If you are considering starting a business in Portugal, you should know that it can be more complex and costly than in the US or UK. Creating an LLC in the US or a Ltd in the UK is cheap, easy, and requires relatively minimal maintenance. A Portugal limited liability company (called an LDA) is more expensive to maintain and requires more responsibility than other countries.
Our goal with this article isn’t to talk you out of creating an LDA in Portugal but to give you honest and transparent insight into what you’re signing up for.
Before jumping into the LDA deep end, you should understand the different ways you can operate in Portugal. There may be better options to do what you want to do.
This is what most people think of when starting a “real” business—a Portuguese Limited Liability Company, or LDA. With an LDA, your company is its own legal entity, and you are only liable for the invested amount of capital. It is the standard choice for businesses hiring employees, taking on clients or projects in Portugal, or planning to operate primarily within the country. Many of our clients own LLCs or Ltd companies in the US and UK but read on to understand the differences between those entities and LDA’s in Portugal.
Not sure yet if you want to go full LDA? You can also work as a freelancer in Portugal through “Atividade Independente.” This is similar to being self-employed and allows you to invoice clients without creating a formal business entity. This is often a great choice for an individual doing consulting, or maybe working for and invoicing a single company abroad. Sounds simple, right? That’s because it is. Let’s take a closer look at why this option might be appealing:
You can register for Independent Activity within a day, and have an accountant handle your VAT, Social Security, and business expenses for a reasonable cost. For simple situations this can be as cheap as €30/month, and for more complex situations (especially over €200,000 in revenue or lots of invoices) around €200/month. You aren’t required to hire an accountant if you’re under €200,000 in revenue, but many people do.
You save on the legal and accounting fees associated with opening and maintaining an LDA (for reference our LDA services start at €299/month). Your administrative burden is also substantially less.
With income less than €200,000 you’re allowed to use something called “Simplified Accounting” which is exactly what it sounds like. With this arrangement, Portugal assumes 25% of a person’s income will be business-related expenses, and if you can back this up with your actual spending, means that you’re only paying tax on 75% of your income. It’s a bit more complex than this, but for now, this is the easiest way to think about it. There are a lot of expenses that can be considered business-related, and 50% of some personal expenses (such as rent and utilities if you work from home) can also be considered business expenses.
If you make over €200,000/year you’ll use what’s called “Organized Accounting” which is basically traditional accounting that you’d use for a normal business. In this case, Portugal makes no assumptions about your expenses and your taxable income is based on your income minus expenses with appropriate documentation. More on documentation later as it’s EXTREMELY important.
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If you’re making over €200,000/year while invoicing multiple clients or planning to grow, you might outgrow this option quickly. If you’re making over €200k but just invoicing one client, you’re fine. Portuguese authorities start to get picky when your business begins looking more like a company.
Want to hire staff? Freelancing won’t cut it. You’ll need to transition into an LDA or another business entity for that.
Freelancing works fine if you’re a graphic designer or a consultant. But if you’re thinking about running a restaurant or a larger-scale business? The freelancer route isn’t a good option.
If your clients are spread out across the globe and your business isn’t tied to one location, this could be an attractive option. By incorporating your business in a different country, you can pay yourself through dividends, which often results in more favorable tax treatment. Other countries can be easier to do business in than Portugal as well, meaning less headaches.
– Your Business Isn’t Tied to Portugal: If you’re running a remote business, this might be your best bet. Think web development, consulting, e-commerce, etc.
– Global Clients: If your customers aren’t based in Portugal and your business doesn’t need a physical presence here, you don’t need your business entity in Portugal.
– Dividends = Win: Some countries offer lower tax rates on dividends, meaning you keep more money in your pocket. Portugal is one of those countries, especially if you have NHR.
– Local Business: Running a cafe, shop, or local business in Portugal? Opening an offshore company isn’t going to fly. You need to have a local entity for most on-the-ground business operations.
– Portuguese Customers: If you’re living in Portugal and most of your customers live in Portugal a foreign business entity isn’t going to cut it. You need a Portuguese entity.
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Now, back to the main question: Should you go for an LDA? Let’s be real—it has its perks, but it’s not without its challenges.
It depends on your situation. If you’re planning to scale, hire employees, or build a business primarily within Portugal, then yes, an LDA is the right step. It gives you more legitimacy, protects your personal assets, and allows for growth. But if you’re a freelancer or remote worker, or if your business isn’t tied to Portugal geographically, other options might suit you better.
At the end of the day, transparency is key. We’re not trying to discourage you from opening an LDA—but we do want you to be fully informed before diving into this complex yet rewarding adventure.
Portugal is a fantastic place to live and work, and it’s becoming a popular destination for entrepreneurs from around the world. But like any major decision, starting a business here requires careful thought, especially if you’re considering opening an LDA. Hopefully, this guide gave you some clarity on your options. Whether you go LDA, freelance, or global nomad, just know there’s no one-size-fits-all answer. It’s all about what works for you and your business.
And hey, if you do decide to go the LDA route, at least you can reward yourself with all the pasteis de nata you want—because if you’re doing all this admin, you deserve it!
Contact us today for a free consultation and let us show you how Elevate will help you take your business to the next level.