By: PEDRO SIMÕES
Pedro Simões is licensed in fiscal law and management, and is the Managing Director of ACOQ Consultancy Lda, based in Lisbon.
WHEN CREATING a small business in Portugal, there are certain things that need to be taken into account, including tax implications. For a better understanding, here are some frequently asked questions.
How can I set up a business in Portugal?
You can start your business by using your individual fiscal number. The other option is to create a company, which is more complex and time consuming.
What are the main differences and which is the
best option?
The right option will depend on the business itself. You need to study all the business information including expenses and expected annual Income. It will also depend on its activity.
Certain activities require a licence, and to have a license you must have a company. For example, for tourism you need to have a company with a minimum Social Capital of 12,500 Euros.
What if my activity is selling cars?
In this case you don’t need a licence. I would advise you to start the activity individually, because all businesses have some difficulties to begin with, and also to keep your setting up costs as minimum as possible.
What deductions can I have on the business?
Regarding the deductions for an individual business, you have two options. One is not to have a chartered accountant. For tax purposes this will bring you a yearly profit of 20% from the sales amount. Usually car sales have a lower margin, which brings us to the second option, which is to have a chartered accountant. This option will bring the business’s profit and loss to a real profit or loss, as opposed to a presumed profit.
You can deduct all expenses from wherever your business is based including rent, electricity and water. Even if you have employees, you can deduct all expenses from their salaries.
What are the company deductions?
The deductions on the Company are similar to the ones you will have when you are working individually (with a chartered accountant). However companies have higher setting up costs and maintenance costs. Another difference is the social security payments that need to be made.
What are the social security payments for individuals?
Social security payments are updated annually according to each year’s minimum wage. In 2008, the minimum needed to be paid monthly to the Social Security is 155.22 euros. Note that for the first year you are exempt of social security payments when you are working individually.
What are the Social Security costs for companies?
The minimum monthly social security cost for companies, this year, is 133.13 euros.
To sum up, small businesses require low setting up costs. A person working individually will have the same deductions as a company but with less cost. In order to make the best decision you must to take all into consideration, and not just each cost separately.
For example, a company in its third year of operation will have to pay a minimum yearly tax of 1,250.00 euros. This payment doesn’t take into consideration whether you have a profit or a loss.
The decision to make the best option is not always easy. There is lots of different information requiring your special attention.
For more information, please email contacto@acoq.net, call 219 205 225 or fax 212 468 352.
