Discusses distribution network from how products enter to final destination, including reliability of distribution systems, distribution centers, ports, etc.
The Portuguese population is concentrated along the coast. The major distribution centers are Lisbon in the south and Porto in the north, although the regional centers of Braga (north of Porto) and Setubal (south of Lisbon) have become their own in recent years. The Lisbon Metropolitan Area accounts for about 28% of Portugal’s population. Major industries as well as the head offices of many large corporations are located in Lisbon. Most financial institutions have also chosen the capital to locate their headquarters. The Lisbon area has the highest purchasing power in the country and suffers, like many metropolitan areas, from traffic congestion and rising costs.
Porto is the most dynamic industrial development area in Portugal. It accounts for about 17% of the Portuguese population and is also an area of high purchasing power. Most importers and distributors have offices in Porto; U.S. firms looking to appoint a distributor in Portugal should pay attention to this. Porto is connected to Lisbon by a direct and well-maintained highway and is easily reached by train and direct flights.
Portugal is a relatively small country, and most sales channels cover the entire territory. Although distribution centers tend to be located in Lisbon and Porto, many large importers and wholesalers have branch sales offices and/or sub-agents or dealers in other principal cities and towns, including those in the Portuguese islands of Madeira and the Azores.
Portugal’s primary industries are oil refineries, petrochemistry, cement production, automotive and ship industries, electrical (mainly from renewable sources) and electronics industries, machinery, pulp, and paper industry, injection molding, plastic products, textile, footwear, leather, furniture, ceramics, beverages and food industry and cork.
Using an Agent or Distributor
When doing business in Portugal, U.S. companies should keep the following points in mind:
- Local Representative: Having a local representative with good contacts is very important in order to establish business contacts. Portugal is a small country; knowing people in your industry is very important.
- Exclusive Distributor: One distributor that is appointed on an exclusive basis is ideal.
- The Iberian Peninsula: Portugal and Spain do not constitute a homogeneous marketing area. Normally, your Spanish distributor should not be asked to cover Portugal unless the Spanish company is willing to set up a separate Portuguese entity to handle this area.
- Impact of the EU: Many projects are EU-funded, so an EU partner is desirable (and often fundamental) when bidding.
- Slow Down: Conducting business takes longer compared to the U.S. or northern Europe as personal contacts are very important. Your customers will want to get to know you before they fully trust you.
- Business is Honorable: There are relatively few trade complaints. The business community is close-knit and many distributors are family-owned companies, which mean trade disputes are few and are often resolved out of court. If you do have to resort to the courts, be prepared to wait. Despite some recent reforms and improvements, the Portuguese legal system remains slow and is the single biggest cause of unresolved U.S. company trade complaints.
- English is Common: Although Portugal is a European country; it faces the Atlantic and has a long tradition of international trade. Portugal discovered trade routes to Africa before Columbus landed in America. The Portuguese also opened the first major trading routes to India and the Far East and administered a vast colonial empire for 500 years. The U.S. is well respected in the market and companies can usually do business in English.
Companies wishing to use distribution, franchising and agency arrangements need to ensure that the agreements they put into place are in accordance with EU laws and member state national laws. Council Directive 86/653/EEC establishes certain minimum standards of protection for self-employed commercial agents who sell or purchase goods on behalf of their principals. The Directive establishes the rights and obligations of the principal and its agents, the agent’s remuneration, and the conclusion and termination of an agency contract. It also establishes the notice to be given and indemnity or compensation to be paid to the agent. U.S. companies should be particularly aware that according to the Directive, parties may not derogate from certain requirements. Accordingly, the inclusion of a clause specifying an alternate body of law to be applied in the event of a dispute will likely be ruled invalid by European courts.
The European Commission’s Directorate General for Competition enforces legislation concerned with the effects on competition in the internal market of “vertical agreements.” U.S. small- and medium-sized companies (SMEs) are often exempt from these regulations because their agreements likely would qualify as “agreements of minor importance,” meaning they are considered incapable of impacting competition at the EU level but useful for cooperation between SMEs. Companies with fewer than 250 employees and an annual turnover of less than €50 million are considered small- and medium-sized. The EU has additionally indicated that agreements that affect less than 10% of a market are generally exempted (Commission Notice 2014/C 291/01 on agreements of minor importance which do not appreciably restrict competition under Article 101(1) of the Treaty on the Functioning of the European Union).
The EU also looks to combat payment delays. Directive 2011/7/EU covers all commercial transactions within the EU, whether in the public or private sector, primarily dealing with the consequences of late payment. Transactions with consumers, however, do not fall within the scope of this Directive. Directive 2011/7/EU entitles a seller who does not receive payment for goods and/or services within 30 days of the payment deadline to collect interest (at a rate of 8% above the European Central Bank rate) as well as 40 Euro as compensation for recovery of costs. For business-to-business transactions a 60-day period may be negotiated subject to conditions. The seller may also retain the title to goods until payment is completed and may claim full compensation for all recovery costs.
