Portugal: Business by the Sea

02 Sep, 2014

Submitted by Patrick Dine on behalf of AICEP Portugal Global

The country of Portugal is writing new pages in its history books. Innovations and talented people and companies are building a new country. Think of Portugal as a symbol of high technology, high quality products, and a strong place to invest in or to live in.

Economic recovery is on track in Portugal. The country was under an economic adjustment program subsequent to the bailout in 2011, and has been committed to restoring public finances and improving competitiveness. The terms and conditions of the financial assistance have been implemented successfully and the assistance program ended in May of this year.

Portugal is well positioned for a steady and strong return to the international financial markets, placing itself as an attractive option for foreign investors to diversify investment portfolios. According to the Financial Times, “Portugal is the surprise hero of eurozone growth as exports and tourism prosper.”

Exports are expected to maintain strong growth, supported by the recovery of external demand, although with lower growth rates than in the period before the financial crisis. In nearly all different economic sectors, exports have grown in 2013. Tourism led this growth, surpassing 9.2 billion euros in volume. Other major increases included sectors such as machinery, clothing and textiles, and agrifoods, which demonstrate the versatility and variety of vibrant Portuguese economic sectors. Exports have held a critical role in the adjustment of the Portuguese economy, despite the relatively limited growth in the world economy from 2011 to 2013.

Down to Business
*Thirty-five percent of Portugal’s 20-year olds are enrolled in the country’s higher education system, and policy measures are in place to support skills upgrades and qualifications.

*The Portuguese economy has moved from a high dependence on textiles, footwear and other areas to new sectors involving higher technologies. For example, motor vehicles and components, electronics and pharmaceuticals.

*Portugal is an excellent entry point, or first test market for a foreign firm looking break into the European Union.

*Portugal is home to Europe’s largest car radio plant, owned by Bosch; the country is the main supplier of car radios to the European market.

The Economic Fundamentals
In 2013, exports of goods and services registered an increase of 5.7 percent, while imports registered an increase of 1.3 percent, in comparison to 2012.

Foreign investment in Portugal in the last five years (2009-2013) has shown, in gross terms, an annual average inflow of about 38.5 billion euros.

Manufacturing industries rank in second place among all sectors (22.5 percent) after wholesale and retail trade (33.1 percent). Financial and insurance activities represent 16.4 percent.
When it comes to policy reforms, the reforms on labor regulations, and the reform of the Portuguese corporate tax structure, are among the new measures that have a significant impact on attracting foreign investment.

In recent years, Portuguese employment law has undergone many changes and adjustments. Thus, after some years of legislative reforms, the Portuguese labor system is now more flexible, particularly in terms of organizing working time. The new sets of rules for dismissals and layoffs have been considered a positive factor for foreign investors.

The restructuring of the corporate tax has the goal of reducing existing rates, bringing them down to a level on par with other EU countries.

Below is a comprehensive set of conditions for foreign investors to consider when establishing businesses in Portugal.

• Qualified, motivated, flexible and innovation-oriented workforce:
*Students enrolled in tertiary education have increased over time and engineering and science areas already represent 43 percent. English, French and Spanish are the most common languages. Half a million foreigners live in Portugal, which means a wide native language pool is available.

*International partnerships with world-class education institutions offer cutting-edge research and doctorate and master’s programs, including those from the Massachusetts Institute of Technology, Carnegie Mellon University, the University of Texas-Austin, Harvard Medical School, and Germany’s Fraunhofer Gesellschaft.

• Strategic location and access to markets:
*Portugal is geographically situated on the west coast of Europe, with the Atlantic Ocean on the west and south, thus placing it in a strategic position within the business triangle of Africa, Europe and the Americas

*Portugal is a member of the European market, which represents nearly 500 million consumers. The country has access to the Portuguese speaking countries such as Brazil (one of the BRIC countries), Angola (one of the fastest growing economies), Mozambique, Cape Verde, São Tomé and Principe, Guinea-Bissau and East Timor, all with which Portugal has important economic and cultural ties, and which represents a 250 million consumer market.

Outdoors and Recreation
For those wanting an adrenaline rush, Portugal offers great challenges are found in its waves for surfing. Or take up windsurfing, sailing or paragliding, experiencing winds that are guaranteed to please. Skiing and parasailing also provide some amazing experiences.

• Excellent infrastructure:
Portugal has an impressive transportation network, from modern highways to deep sea ports and international airports. The country has a very reliable, fully digitized telecommunications network. Broadband penetration is spreading very fast across the country; in fact, Portugal ranks fifth among OECD countries in terms of percentage increase of broadband penetration.

• Favorable Costs:
*Industrial space costs: according to Cushman & Wakefield, Lisbon is the eighth least expensive location within 53 worldwide cities,

*Regarding the office market, Lisbon is the 16th least expensive city in a total of 68 worldwide cities.

*And in regard to labor costs, unit labor costs in Portugal are below the average of the EU.

• Ease of doing business – cutting red tape through the Simplex program:
Ninety percent of Portuguese public services are online. Portugal is considered a case study in e-government by the United Nations. Average time to set up a business in Portugal is less than one hour.

• Government incentives and tax benefits:
*Incentives (EU or Portuguese national budget) can be regional (fiscal or financial) job creation and training.

*The next EU Framework Programme 2014-2020 will be effective throughout the second half of 2014 and will dictate how companies may benefit from financial and fiscal incentives.

*Today, the incentives available for companies are mainly job creation incentives: there are several programmes that can be used cumulatively, allowing companies to benefit from a total cost saving of almost 40 percent of the cost of the jobs created. This aspect is very attractive to companies seeking to invest in the services sector and has been steering a lot of attention by foreign potential investors.

*There are also fiscal incentives for expats: Qualified expatriates can apply for a flat income tax rate of 20 percent for a maximum period of 10 years.

• Political and social stability:
Portugal has one of the lowest crime rates worldwide. The Portuguese society is known for welcoming foreigners and contributing to their easy integration into the country.

• Quality of Life:
Portugal’s lifestyle assets include a mild climate, reliable health care facilities, and highly recommended international schools.

AICEP Portugal Global is a governmental investment promotion agency, nationally-based, responsible for welcoming all foreign investment projects in Portugal. Depending on the project’s size or nature, it might need to transfer to other entities in charge. AICEP is a one-stop-shop agency in all phases of the investment process, monitoring projects from beginning to the end, and providing advisory and information tailor-made to the customers’ needs. AICEP´s Overseas Network features 40 offices integrated with the Ministry of Foreign Affairs, focused on identifying new businesses, markets and potential investors. For complete details, visit www.portugalglobal.pt.

Illustration by jscreationzs at Free Digital Photo.net