Equivalent Foreign Entities in Portugal: Concept, Purpose, and Practical Use
Tomás Melo Ribeiro | Lawyer
Foreign investors and international groups may engage with the Portuguese market through the legal framework of equivalent foreign entities, which allows non-resident entities to participate in corporate, commercial, and operational activities without establishing a local subsidiary or branch, while complying with Portuguese corporate, tax, and regulatory requirements.
Foreign investors and international groups engaging with the Portuguese market often encounter the concept of an Equivalent Foreign Entity (Entidade Estrangeira Equiparada). While technical in nature, this legal mechanism plays a central role in enabling non-resident entities to participate in Portuguese corporate, commercial, and operational life in a structured and compliant manner.
This framework is particularly relevant in cross-border investment structures, international group operations, and situations where a presence in Portugal is required without the immediate establishment of a local subsidiary or branch.
Understanding the Concept
In Portugal, equivalent foreign entities are legal entities established outside Portuguese territory such as companies, associations, or other corporate forms that are recognised under Portuguese law for specific legal and regulatory purposes. Although these entities do not acquire Portuguese legal personality, they may nevertheless participate in Portuguese legal and commercial relationships, most notably as shareholders or partners in Portuguese companies.
Purpose and Role in Practice
Equivalent foreign entities are designed to facilitate foreign participation in Portugal while preserving strategic and operational flexibility. They allow foreign entities to engage with the Portuguese market without necessarily establishing a permanent commercial presence, provided that the applicable legal and tax requirements are met.
In practice, this mechanism is commonly used to hold participations in Portuguese companies, appoint representatives or managers for governance purposes, support corporate and tax structuring, and develop operational activities in Portugal in a controlled and proportionate way.
How Equivalent Foreign Entities Are Commonly Used
The use of equivalent foreign entities in Portugal typically falls into several recurring scenarios, each reflecting different commercial and operational objectives.
Single, Isolated Acts (Ato Isolado)
One of the most frequent applications concerns the execution of a single, clearly delimited legal act (ato isolado). This approach is used where a foreign entity needs to carry out a specific transaction in Portugal without any intention of pursuing ongoing commercial activity.
A common example is participation as a shareholder in a Portuguese company, either at the time of incorporation or through a subsequent acquisition of shares or quotas. In such cases, Portuguese law requires the foreign entity to be properly identified and registered for that specific purpose, ensuring compliance with corporate, tax, and anti-money laundering rules.
Registration under the ato isolado framework allows the foreign entity to subscribe share capital, exercise shareholder rights, and be formally recorded in the Commercial Registry, while avoiding the administrative and legal obligations associated with maintaining a permanent establishment in Portugal.
Temporary Activities in Portugal
Equivalent foreign entities are also frequently used where a foreign entity intends to carry out temporary activities in Portugal, typically for a period of less than one year. This scenario often arises in connection with defined-duration projects such as engineering works, consulting services, technical assistance, construction-related activities, or participation in public tenders and procurement procedures.
In these situations, the foreign entity does not seek to establish a branch or subsidiary, but still requires a legal framework that allows it to operate lawfully, enter into contracts, issue invoices, and comply with Portuguese tax obligations for the duration of the activity. Registration as an equivalent foreign entity provides legal certainty for both the foreign entity and its Portuguese counterparts, while preserving the temporary and limited nature of the presence.
Employment of Staff in Portugal
Another very common and increasingly relevant use of equivalent foreign entities concerns the hiring and maintenance of employees in Portugal, without the need to incorporate a local company or formally establish a branch.
In practice, many foreign companies require a local workforce to support their activities in Portugal, such as commercial representation, technical support, project management, research and development, or back-office functions, while keeping their core structure abroad. Registration as an equivalent foreign entity provides a legally recognised framework to employ staff locally, provided that Portuguese labour, tax, and social security rules are fully complied with.
Under this structure, the foreign entity may enter into employment contracts governed by Portuguese labour law, register as an employer with the Portuguese Social Security authorities, and comply with all employer-related obligations, including payroll processing, personal income tax withholding, and social security contributions. From an employment law perspective, employees benefit from the same statutory rights and protections as those employed by Portuguese companies.
This model is particularly attractive for international groups seeking to test the Portuguese market, centralise specific functions in Portugal, or support regional or EU-facing operations, while avoiding the administrative and structural complexity associated with setting up a local subsidiary. That said, careful analysis is required to ensure that the employment structure does not inadvertently trigger the creation of a permanent establishment for tax purposes, depending on the nature of the activities carried out by the employees and their level of autonomy.
Permanent Representation Without a Branch or Subsidiary
“A further relevant scenario concerns foreign entities that, due to their legal form or jurisdiction of origin, are not subject to registration as commercial companies in Portugal but nevertheless require a stable form of representation to interact with Portuguese entities or authorities.”
In such cases, registration as an equivalent foreign entity allows the appointment of a permanent representative in Portugal, enabling the foreign entity to enter into contracts, hold participations, and comply with regulatory and tax obligations, without formally constituting a branch or subsidiary.
Across all these scenarios, equivalent foreign entities serve as a practical tool for balancing legal recognition, operational flexibility, and regulatory compliance. They allow foreign investors to tailor their presence in Portugal - whether limited, temporary, or ongoing - while ensuring transparency, proper identification of beneficial owners, and alignment with Portuguese corporate and tax rules.
Registration and Ongoing Requirements
To act as a shareholder or partner in a Portuguese company, or to operate in Portugal under this framework, an equivalent foreign entity must be registered with the Portuguese Commercial Registry. This process typically involves submitting proof of the entity’s existence in its country of origin, together with its bylaws or articles of association, and filing the registration through a duly appointed legal representative.
Once approved, the entity is formally recorded and may exercise the rights associated with its role, including voting rights, participation in corporate governance, and receipt of distributions.
Where the equivalent foreign entity is established in a third country outside the European Union, Portuguese law also requires the appointment of a fiscal representative with a tax address in Portugal. This requirement reflects tax compliance and enforcement considerations, ensuring that the Portuguese Tax Authority has a local point of contact for notifications, communications, and the fulfilment of tax obligations. The fiscal representative acts as an intermediary between the foreign entity and the tax authorities, facilitating compliance and reducing enforcement risks.
Final Remarks
Equivalent foreign entities represent a practical and legally robust solution for non-resident entities seeking to engage with the Portuguese corporate and operational environment. They offer flexibility in terms of scope and duration, allowing for one-off transactions, temporary projects, local employment structures, or more stable forms of representation, depending on the investor’s strategic objectives.
Although they do not acquire Portuguese legal personality, proper registration ensures that equivalent foreign entities may exercise enforceable rights and assume obligations under Portuguese law. In practice, careful legal and tax planning is essential to ensure full compliance with Portuguese corporate, tax, labour, and anti-money laundering requirements. Particular attention should be given to documentation, notarisation, apostille formalities, and, where applicable, certified translations.
When properly structured, equivalent foreign entities allow investors to participate in Portuguese companies and operations efficiently and transparently, facilitating cross-border activity while keeping administrative and regulatory burdens proportionate.
LVP Advogados advises international clients on the structuring and registration of equivalent foreign entities in Portugal, including corporate participation, employment structures, and ongoing operations. Further information may be requested through our contact form.
