Start-ups in Portugal: Legal Foundations for Scalable Innovation

Margarida Resende  | Summer Law Student Intern

In an economic context increasingly shaped by innovation, digital transformation, and technological efficiency, the concept of the start-up has steadily established itself as a distinctive business structure, marked by its agile and innovative response to the demands of a constantly evolving global market.

From both an economic and social perspective, it is characterised as a young entity with high growth potential, focused on the creative resolution of specific problems through scalable business models, often anchored in technology and the disruption of traditional paradigms.

However, beyond its social or economic conception, it is the legal qualification of a start-up that truly determines its access to the various legal and tax incentive mechanisms available under Portuguese law. In this regard, Law no. 21/2023 of 25 May introduced a specific legal framework applicable to start-ups and scale-ups, clarifying the requirements and procedures necessary to obtain official status.

According to Article 2 of Law no. 21/2023, a start-up is defined as a legal entity that cumulatively meets the following criteria:

• it was incorporated less than 10 years ago, employs fewer than 250 people;
• has an annual turnover of less than 50 million euros;
• was not created through the transformation or spin-off of an existing company;
• is not majority-owned by a large enterprise;
• has its registered office or effective presence in Portugal, employing at least 25 people in the country.

In addition to these requirements, the company must also demonstrate that it falls within one of three additional profiles: being recognised by the National Innovation Agency (ANI - Agência Nacional de Inovação) as an innovative company, having secured venture capital funding (or investment from certified business angels), or having received investment from the Portuguese Development Bank (Banco Português de Fomento).

Even if the formal criteria for automatic certification are not fully met, the company may still obtain start-up status if Start-up Portugal recognises, based on appropriate justification, that its business model is innovative or demonstrates high growth and scalability potential.

Pursuant to Article 5 of Law no. 21/2023, start-up status is granted through a prior electronic notification submitted to Start-up Portugal via the Public Services Portal of the Portuguese Republic (Gov.pt). This procedure results in the issuance of a digital certificate, valid for all legal purposes, and the company’s registration in a public list of officially recognised start-ups. The granting of this status provides access to a wide range of incentives - fiscal, labour-related, and contractual - designed to promote innovation, attract investment, and support the recruitment of qualified talent.

Particularly noteworthy is the Tax Incentive for Scientific Research and Innovation (IFICI), set out in Article 58-A of the Tax Benefits Code (EBF), which allows employees and board members of certified start-ups to be taxed under the Personal Income Tax (IRS) at a reduced rate of 20% on net income from categories A and B. The regime can be applied for a period of 10 consecutive years and may also grant exemptions in certain cases. For foreign investors or residents who take on management or supervisory roles, such as directors or board members, this regime offers a means of optimising their personal tax burden associated with active participation in the company.

In addition to the reduced tax rate, the IFICI can be combined with exemptions on foreign-sourced income, making it particularly attractive for international profiles. Certification of the start-up, carried out by Start-up Portugal, is a mandatory requirement for accessing the regime.

Additionally, start-ups may benefit from other relevant tax regimes such as SIFIDE (the System of Tax Incentives for Business R&D), contractual tax benefits for productive investment under the Investment Tax Code, as well as funding and technical support under the Portugal 2030 framework and programmes managed by ANI and the Portuguese Development Bank (Banco Português de Fomento).

The creation of a start-up must be based on an idea that is both economically viable and legally feasible, meaning that even during the exploratory phase, it is essential to protect intangible assets through industrial property registration, non-disclosure agreements (NDAs), and preliminary validation of the business model via MVPs - Minimum Viable Products, interviews, and market analysis.

Once the exploratory phase is complete, the formal incorporation of the company follows. Portugal currently offers simplified and efficient solutions, such as the “Empresa na Hora” regime (literally “Company in an Hour”), which allows for the incorporation of a limited liability company (Lda.), public limited company (S.A.), or single-member company at one-stop shops, using pre-approved articles of association. The choice of legal form (Lda., S.A. or single-member company) should be based on the type of activity, number of founders, governance strategy, and appetite for investment. Defining the corporate purpose, drafting the articles of association, and allocating initial capital are structural decisions that can have a lasting impact on the project's trajectory, and mistakes at this stage may significantly affect the company’s ability to scale, attract investors, or implement variable remuneration mechanisms.

Financing plays a critical role in the development trajectory of a start-up: in the early stages, it is common to rely on sources such as personal capital, bootstrapping, support from personal networks, business angels, or microcredit schemes. As the project evolves and consolidates its business model, access to more structured forms of financing becomes possible, namely through venture capital firms (VCs), institutional support such as that provided by the Portuguese Development Bank, and public or EU-level instruments, including incentive programmes and European funds. Legal support is essential in structuring financing instruments, protecting the founders, and defining key contractual clauses such as exit mechanisms, anti-dilution provisions, and lock-up agreements.

Following incorporation and capitalisation, the next stage is development and consolidation; it is at this point that many start-ups turn to incubators, accelerators, or innovation hubs. These structures offer more than just physical space, as they provide access to specialised mentoring, training, networking opportunities, and, in some cases, direct connections to investment funds. As such, choosing an incubator should be a careful and strategic decision, aligned with the actual needs of the project.

Finally, the relationship between founders and investors must be managed with predictability, transparency, and balance. As the start-up grows, new challenges arise:

How should internal governance be structured?

What decision-making and control mechanisms should be put in place?

How can talent be rewarded without diluting capital?

How should a potential exit, through sale, merger, or IPO, be prepared?

The legal framework must evolve in parallel, with flexible shareholders' agreements, well-defined side agreements, and mutual protection clauses. At this stage, the role of the lawyer is essential, not merely as a technical drafter, but as a facilitator bridging strategic vision and legal viability.

Creating and developing a start-up in Portugal is an ambitious yet increasingly achievable challenge: the ecosystem is dynamic, the tools are available, and the legal framework is solid. Still, between the idea and successful scaling lies a complex path where every decision, whether corporate, tax-related, or contractual, can shape the future of the project. Experience shows that start-ups which adopt a structured, multidisciplinary, and legally supported approach from the outset are also those that most effectively earn the trust of the market and investors.

Whether you are launching, certifying, or scaling your start-up in Portugal, we are here to assist you with the legal guidance and support needed to successfully structure your venture and support sustainable growth.