Hiring Employees in Portugal as a Foreign Company

Portugal’s skilled workforce and attractive labour market are increasingly appealing to international businesses. For many foreign companies, however, the idea of setting up a subsidiary or branch office in Portugal can feel like an unnecessary first step when the main goal is simply to hire one or more employees to work primarily from Portugal, often on a remote basis.

The good news is that Portuguese law provides a straightforward solution. A foreign company can employ staff in Portugal without incorporating a local subsidiary. By registering as a foreign employer with the Portuguese authorities, the company obtains a Portuguese tax identification number (NIPC) and a Social Security number. This allows it to place employees on payroll under its own name and to comply with all statutory obligations for income tax withholding, social security contributions, and employment reporting, without the cost or complexity of creating a Portuguese company.

The registration procedure is relatively straightforward but must be handled carefully. A certificate or official document proving the company’s legal existence in its country of origin must be submitted. This document must be up to date, valid, and issued by the competent registry authority, either bearing the handwritten signature of the competent officer or in a format that allows verification of the electronic signature. If the foreign entity is established outside the European Union, it must also appoint a fiscal representative in Portugal, who will act as liaison with the Portuguese Tax Authority and ensure the timely filing of tax returns and compliance with administrative requirements.

It is important to note that once registered, a foreign employer is subject to the same obligations as a  Portuguese company. Portuguese labour law is comprehensive and protective of employees. Even if an employment contract applies foreign law, Portuguese mandatory provisions will override conflicting terms where the work is performed in Portugal. This means that minimum wage, maximum working hours, holiday entitlements, and dismissal rules will always follow the Portuguese Labour Code.

For this reason, it is advisable to use a compliant  Portuguese employment contract, or at least a bilingual version, to ensure clarity and enforceability in local courts. Contracts should specify the job role, remuneration, working hours (up to 40 per week), annual holiday entitlement (at least 22 working days), and any additional benefits or conditions. Although Portuguese law permits certain types of contracts of less than six months to be made verbally (Article 110º, nº 1 of the Portuguese Labour Code), a written contract is strongly recommended to avoid disputes and to ensure that all mandatory terms are properly documented. Open-ended (permanent) contracts are the default under Portuguese law, although fixed-term contracts are permitted in certain circumstances.

When budgeting for remuneration, employers should also account for statutory entitlements such as the “13th” and “14th month” salaries, usually paid in summer and December as holiday and Christmas allowances. In practice, this means that the annual salary is divided into 14 instalments rather than 12. Employers are further required to observe limits on overtime and to pay the applicable premium rates for any additional hours worked.

Compliance with payroll obligations is another essential aspect of hiring locally. Employees must be registered with Portuguese Social Security before starting work, with the employer contributing 23.75% of gross salary each month. Employee contributions (11%) are withheld at source and remitted together with the employer’s share. Employers must also withhold income tax (IRS) according to progressive tax tables and transfer the amounts to the Tax Authority. Payslips must be issued monthly, detailing gross pay, deductions, and net pay, and records must be kept available for inspection by the labour authorities.

Failing to meet these obligations can have serious consequences. The Portuguese Labour Inspectorate (ACT – Autoridade para as Condições de Trabalho) actively monitors compliance and may impose fines, suspend activities, or embargo operations if violations are found. Employees can also bring claims in court, and Portuguese courts generally side with employees if procedures are not properly followed. Unlike in some jurisdictions, “at-will” termination does not exist in Portugal: dismissals must be based on lawful grounds and follow strict procedures.

A common pitfall for foreign companies is to engage local workers as “independent contractors” to avoid payroll registration. While contracting arrangements are permitted, they must reflect genuine independence. If, in practice, the contractor works fixed hours under company supervision and utilises company resources, the relationship may be reclassified as an employment arrangement. In such cases, the company may become liable for retroactive contributions, penalties, and employee rights, including holidays, overtime, and dismissal protection.

Registering as a foreign employer is often the most efficient way to access Portuguese talent without creating a permanent establishment. It is particularly suitable for companies hiring a small team, retaining a key individual, or testing the market before establishing a local subsidiary. Establishing compliance at an early stage provides vital protection against disputes, reputational damage, and potential financial liabilities.

Labour and tax rules are periodically updated (for example, the minimum wage is reviewed annually), so monitoring legal developments is essential. Having local legal support from the outset ensures that contracts, registrations, and payroll remain compliant and that you are kept informed of any changes affecting your obligations.

Expanding into Portugal offers exciting opportunities, and with the right legal framework in place, foreign companies can focus on building motivated teams while enjoying the advantages of the Portuguese market. Our team is experienced in guiding international businesses through each step of this process, from registration and contract drafting to ongoing compliance, ensuring a smooth and secure path to hiring in Portugal. 

If you would like tailored advice or assistance with your company’s plans, please do not hesitate to contact us.