Companies’ agents and distributors can take advantage of the European Ombudsman when victim of inefficient management by an EU institution or body. Complaints can be made to the European Ombudsman only by businesses and other bodies with registered offices in the EU. The Ombudsman can act upon these complaints by investigating cases in which EU institutions fail to act in accordance with the law, fail to respect the principles of good administration, or violate fundamental rights. In addition, SOLVIT, a network of national centers, offers online assistance to citizens and businesses who encounter problems with transactions within the borders of the single market.
Establishing an Office
The process of setting up a business in Portugal has been simplified over the past couple of years. There are several available methods from which to choose. The Business Gateway (Portal da Empresa) offers a program called “On-the-Spot Firm”, which is described below. There is also an “On-line Company” registration method, along with the traditional Commercial Registry office process. The online registration process can take as little as one to two days.
The “On-the-Spot Firm” method facilitates the establishment of a single shareholder limited liability company, a private limited company or partnership, or a public limited company in less than 60 minutes. All the procedures are carried out in one place if the partners have all the necessary documentation and the company is registered through the “On-the-Spot Firm” Program. This service is available throughout the country.
To use the On-Line Company method, digital certification from the user is required (e.g., citizen ID card). Through this method, it is possible to set up companies of any type, except for European Public Limited companies and companies whose capital is paid through contributions in kind. For the latter, transfer of assets to the company by shareholders must be done through a more formal process.
The traditional method requires various visits to different entities but has the advantage of personal contact. Espaço Empresa provides information and assistance in setting up a business.
Companies must also register with the Directorate General for Economic Activity (DGAE), the Tax Authority (AT), and with the Social Security administration. The online registration process can take as little as one to two days.
In line with the EU, Portugal defines an enterprise as micro, small, and medium-sized based on its headcount, annual turnover, or the size of its balance sheet. To qualify as a micro-enterprise, a company must have less than 10 employees and no more than €2 million in revenues or €2 million in assets. Small enterprises must have less than 50 employees and no more than €10 million in revenues or €10 million in assets. Medium-sized enterprises must have less than 250 employees and no more than €50 million in revenues or €43 million in assets. The SME Support Institute (IAPMEI) offers financing, training, and other services for SMEs based in Portugal.
More information on laws, procedures, registration requirements, and investment incentives for foreign investors in Portugal is available at AICEP’s website and the How to Invest in Portugal information.
Any American entity interested in establishing a company in Portugal should both visit the U.S. Commercial Service office of the U.S. Embassy in Lisbon to discuss the project and obtain additional information.
For further information on establishing an office in Europe, please consult the European Commission which manages the Your Europe website where investors can find useful information.
For the latest Investment Climate Statement (ICS) which includes information on investment and business environments in foreign economies pertinent to establishing and operating an office and to hiring employees, visit the U.S. Department of Department of State’s Investment Climate Statements website.
Overall, the economic climate in Portugal is open to franchises, especially for new and innovative concepts. The outlook for the franchise sector continues to be fairly positive, mainly due to the number of outlets and shopping malls in the country. The entire national territory offers opportunities for expansion and the market still has room for new, internationally known franchising concepts, but the bigger opportunities are on the Porto disctrict, the Algarve region and the Greater Lisbon area.
According to the Franchising Census, from the Portuguese Franchising Association in 2018 (latest data available), there were 528 brands operating in this model (of which 66% were Portuguese, 17.9% Spanish, 4.6% American and 3.8% French). In 2018, all franchising units generated a turnover of about USD 9,45 million (3.96% of the national GDP) and secured 160,012 jobs (3.96% of the total national employment), an increase of 1.12% when compared to 2017. In sectoral terms, services represents 57.7% if the sector; commerce came second with 29.0% and catering with 13.3%. At the level of competencies, Entrepreneurial Spirit and Business Profile are the skills most valued by the brands in the selection of future franchisees.
U.S. businesses looking to franchise within the European Union will likely find that the market is quite robust and friendly to franchise systems in general. There are a number of laws that govern the operation of franchises within the EU, but these laws are fairly broad and generally do not constrain the competitive position of U.S. businesses. The potential franchiser should take care to look not only at the EU regulations, but also at the local laws concerning franchising. More information on specific legislation can be found on the website of the European Franchise Federation.
Distance selling and eCommerce have become effective direct marketing methods and their popularity has grown rapidly. According to the Portuguese Direct Marketing Association - AMD, the sector is estimated to continue its sales growth rate of 10% per year, with more than 80 direct marketing firms operating in Portugal.
The EU has yet to adopt legislation harmonizing the direct-selling of consumer products. However, there is a wide-range of EU legislation that impacts the direct marketing sector. Compliance requirements are stiffest for marketing and sales to private consumers. Companies need to focus, in particular, on the clarity and completeness of the information they provide to consumers prior to purchase and on their approaches to collecting and using customer data. The following gives a brief overview of the most important provisions flowing from EU-wide rules on distance-selling and on-line commerce. In addition, it is important for exporters relying on a direct-selling business model to ensure they comply with member state requirements.
