portugal vs estonia: where to start your company

Comparing the features, process, pros and cons of company formation in Portugal vs. Estonia. Includes a handy quick-reference table showing the key features side-by-side.

We get a lot of questions from e-⁠residents asking for comparisons of company formation in Estonia with other countries. You asked, and we answered. Since last year, we’ve commissioned research comparing different business environments from around the world, particularly from the perspective of foreigners starting private limited companies. And now it's time to consider Portugal vs Estonia!

We’ve already published on the blog these comparisons with Delaware, Ireland, Singapore, and the UK. This guide to Portugal is the next in this series. Estonia has many advantages as a business destination, especially for e-⁠residents. But in this piece, we focus on Portugal’s business environment for foreign entrepreneurs and highlight key differences with Estonia. We’ve also provided a handy quick-reference table with vital information at-a-glance. 

Portuguese company tax and business environment

• In recent years, Portugal has experienced an economic resurgence, although further growth has been somewhat hindered by high government debt.
• Portugal is a hub for digital nomads and location independent entrepreneurs to live and work in Europe.
• Portugal offers a special tax scheme for non-habitual residents (NHR) to attract talent in high value-added activities, as well as Ultra and High Net Worth Individuals and their families.
• StartUP Portugal is an active promoter of entrepreneurship, focusing on Portugal’s startup ecosystem, financing and internationalisation.

The Portuguese economy has started to grow again despite being struck by the pandemic. The country's leading economic sectors are financial services, telecommunications, and tourism. Portugal has high public sector debt, which hinders productivity, investment and growth prospects. While it’s made some progress in terms of digitalisation, the country still lags behind advanced digital societies like Estonia. 

Portugal’s e-residency program –– which would allow individuals to form and run their companies remotely –– is in the works and has yet to be launched. Until then, incentives are in place to attract people to live in Portugal. The country offers a special tax scheme for non-habitual residents (NHR). This scheme as well as the lucrative golden visa have attracted many foreigners to settle in Portugal, including high-net worth expats and digital nomads. NHRs are individuals residing in Portugal for more than 183 days, consecutive or not, over 12 months and are deemed Portuguese residents for tax purposes. This program gives tax breaks on foreign income like the pension, which is taxed at only 10%. Dividends and royalties may be tax-exempt, and some foreign income may be taxed at a flat rate of 20%. There is also no wealth or inheritance tax in Portugal. 

Company formation in Portugal vs Estonia

• Foreigners can open a company in Portugal online with the help of an authorised agent.
• Non-EU residents will need to obtain a visa to be able to open a business in Portugal.
• An LDA may be opened and run entirely remotely but requires a local agent.
• Portugal has announced that it will offer an e-⁠residency program, but so far has only provided preliminary information and not launched it yet.

With an e-⁠residency program in the works, Portugal could soon become a virtual destination for non-EU/EEA citizens looking to start a European company. In the meantime, some prerequisites may have individuals looking for alternatives.

There are several routes for foreigners to obtain a Visa to open a company in Portugal. EEA/Switzerland nationals can get a Certificate of Registration if they have lived in Portugal for less than five years. Other nationalities will require a work visa and a residence permit. One option is the Golden Visa, which requires a minimum investment in one of many investment classes.

Foreigners who are non-residents may apply to start an LDA (Private Limited Company) remotely, but this requires the help of an authorised agent. Other routes include the Portuguese Tech Visa and the Startup Visa, which are in place to help grow the startup community in Portugal.

To open a business in Portugal, you must have or obtain the following documents: 

• A scanned copy of your passport
• Proof of residency
• Proof of profession
• A Portuguese NIF (Tax Identification Number)
• A Portuguese NISS (Social Security Identification Number)
• A tax number from your country of residence 

The personal tax number (NIF) can be obtained online via a resident representative or a third party support service. You may be asked to translate the documents into Portuguese and authenticate them. 

