Start-ups in Portugal – the entrepreneurial ecosystem and new tax benefits

Start-ups em Portugal

In recent years, Portugal has emerged as fertile ground for innovative start-ups and high-potential entrepreneurship to grow. With a combination of resources, access to qualified talent, and a favorable regulatory environment, the country has attracted the attention of entrepreneurs, investors, and technology companies worldwide.

This trend is visible in recent statistics demonstrating the significant growth of the start-up ecosystem in Portugal, along with a series of government initiatives that further boost this progress.

 

Explosive Growth in the Number of Start-ups in Portugal

Over the last ten years, Portugal has witnessed explosive growth in start-ups, especially in Lisbon, Porto, and Coimbra. According to the latest data from Startup Portugal, there are more than 2,500 active start-ups in Portugal, with 2021 being the best year for the Portuguese entrepreneurial ecosystem.

 

Start-ups em Portugal

Source – https://startupportugal.dealroom.co/

Investment on the rise

The vitality of Portugal’s start-up scene is also evidenced by the steady increase in direct investment. There are currently around 645 investors in Portuguese start-ups who, all together, have already carried out more than 1,650 investment rounds.

In 2021, investment reached 1.5 billion euros in total and, this year alone (2023), 60 million have already been invested in the so-called C rounds. The interest of national and international investors highlights the growing confidence in the potential of Portuguese start-ups to innovate and generate substantial returns.

 

Start-ups em Portugal

Source – https://startupportugal.dealroom.co/

 

Focus on Key Sectors

While the start-up ecosystem in Portugal covers many sectors, it is possible to identify a few areas that attract the most investment. The chart below shows the top 5 most appealing industries for national and international investors: FinTech, HR (recruitment), Health, Marketing, and Security.

 

Start-ups em Portugal

Source – https://startupportugal.dealroom.co/

 

New Tax Benefits to Boost Growth

The Portuguese government recognizes the importance of start-ups in the country’s economic growth and has implemented measures to further encourage entrepreneurial activity. Recently, new tax benefits specifically focused on start-ups and scale-ups were introduced, to reduce financial and bureaucratic burdens, as well as facilitate access to capital and talent.

In this article, we’ll explore the new tax benefits for start-ups in Portugal and learn about their impact on the entrepreneurial scene.

 

New tax incentives for start-ups in Portugal

The new law that impacts the regulations for funds dedicated to Research and Development (R&D) has already been released and will have tax effects from 2024. Published on May 25, the decree also establishes new rules for start-ups and scale-ups, while introducing changes to the Tax Benefits regime.

Changes to the Personal Income Tax Code – where start-ups and scale-ups fit in – and to the Tax Benefits Statute and the Investment Tax Code were approved in May this year. New rules imply changes to the System of Tax Incentives for Research and Business Development (SIFIDE) which will come into force in 2024.

The new guidelines also have an impact on long-standing funds, which until now did not have a deadline for investing their funds. They are now forced to accelerate their investments.

The new legislation also establishes updated criteria for start-ups and scale-ups, categories often associated with the development of innovative technologies or business models.

 

How do you identify start-ups and scale-ups?

To qualify as start-ups, entities must have been active for less than 10 years, employ fewer than 250 workers, and generate up to 50 million euros in annual revenue. Scale-ups don’t need to meet these three criteria, but they do need to meet other requirements.

To be classified as start-ups or scale-ups and thus benefit from the tax incentives, companies must not be the result of the transformation or division of larger companies and must not have majority stakes in large companies. They must also be established in Portugal and have at least 25 employees in the country.

In addition, companies must meet one of the following conditions:

  1. Be innovative and have high growth potential, with innovative products, services, or business models, following Ministerial Order No. 195/2018 or after recognition of suitability by the National Innovation Agency (ANI).
  2. Have completed at least one round of venture capital financing by a legally authorized entity supervised by the Portuguese Securities Market Commission (CMVM) or equivalent international authority.
  3. Receive investment from Banco Português de Fomento, S. A., funds managed by it, or companies in which it has a stake.

 

In short, the new legislation brings significant changes to the R&D and start-up scene in Portugal, encouraging accelerated investment and promoting innovation as a vital pillar for economic development. The new rules for start-ups are therefore positive news for entrepreneurs.

Lamares, Capela & Associados provides services in tax law and our lawyers are qualified to accompany the creation, establishment, or development of start-ups in Portugal. For more information, please contact us here.

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