Do I Need a Local Entity to Hire in Portugal?

In Portugal, a "local entity" typically refers to a recognized employing presence, such as a subsidiary or branch office, that allows you to operate as an employer. This setup enables you to fulfill local payroll and employment obligations, ensuring compliance with Portuguese labor laws.

Without a local entity, you may face challenges like registering as an employer, managing mandatory social security contributions, and issuing compliant employment contracts. An Employer of Record (EOR) can be a viable alternative, allowing you to hire employees without the need for establishing a local entity.

What is Required to Employ Someone in Portugal?

• Local employing entity required to directly employ? Yes (necessary for direct employment and compliance)
• Payroll registration required? Yes (mandatory for tax and social security compliance)
• Withholding/tax remittance required? Yes (employers must withhold income tax and remit it to the tax authority)
• Social contributions required? Yes (employers must contribute to social security)
• Local employment agreement required? Yes (written contracts are standard in Portugal)
• Mandatory benefits to budget? Yes (includes vacation pay, sick leave, and social security)
• Works council/collective agreements considerations? Often (applicable in many sectors)

Best Options If You're Hiring in Portugal

Can I Hire Contractors Instead of Setting Up an Entity?

Yes, but be cautious about misclassification risks.

While you can hire contractors without establishing a local entity, Portugal has stringent labor laws that protect workers. Misclassifying a contractor as an independent worker can lead to significant liabilities if the relationship resembles employment. Ensure that the contractor operates independently and is not integrated into your business.

• Contractors should have multiple clients to demonstrate independence.
• Control over work hours, location, and methods can indicate an employment relationship.
• Embedding a contractor in your team may increase misclassification risk.

How Long Does Entity Setup Take And What Does It Cost?

Typical entity setup timeline: It often takes 4–8 weeks to set up an entity in Portugal, depending on the required registrations and legal processes.

Ongoing cost categories (entity route):

• Accounting, bookkeeping, and statutory filings: Estimated €300–€600 per month ($320–$640)
• Payroll provider: Estimated €20–€50 per employee per month ($21–$53)
• Employer registrations and recurring compliance: Estimated €1,000–€2,000 per year ($1,060–$2,120)
• Corporate tax filings and annual reporting: Estimated €1,500–€3,000 per year ($1,590–$3,180)

EOR cost components (no-entity route):

• A per-employee EOR service fee (from $399 per month with Playroll)
• Pass-through statutory costs (e.g., employer social security contributions, typically around 23.75% of gross salary)
• Any optional benefits you choose to provide beyond statutory minimums

How an Employer of Record Can Help You Hire in Portugal

Hiring in Portugal can be complex, but it doesn’t have to require setting up a local entity or taking on long-term overhead. With an Employer of Record like Playroll, you get a simple, predictable way to hire compliantly while keeping costs transparent and under control. We help you:

• Hire employees in Portugal quickly without establishing a local entity, eliminating incorporation costs, ongoing administration, and exit complexity.
• Stay fully compliant with local payroll, tax, and employment regulations with Playroll’s managed payroll services.
• Control your total employment costs, with a clear monthly EOR service fee (from $399 per employee).
• Focus on growing your business, while we manage contracts, payroll, compliance, and labor law obligations end to end.
• Scale up or exit the market easily, without the financial or legal burden of closing a local entity.