non-resident business without a separate legal personality in Portugal. The branch can only perform the same activities as the parent company and must share a common name. Here are extra details to consider about branches in Portugal:
1. The foreign company controls the management of a branch established in Portugal.
2. An advantage of the branch is that it requires no minimum share capital at the time of the incorporation.
3. The parent company will be fully liable for its debts and obligations in Portugal.
4. The branch is subject to taxation in Portugal: it pays the corporate income tax on profits derived from the country and VAT on sales.
5. The registration of the branch in Portugal is performed by means of a resolution from the parent company.
One of our attorneys in Portugal can give you complete legal advice and support for opening a branch in Portugal.
The subsidiary in Portugal
A subsidiary is a separate legal form from its parent company from overseas. It is a resident Portuguese company, most commonly a private limited liability company. Below is information about this entity which can be easily established in Portugal:
1. The subsidiary is completely independent of the mother company.
2. The connection between the two corporate entities is reflected in the shares ownership.
3. The limited liability company is registered with the Portuguese Commercial Registry.
4. There are no mandatory minimum capital requirements for this type of company in Portugal.
5. A subsidiary must have at least two shareholders who will each deposit a quota of at least one euro.
Conditions for registering a company in Portugal
A private LDA can be the proper structure for establishing a branch in Portugal and specific conditions need to be respected. For instance, the minimum share capital of EUR 5,000 needs to be drafted in a local bank account, in the case of branches. The declaration of opening a subsidiary or a branch in Portugal is normally issued by the parent company. Each structure needs to be registered with the tax authorities in Portugal, and also for paying the social contributions for the employees. Legal advice for business registration in Portugal can be solicited from our team of lawyers in Portugal at any time. They can also help you register the company for VAT.
Who can set up branches and subsidiaries in Portugal?
International companies can easily establish branches and subsidiaries in Portugal if these are considered proper business structures for their future operations in this part of Europe. For instance, for 100% independence, a subsidiary can be the ideal form of business in Portugal, with the mention that such a structure can have other activities too. On the other hand, branches are limited to the operations and the liability of parent companies from abroad, which might represent an impediment for those type of entrepreneurs looking for individuality in terms of business. In any case, one should be assisted from a legal point of view by our Portuguese attorneys and find out more about the formalities involved for opening such structures.
Appointing our attorneys as your representatives in Portugal
Whether you choose to form a branch or a subsidiary in Portugal, you need to respect one of the important conditions of having a legal representative. This is where our lawyers in Portugal can provide support, as they may act as representatives for your firm, with the help of a power of attorney. Feel free to ask us any questions in this sense and look for complete support for opening a branch or a subsidiary in Portugal. Also, if you are interested in obtaining the EORI number, please talk to our advisors.
Can I receive legal advice in case of company litigation?
Yes, if your branch or subsidiary is subject to any type of litigation, you can get in touch with one of our specialists and benefit from the legal support and assistance in this matter. Litigation cases might be complex, so it is not recommended to act on your own, without the support of a law firm in Portugal, especially for understanding better the rules and regulations in the country.
Why make investments in Portugal
Many reasons stand at the base of the decision of having a business in Portugal, and among these, the excellent geographic location plays a significant role. The Iberic Peninsula is among top destinations for international entrepreneurs who want to thrive in this part of Europe, in sectors like tourism, finances, agriculture, manufacturing and many more. The government is a solid supporter of overseas investments and this it is also seen in the applicable legislation that offers equal rights for business in Portugal. This means that both foreign investors and local ones have the same rights when it comes for business formation and development in Portugal. More than that, the incentives offered by the government in Portugal encourage foreign investments in a large percent. The Golden Visa Scheme was implemented in 2012 in Portugal and since then, the number of foreign investors increased. The mechanism is simple and entrepreneurs need to invest at least EUR 250,000 in Portuguese properties for obtaining residency in this country. They can also obtain the Portuguese citizenship after living in Portugal for at least 5 years and if additional investments are made. Below we have gathered some information about the business and the investments in Portugal:
- The total FDI stock in 2018 represented around 70.8% of the country’s gross domestic product.
- Approximately USD 4,895 million represented the FDI inward flow for 2018 in Portugal.
- 23.3% of the total investments made in Portugal come from Dutch investors.
- Most of the investments are directed to the financial and insurance sectors in Portugal, in a percent of 27.
For more information about how you can open a branch or a subsidiary in Portugal, plus details about the business options for foreign investors please contact the experts at our law firm in Portugal.