Estonian e-Residency does not require a Visa, nor relocation, nor the help of an authorised agent. E-residents can start a private limited company or OÜ in Estonia completely online. If their company’s management board has a foreign address, all they will be required to do is designate a local contact person in Estonia. They can find many such representatives on the e-⁠Residency Marketplace. 

Estonia accepts e-Residency applications and business registrations in English and offers many sample documents online in English, particularly useful for startups.

Portuguese company types

Once you meet the requirements –– a visa and work permit or a Certificate of Registration for EU nationals –– you can open many different types of businesses. Portugal has several company types to choose from. The most popular choice for foreigners is the ‘Sociedade por Quotas’, a private limited liability company, with at least two partners (LDA). Individuals can apply to register an LDA remotely via an authorised agent with a legal address, avoiding the visa requirement. You may need the help of a lawyer if you don’t use the Empresa na Hora service. 

For an LDA, statutory capital, or share capital is decided when registering the company. However, by law, it must correspond to the number of shares (referred to as quotas) held by the shareholders. The value cannot be below €1.00, the minimum nominal value of the quota set by law.

The most popular business form in Estonia for both citizens and e-⁠residents is the limited liability company (OÜ). E-⁠residents can easily open a company entirely online with their digital IDs — without having to travel to Estonia. The minimum share capital is €0.01 per shareholder.

Business banking in Portugal

Foreigners, whether resident or non-resident, will find banks in Portugal willing to open a business bank account for them. Applicants will first need to get a Portuguese NIF (Tax Identification Number) and present their photo ID, proof of address, proof of employment and NIF to the bank. Non-resident accounts will likely require more documentation and carry more restrictions. Some banks might open an account online, however most traditional banks will require at least one visit to validate your identity in-person. Business bank accounts offered by fintechs like N26 might be a more suitable option in such cases.

In Estonia, there are three options for business banking. 

1. Open a business account with a FinTech company, like Wise, Intergiro, or Payhawk, which have more flexibility regarding which clients they accept. Plus, these companies can open an account online. 
2. Open a business account with a bank from another EU or EEA member state. This is a good option for entrepreneurs with a good client relationship with another bank.
3. A traditional bank account in Estonia. You can apply online for pre-approval, but eventually, you will need to visit the bank in person to confirm your identity. Estonian banks require your business to have a strong connection to Estonia.

Running your company in Portugal

• A corporate income tax return must be filed annually by May 31.
• The standard corporate income tax rate in Portugal is 21%.
• Portugal offers many public digital services for running your business.

There are several obligations for running a company in Portugal. 

Corporate income tax returns must be filed annually by May 31 of the year after the year of taxable income. Portugal’s corporate income tax rate is 21%. 

In addition, companies must prepare a yearly statement of accounts and a directors’ report. The specifics of what’s included in the directors’ report depend on the type of business registered with the Commercial Companies Code. 

In Estonia, the corporate income tax rate is 20% on net distributed profits. Any profits reinvested into your company are untaxed. This means that corporate profits are not taxed until they are distributed as dividends, capital reductions, share buybacks, or other expenses and payments that do not have a business purpose.

In Estonia, an annual report must be submitted within six months after the end of the financial year, which can be done fully online. Income and social tax returns must be submitted by the 10th of every month, and VAT returns must be submitted by the 20th of each month. This, too, can be done entirely online.

While the e-Portugal platform makes it simple to make changes to basic information like an address, changing board members can be complicated. This process has several steps, which depend on the company type, and generally takes at least 15 days.  

In Estonia, changing board members is more straightforward, especially as an e-⁠resident because more than likely, the shareholder and management board member will be the same person. The existing management board member must file a petition to the Company Registration portal. It must be digitally signed along with all accompanying documentation like minutes of the general meeting or the shareholder's decision. Templates are available in English for this, and the state fee is €18.

Portugal offers many digital public services, which e-⁠residents of Portugal will benefit from. Estonia’s digital services offer even more value through the e-⁠Residency program’s large community. Estonia’s e-⁠Residency has brought together many worldwide business owners keen to share knowledge and processes with fellow e-⁠residents. In addition, almost all business-related tasks can be done online, including most transactions that a notary must authenticate.

