Portugal’s economy has had its share of ups and downs, but it is currently bouncing back and growing in the tourism, agriculture, and energy industries. With a large workforce, your company can benefit from expanding to Portugal and adding some of this talent to your payroll. However, you must first decide between multiple Portugal payroll options and set up your payroll according to local labor laws.
Globalization Partners can help. Our Employer of Record solution allows us to hire employees on your behalf and add them to our established PEO and payroll. You do not have to worry about compliance or risk, as we take on the burden for you.
Taxation Rules in Portugal
Taxation rules in Portugal differ for employees and employers. All employees contribute 11% of their salary each month to social security coverage. Employers match it with 23.75%. The country uses a progressive tax scheme through which employees owe a higher percentage as their salary increases.
Employers should expect to pay several corporate income taxes (IRCs) at varying rates, including:
- Corporate tax of 21%
- State surcharge tax between 3% and 7%
- Up to 1.5% municipal surcharge, depending on the municipality
- Maximum of 31.5% combined tax rate
Portugal Payroll Options for Companies
Companies have four main options for setting up Portugal payroll:
- Remote: Subsidiaries with a larger parent company can choose to run one payroll for both employees from Portugal and the parent company. Keep in mind that employment compliance laws will differ between the two groups.
- Internal: Larger companies committed to keeping a strong presence in Portugal can run payroll directly out of their subsidiary. This is the most expensive option and requires hiring HR staff to run payroll.
- Portugal payroll processing company: Businesses that do not want to set up their own Portugal payroll can outsource with a local Portugal payroll processing company. However, you will still be held liable for all matters of compliance if you choose this option.
- Outsourcing with Globalization Partners: The best Portugal payroll outsourcing option is through Globalization Partners. We’ll set up your payroll and take on matters of compliance, so you can focus on setting up your new branch.
How to Set Up a Payroll in Portugal
To set up your Portugal payroll, you’ll first need to establish a subsidiary or find a subsidiary alternative. Then you must register with the country’s Tax Authority and Social Security. Many of the steps require a power of attorney, and it can take up to 30 days to fully incorporate. You will also need an in-country bank account to pay employees. Or you could work with a global PEO, like Globalization Partners. Through our established subsidiary, you can start hiring and compensating employees right away.
The best way to hire employees is to draft a strong, written employment contract that outlines specific entitlement and termination terms. Since probationary periods are common in Portugal, it is vital to mention this period’s length as well as the number of days it can extend. Typically, termination notice depends on how many years an employee has worked for the company. Employees are entitled to severance pay if they were terminated for objective reasons.
Payroll Processing Company in Portugal
If you are ready to expand to Portugal, we can help run your payroll and keep you compliant. Contact us today for more information.