Hiring an Employee in Portugal Without Opening a Local Company

INLIS Consulting
Jul 24
3 min read

At INLIS Consulting, we help international employers navigate this complex landscape by handling all administrative, tax, and payroll requirements in full compliance with Portuguese law.

How to Stay Compliant with Portuguese Law — A Guide by INLIS Consulting

Did you know that you can hire an employee in Portugal without creating a local entity? This approach is increasingly popular among international companies looking to expand their talent pool or retain remote employees who wish to relocate to Portugal. However, this setup must be carefully structured to comply with Portuguese tax and labor regulations and avoid unintended liabilities.

What Is the Legal Framework?

While there is no specific Portuguese law that outright prohibits a foreign company from hiring an employee locally, the general principles of Portuguese labor and tax law must be observed. This includes:

Decree-Law No. 28/2019, governing invoicing and tax obligations.
Law No. 110/2009, which establishes the Social Security Contribution Code.
Código do Trabalho (Portuguese Labour Code), which outlines employment contract requirements.

Portugal does not require a company to register as a local legal entity for the sole purpose of hiring an employee, as long as certain conditions are met to avoid being classified as having a Permanent Establishment (PE) under OECD guidelines and Portuguese tax law.

Key Conditions to Avoid Permanent Establishment

To avoid being deemed as having a permanent establishment in Portugal (which could trigger local corporate tax obligations under Código do IRC), it’s crucial to ensure:

🚫 No local direct sales activities or business prospecting.
🚫 No fixed office or coworking space rented in the name of the company or employee.
✅ The employee works 100% remotely from their residence in Portugal.
✅ All activity is documented as being independent from any local commercial infrastructure.

Administrative & Tax Procedures

Hiring a Portuguese-based employee without setting up a local entity involves several administrative steps:

1. Obtain a Portuguese Tax Identification Number (NIF)

Every individual and company operating in Portugal must have a NIF (Número de Identificação Fiscal). This is required for tax reporting, social security, and payroll compliance.

2. Appoint a Local Fiscal Representative

Foreign companies without a physical presence in Portugal must appoint a fiscal representative to interact with Portuguese tax authorities on their behalf (per Article 19 of the General Tax Law - LGT).

3. Register the Company with Portuguese Social Security

Under Decree-Law No. 28/2004, employers are required to register with the Segurança Social (Portuguese Social Security), even if they are based abroad. This allows for payroll registration and social contributions.

4. Employment Contract Addendum

To remain compliant with the Portuguese Labour Code, an addendum to the employment contract should clearly state that:

The employee works remotely from Portugal.
The activity is not tied to a Portuguese business unit.
All employer obligations are respected under Portuguese social and tax law.

Why Use a Portuguese Employment Contract?

While it's legally possible to maintain a foreign employment contract, there are significant benefits in switching to a Portuguese labor contract:

✅ Simplifies social security registration and payroll deductions.
✅ Reduces risk in case of labor inspection or dispute.
✅ Ensures full alignment with Portuguese employment protections, including vacation, sick leave, and termination regulations.

💡 This also makes it easier for the employee to access healthcare, housing, and residency permits like the D7 Passive Income Visa or Digital Nomad Visa.

Employer Responsibilities

Foreign employers hiring staff in Portugal must commit to:

💸 Paying gross salary via Portuguese bank account or SEPA transfer.
📈 Paying local Social Security contributions:
- Employer: 23.75%
- Employee: 11% (withheld at source)
📑 Managing payroll, including monthly payslips, income tax (IRS) withholding, and annual declarations to AT (Autoridade Tributária).

We can handle all of this for you at INLIS Consulting.

Legal Limitations

While we provide full support on the administrative, tax, and payroll aspects of this structure, please note:

We do not provide legal advice. For specific employment disputes, contract drafting, or corporate risk evaluation, we recommend consulting a licensed Portuguese labor lawyer.