Business as a whole in Portugal is clearly dominated by small and micro businesses. This trend has been a constant for many years already and is still growing. In fact, crashing numbers of real unemployment and the possibility to establish a company with just 1 Euro of share capital contribute to the growth of small businesses in Portugal.
There are two ways to operate a really small business I Portugal – one is non-corporate, like self-employment, and the other is establishing a small company.
Though overall operating costs vary from business to business, there is a part of the cost born by every incorporated business, no matter the size of the company or its revenues. This part of the expense is imposed by the Government and thus, I call it official costs of operating a business. Let us see what the laws preview for a small company in Portugal.
- Chartered Accountant. In Portugal, all limited liability companies including single-partner companies are subject to the organized accounting system. In simple words, any incorporated company, no matter its size or invoicing volumes, is obliged to hire a chartered accountant. The cost of chartered accountant services rounds up to € 150,00 per month +VAT. In the northern regions, this cost might be lesser. Thus, one of the mandatory monthly costs is as follows:
€ 150,00 + 23% = € 184,50
- Certified Invoicing Software. As of 2014, there is no freedom in designing private digital invoices. All the invoicing work, with the exception of the pre-printed and filled in by hand, must be done through a computer programme certified by the Portuguese Tax Authority. One of the cheapest certified invoicing software packages costs around € 200,00 per year, resulting in the following monthly cost:
€ 200 : 12 = € 16,70
Payroll (multiplied by the number of employees):
- Salary. The minimum salary in Portugal is € 530,00 as of 01/01/2016. It is to note here that annual holiday subsidy and Christmas subsidy are obligatory and cannot be lower than the agreed salary. For the simplicity sake, it is considered that a Portuguese employee receives 14 salaries per annum. Therefore, a minimum monthly cost of the company directly related to the salary payment shall be roughly calculated in this manner:
€ 530 x 14 : 12 = € 618,33 per month
- Social Security contributions. One more expense with a nice name. Social Security fee is paid both by the employee and the employer. From the 34,75% due to the Social Security on every salary and even subsidies, the employer's share is 23,75%. Thus:
€ 530 x 23,75% = € 125,88
€ 125,88 x 14 : 12 = € 146,86 per month
Insurance Against Accidents at Work (multiplied by the number of employees):
Such insurance is mandatory for all companies with no exception, regardless of its size or the number of workers. Equaly, it is mandatory for each employed person. It is yet another cost to add to the employee-related expense. The value may vary depending on a range of factors. On average, though, the expense with the insurance rounds up to 1% of the salary per employee:
€ 530 x 1% = € 5,30
€ 5,30 x 14 12 = € 6,18 per month
Safety at Work Training and similar
To add to the above, there is a cost associated to the safety at work training, work hygiene audits, occupational health checks, etc. The Portuguese laws establish that every employee shall receive such training annually. The training shall be provided by a certified training company and shall include at least 35 training hours. I have not carried out a comparative cost study to be able to give a figure here. However, the existence of such cost shall be born in mind when planning a business activity.
Summarizing the Official Cost
Summarizing the cost of a smallest limited liability corporate unit existing in Portugal, i.e. a single-partner limited liability company with 1 employee with minimum salary, the official part of the operating cost amounts to:
Chartered Accountant: € 184,50
Certified Invoicing Software: € 16,70
Salary: € 618,33
Social Security contribution: € 146,86
Insurance against accidents at work: € 6,18
Average monthly cost: € 972,57
As mentioned before, this is the official cost alone and does not include rentals, utilities, office supplies, inventory, marketing budget, repairs and maintenance or other variables. Naturally, the given figures shall be adjusted in accordance with the actually paid salaries and related social security charges. Another important line in the budgeting may be licensing, both national and local. However, licensing is not a universal request and merits a separate story.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.