Portugal Global Payroll & Tax Information Guide

Jun 20, 2018 | Country Guides

Portugal is becoming an increasingly attractive location for multinational expansion due to its skilled workforce, strategic location and ease of doing business. 

Our Portugal Payroll and Tax Guide provide multinationals with the key points needed for business expansion. 

 

Geographically, Portugal is the westernmost country in Europe, bordered by the Atlantic Ocean to the west and to the east, a land border with Spain. As a result of its strategic location it has become historically known as an international trade hub for merchants from across the globe. In recent years, the country is continuing with this trend and becoming an international destination for a large number of multinational businesses.

Traditional industries within Portugal include forestry, agricultural produce, fishing and mineral production for the global markets. In more recent times, electronics, textiles, chemical and the automotive industry emerged, with the aerospace, biotechnology and IT becoming increasingly significant industries in the country.

In 2018, Portugal was 29th on the World Bank’s Ease of Doing Business survey with an easy to navigate bureaucracy, a range of government incentive packages and an extensive support structure for new and existing businesses.

Detailed below are key points companies should consider when setting up in Portugal from a Global Payroll Perspective.

 

Basic facts about payroll in Portugal

Employers are obliged to deduct employee contributions from the employees’ gross wage and transfer tax deductions on a monthly basis to the Social Security Administration. These contributions cover benefits including sick leave, pensions, family benefits, parental leave and unemployment insurance.

All employers are obliged to file taxes and remit on a monthly basis and must summarise withheld amounts and present to employees by January of each year.

The tax year in Portugal runs from January 1st through to December 31st.

 

Income Tax Rate Charts 

Taxable income for employees based on the employees gross wage minus any allowable deductions. These deductions can include, union costs, social security contributions, deductions for dependents and subscriptions to professional bodies.

 

Portuguese Tax Band

Annual Income Income Tax Rate
Up to €7,091 14.5%
€7,092 to €10,700 23%
€10,701 to €20,261 28.5%
€20,262 to €25,000 35%
€25,001 to €36,857 37%
€36,857 to €80,640 45%
Over €80,641 48%

 

Minimum Wage

As of January 2018, Portuguese minimum wage increased to 14 payments per year at €580. This is usually divided for payments on €649.83, to be paid in monthly instalments.

In addition, on December 15th of each year employers are obliged to issue a Christmas bonus to employees equating to the employees monthly wage.

For each pay period, employers must provide employees with a pay slip detailing basic pay, any deductions made and benefits.

 

Overtime

If an employee works more than 8 hours per day or 40 hours per week, employers are obliged to pay the employees wage with an additional % for the first hour completed and 75% thereafter.

Overtime for employees within small companies is limited to 175 hours per year. The limit for larger businesses is 150 hours per year. Any overtime completed by employees must be reported to the Ministry of Strategy and Planning.

 

Hours of work

The average work week is approximately 40 hours per week, breaking down as 8 hours a day over 5 days. For each 8 hour day, employers must provide employees with a one to two hour break period.

 

Holidays

Almost all employees working a 5-day week within Portugal are entitled to a total of 22 days paid leave per calendar year inclusive of 9 mandatory paid public holidays.

 

Leave

Employees wishing to take maternity leave are entitled to up to 12 days off with their full salary paid by Social Security. The total number of days can be taken in its entirety after giving birth or can be divided into 30 days of leave prior to birth and the remaining 90 days after the birth.

In the case of paternity leave, fathers are entitled to take up to 5 days total leave.

Sick leave can be taken by employees once they have made at least six months contributions to Social Security. Payment of sick leave is partially paid by Social Security and in most cases, employers supplement this pay.

 

Foreign Employees in Portugal

 

Visa Requirements

EU Citizens are entitled to free entry and stay in Portugal with no time limit.

If an EU member wishes to stay longer than 3 months, an application should be made to the Foreign Nationals & Borders Service or the local municipal council for a residency permit.

Citizens outside the EU must apply for a temporary visa, residents visa or residence permit to live and work in Portugal. A resident’s visa allows the employee to stay in the country for a total of four months. If the employees wishes to stay longer, a residence permit must be applied for.

 

Taxes

Foreign workers in Portugal are entitled to the same rights in terms of tax and workplace laws as Portuguese citizens.

Tax is a flat rate of 25% for income from employment, professional services and business.

To learn more about payroll in Portugal and for further information on Payslip’s international payroll services contact us today!

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