Processing Customer Data
The EU has strict laws governing the protection of personal data, including the use of such data in the context of direct marketing activities. For more information on these rules, please see the Data Privacy section, below.
Distance Selling Rules
In 2011, the EU overhauled its consumer protection legislation and merged several existing rules into a single rulebook - “the Consumer Rights Directive”. The provisions of this Directive have been in force since June 13, 2014. The Directive contains provisions on core information to be provided by traders prior to the conclusion of consumer contracts. It also regulates the right of withdrawal, includes rules on the costs for the use of means of payment and bans pre-ticked boxes. There are updates to these rules that will apply from May 2022. For more information, consult the EU Commission’s useful tool to learn about consumer rules.
Alternative Dispute Resolution
In 2013, the EU adopted rules on Alternative Dispute Resolution which provide consumers the right to turn to quality alternative dispute resolution entities for all types of contractual disputes including purchases made online or offline, domestically or across borders. A specific Online Dispute Resolution Regulation, operational in January 2016, sets up an EU-wide online platform to handle consumer disputes that arise from online transactions.
The European Commission adopted on 13 November 2020 the New Consumer Agenda, an updated overall strategic framework of the EU consumer policy. It aims to better equip the EU to:
- tackle the new challenges to consumer rights and opportunities for consumer empowerment brought about by the green and digital transitions, the COVID pandemic and the plans for post-COVID recovery
- protect vulnerable consumers more effectively in the new economic realities of the COVID-19 crisis and its likely aftermath
- address the growing importance of international cooperation and effective enforcement in ensuring consumer rights in the globalisation era.
To support this initiative, the Commission carried out an EU-wide open public consultation in the period June-October 2020. The public consultation provided valuable insight for the setting up the New Consumer Agenda that the European Commission adopted on 13 November 2020, and its results may be consulted under the synopsis report.
Distance Selling of Financial Services
Financial services are the subject of a separate directive that came into force in June 2002 (2002/65/EC). This piece of legislation amended three prior existing Directives and is designed to ensure that consumers are appropriately protected with respect to financial transactions taking place where the consumer and the provider are not face-to-face. In addition to prohibiting certain abusive marketing practices, the Directive establishes criteria for the presentation of contract information. Given the special nature of financial markets, specifics are also laid out for contractual withdrawal.
Direct Marketing over the Internet
The eCommerce Directive (2000/31/EC) imposes certain specific requirements connected to the direct marketing business. Promotional offers must not mislead customers and the terms that must be met to qualify for them have to be clear and easily accessible. The Directive stipulates that marketing e-mails must be identified as such to the recipient and requires that companies targeting customers on-line must regularly consult national opt-out registers where they exist. When an order is placed, the service provider must acknowledge receipt quickly and by electronic means, although the Directive does not attribute any legal effect to the placing of an order or its acknowledgment: this is a matter for national law. Vendors of electronically supplied services (such as software, which the EU considers a service and not a good) must also collect value added tax (see Electronic Commerce section below). The European Commission has performed a stakeholder’s consultation and is currently assessing the opportunity to propose a revision of the eCommerce Directive.
Joint ventures and licensing are alternative ways to enter the Portuguese market. Joint ventures between American and Portuguese firms are treated under Portuguese law as foreign investment operations, which may take the form of any type of business firm. With regard to tax treatment and incentives, both domestic and foreign-owned firms are treated equally.
Licensing is a contractual arrangement, in which the licensor makes available or sells its know-how, patents, trademarks or copyrights to a licensee for compensation. Franchising could be considered an important form of know-how licensing.
American firms should be reminded that, as a fully integrated member of the EU, Portugal abides by the foreign trade and investment rules that govern the rest of the EU. Whatever applies in other EU countries applies to Portugal. If an American firm is complying with EU regulations prior to exporting or investing in the EU, it has already done its homework for Portugal. However, enforcement of some intellectual property rights laws continues to be weak.
Major global organizations such as DHL, FedEx, UPS and others operate in Portugal and offer express delivery services. Transit times vary but for packages shipped from the US to Portugal, the average time is 2-5 days, not including the customs clearance process.
Customs procedures and requirements are standard and can be found on the Portuguese Customs Website.
Product safety testing and certification is mandatory for the EU market. U.S. manufacturers and sellers of goods should perform due diligence in accordance with mandatory EU legislation prior to exporting.
The U.S. Commercial Service at the U.S. Embassy in Lisbon assists U.S. firms in identifying both opportunities and risks associated with cross border transactions. In general, our office supports bids in competitive tenders, briefs U.S. firms as required, provides information on key risks in the business environment, and advocates on behalf of U.S. firms, as appropriate.
For complex transactions and issues, our office can provide lists of attorneys and law offices, as well as accounting/consulting firms specialized in due diligence, to help investors achieve the best value for a transaction.
Commercial background checks on Portuguese companies can be obtained through the U.S Commercial Service in Portugal as well as private sector resources.