Comparison: Portugal vs Estonia (e-⁠Residency) in numbers 

The following table compares the process, cost, and services available to those wanting to form a company in Portugal versus Estonia.

Advantages of company formation in Portugal

1. Availability of startup support 

The startup scene in Portugal is mainly based in Lisbon. The city is becoming known for programs like Web Summit, Startup Grind Lisbon, and 352. Government-backed Startup Portugal targets enterprises, SaaS, fintech, and digital nomads.

Portugal offers several types of lines of credit for small and medium-sized enterprises through “SME Invest/Growth" and "Capitalizar”, which have a total of €20.2 billion in stock and long-term maturities of up to seven years. Aimed to support fixed investment and SME working capital, these lines of credit give you subsidised risk-sharing public guarantees that cover 50%-75% of the loan.

Capitalizar supports the capitalisation of Portuguese companies, relaunches investments, and facilitates access to funding for companies. The country also has tax measures in place to encourage strong capitalisation.

2. Favourable tax conditions

Until Portugal’s e-⁠residency program is up and running, it is yet to be determined what tax benefits there will be for e-⁠residents. But, for those willing to relocate to Portugal, it has become a relatively tax-friendly country. Individuals registered as non-habitual residents (NHR) can benefit from a special tax scheme. It offers a lower income tax rate to foreigners (20% on Portuguese income) and tax exemptions on most forms of foreign earned income. 

Meanwhile, there is also no wealth or inheritance tax in Portugal, and foreign pensions are taxed at 10%, enticing wealthy individuals to move assets into the country.

The country has also focused on simplifying the tax filing and payment process by adopting new software, decreasing corporate tax, and improving the e-filing platform. 

3. e-Services for the ease of running a business

Portugal already has many digital public services in place for both private persons and businesses. e-Residents will most likely be given a digital identity similar to the one available for Portuguese residents. With this, you’ll be able to log into the e-service portal, making things like filing taxes online much easier.

Where to form your company: Portugal or Estonia?

Portugal is in the process of turning a once confusing system into an all-in-one business application system, which will make it easier to establish a new company online. Though not up and running yet, the system is planned to enable additional services to be handled online, like opening a bank account, obtaining a tax number, buying accounting services, and remote identification. In some cases, applications and documents may need to be handled in Portuguese.

The tax incentives in place for foreigners willing to move to Portugal through the NHR tax scheme offers many benefits to doing business there. And what taxes you do have to pay can be done much easier than in the past, after corporate tax was decreased and the e-filing platform was improved. However, these incentives are in place to attract individuals to come and live in Portugal. Currently, Portugal has no options for running a business entirely remotely without the help of an intermediary.

Despite its expanding digital solutions, there is still a lot of red tape and confusion surrounding running a business in Portugal. The difficulty of navigating Portugal’s system is one of the top complaints from foreign business owners. While Portugal’s e-⁠residency program is still being streamlined, translated, and digitised, for the moment, non-EEA residents still need a visa to access digital services and open a company. And opening a company online can be expensive (up to €700). While the platform and business registration may be digitised, day-to-day operations for Portuguese businesses are still very much on paper.

Meanwhile, Estonia is significantly ahead of Portugal regarding government services — 99% are already digital. There is a solid support system in place for foreign entrepreneurs, including many community-led initiatives, like EERICA (Estonian e-⁠residents International Chamber Association) and country-focused Facebook groups, not to mention the e-⁠Residency Marketplace.

Deciding where to form and run a business depends on many factors like ease of set-up, costs, taxation, banking options, and remote management possibilities, to name a few. We hope that this comparison of running a business in Portugal vs Estonia will help you decide where to start.

Looking for more country comparisons for starting your company? Take a look at e-⁠Residency country comparison articles to discover what unique benefits and opportunities different countries offer for entrepreneurs.

We’d like to thank PwC Portugal for the extensive research provided for writing this comparison, Do All Write for content writing, and Akkadian / SPIN Unit for preparatory research.