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 typically 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 a 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 “Actividade 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, running a one person business, or maybe working as a contractor for a client 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 either do it yourself or have an accountant handle your VAT, Social Security, and business expenses for a reasonable cost. 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.
The exact calculation of your tax can be a bit complex, so we’ll simplify it way down to try and make it more understandable.
With income less than €200,000 you’re allowed to use something called “Simplified Accounting” which, as it’s name suggests, is much more simple that standard business accounting (called “Organized Accounting”). With Simple Accounting, Portugal assumes that a certain amount of your income (25% for many service-related professions) will be business-related expenses, and if you can back this up with your actual spending, it means that you’re only taxed on 75% of your income. Again, it’s a bit more complex than this, but for now this is a simple 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. We’ll talk more about documentation later as it’s extremely important.
If you have a business in Portugal or would like to start one, we’d love to be of service. Contact us to set up a free consultation.
If you’re earning over €200,000 per year, invoicing multiple clients, or planning to expand your activity, the simplified regime may no longer be the most suitable option. In some cases, authorities may assess whether the structure of your business more closely resembles a formal company, which could lead to different tax or reporting obligations.
Thinking about hiring employees? If so, the Independent Activity may no longer be suitable. In most cases, you’ll need to transition to an LDA or another formal business entity to meet employment and legal requirements.
Independent Activity can be suitable for individuals offering services like graphic design or consulting. However, if you’re planning to operate a physical business, such as a restaurant or a larger-scale operation, you’ll may be better suited to a formal business entity like an LDA to meet legal and operational requirements.
If your clients are based internationally and your business doesn’t require a physical presence in Portugal, setting up a company in another country may be worth considering. In some cases, this structure allows you to pay yourself through dividends, which may be taxed differently depending on your residency and the jurisdiction where the company is incorporated.
This option can sometimes offer a simple setup or reporting process, depending on the country involved. However, it’s important to carefully assess local requirements, residency rules, and how the structure aligns with your activity in Portugal.
– Your Business Isn’t Portugal-Based: If you’re operating remotely — in fields like e-commerce, development, or consulting — and have no fixed presence in Portugal, another jurisdiction might be an option worth evaluating.
– Global Clients: When your customers or contracts are spread across countries, it may be possible to operate without establishing a Portuguese business entity — although this depends on various tax and residency considerations.
– Dividend Taxation: Depending on your personal tax residency and the countries involved, dividend distributions may be treated differently than direct income. Portugal’s NHR regime, for example, may offer beneficial treatment in specific cases.
– Local Business: If you’re running a physical business in Portugal — like a café, shop, or service-based company — local registration is generally required to meet legal and tax obligations.
– Portuguese Customers: If your customer base is primarily located in Portugal and you live here, setting up a foreign company is unlikely to meet local compliance requirements.
Contact us today to schedule a free consultation and learn more about how our services can support your business in Portugal.
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.
Administrative Requirements:
In Portugal, maintaining a business involves ongoing administrative responsibilities. Unlike in some countries where setup can be minimal, Portuguese regulations require regular accounting, tax submissions, and legal compliance. Setting up an LDA typically involves legal support, and accounting must be managed on a recurring basis.
Costs:
An LDA generally involves higher ongoing costs than operating as an independent professional. These may include regular accounting services, monthly filings, and VAT compliance once your revenue surpasses specific thresholds.
Documentation:
Portugal has strict documentation standards. For example, invoices must include the correct tax ID, and missing or incomplete documentation may prevent legitimate expenses from being deducted for tax purposes.
Closing a Business:
Winding down an LDA is a structured process. It typically requires the involvement of a legal advisor to review your company’s assets, liabilities, and tax position, and to ensure proper closure procedures are followed in line with local regulations.
It depends on your situation. If you’re planning to scale, hire employees, or build a business primarily within Portugal, then yes, an LDA may be 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!
Contact us today for a free consultation and we’ll discuss how Elevate Accounting can support your business in Portugal.