Portugal vs. Estonia: Where’s Better to Start Your Business?

While Portugal boasts sunny beaches and a vibrant culture, Estonia shines with its tech-savvy infrastructure. But which is the superior destination for starting a business?

If you’re pondering over establishing a company in Portugal but desire a thorough comparison, this article is your compass.

Crafted with insights from Thiago Vieira, a Companio client and legal consultant aiding digital nomads and startups in Portugal, this piece offers clarity.

And don’t miss our enlightening YouTube webinar at the end, where we delve deeper and address live queries.

Registering Your Company in Portugal

Firstly, it’s crucial to note that Portugal distinguishes between freelancers and companies.

Registration as a Freelancer

In Portugal, opening your business as a freelancer incurs no government fees, and you can handle it independently if you have the necessary know-how. However, you can opt for legal or accounting assistance if needed.

If you choose to hire an accountant, expect to pay around €200 for their services.

Registration as a Company

However, establishing a company in Portugal involves government fees:

• With the assistance of a lawyer or a public notary, there’s a reduced fee of €220, factoring in the lawyer’s commission, which ranges from €500-700.
• If you decide to proceed without legal guidance, the fee amounts to €360.

Registering Your Company in Estonia

In Estonia, there’s no distinction between freelancers and companies. 

Whether you’re a freelancer or a larger enterprise, if you want to start a business in Estonia you’ll need to establish a society or OÜ.

Similarly, there’s a unique fee for registering your company of €265 + VAT (22%).

To do this, you’ll need your e-Residency card, typically costing a total of €120 (€100 for the application + €20 charged by pick-up locations).

In essence, these two procedures total €385.

Portugal vs. Estonia: Monthly Payments, Obligations, and Taxes

Monthly Payments, Obligations, and Taxes in Portugal

Monthly Payments and Obligations as a Freelancer

• Initially, there’s no need to pay Social Security during the first year. After the initial 12 months, you’re required to pay 15% of Social Security quarterly.

• Regarding VAT payments, if your annual earnings are less than €14,500, you’re exempt from VAT, and for earnings exceeding that amount, a 23% VAT rate applies.

• If you engage an accountant for assistance, the average monthly fee is approximately €50.

Monthly Payments and Obligations as a Company

• Conversely, as a company in Portugal, you’re not exempt from paying Social Security, with a 33% contribution required regardless of income generation.

• Furthermore, maintaining proper accounting records is mandatory, entailing an average monthly fee of €150 + VAT (approximately €200).

• Annual taxes on profits must be settled each year, ranging from 17% to 21%, depending on your earnings. This is calculated by deducting expenses from income, requiring payment if the result is positive.

• Additionally, in Portugal, VAT registration is mandatory, unlike Estonia, where it’s not obligatory in all cases.

• Moreover, you must have a fiscal address and pay for it. If you lack an apartment or coworking space, you’ll need to pay a company to provide a fiscal address, costing between €30 and €75.

Monthly Payments and Obligations in Estonia

• In Estonia, monthly accounting upkeep is compulsory. You’ll need to engage a service provider like Companio for this. With Companio, the minimum monthly fee is €79, but it varies based on the number of invoices you issue.

• Additionally, if you have a VAT number, which isn’t mandatory in all cases, you’ll need to submit VAT reports each month (Companio handles this for you).

• Furthermore, you’ll need to submit TSD declarations if you’ve had profits and distributed dividends among company owners and shareholders.

• Moreover, you’re obligated to submit an annual report, detailing all company transactions, movements, and operations to the authorities. For newly registered companies, this is mandatory only if registered before July 1 of the previous year. Subsequently, annual reporting becomes compulsory.

• One of Estonia’s significant advantages is that you’ll only pay taxes if you distribute profits after submitting the annual report, known as dividend distribution. You’ll be subject to a 20% gross tax rate.

Portugal vs. Estonia: Advantages

Advantages of Establishing a Company in Portugal

Benefits of Being a Freelancer

• In Portugal, you’re not burdened with the obligation of maintaining organized accounts or hiring a professional accounting firm.
• Moreover, expenses directly related to your business activities are eligible for deduction.

Benefits of Having a Company

• Similarly, deductible expenses must directly correlate with the business operations.
• Furthermore, Portugal offers the option of a VAT refund. Should you accrue a positive balance exceeding €3,000 in VAT, you’re able to transfer these funds to your corporate bank account or utilize them for business-related purchases.
• Annually, there are numerous financing avenues available through EU funds, although establishment as a company in Portugal is a requisite (solely operating as a freelancer is insufficient).

Advantages of Establishing a Company in Estonia

• Estonia has a big tax advantage: you don’t pay taxes on profits that you keep in your company or reinvest. This means your money stays tax-free within the company.

• Also, you might not need to get a VAT number all the time. And if you do, you pay 0% VAT on sales within the EU.

• Understanding what expenses you can deduct is easy in Estonia. For travel-related expenses, the Daily Allowance option permits your company to allocate €50 per day for the initial 15 days of travel, followed by €32 per day thereafter.

• Estonia’s e-Residency program is popular, with over 100,000 entrepreneurs. It’s a lively community with many groups like startup accelerators that help Estonian businesses. Plus, there are chances for global employment.

Portugal vs. Estonia: Hiring Globally

Hiring Globally in Portugal

If you’re working as a freelancer in Portugal, you can’t hire employees. You’re limited to getting help from service providers like lawyers or accountants.

But if you’ve set up a company in Portugal, you can hire employees. However, you’ll probably need legal help because Portugal’s employment laws can be complicated.

Global Employment in Estonia

In Estonia, there’s no distinction between freelancers and companies in terms of hiring. This means individuals can hire employees when required.

Additionally, modern platforms like Companio Work enable entrepreneurs to manage international employees in over 80 countries without having to set up a legal entity in each country.

Find a summary in this comparative table:

	Freelancer in Portugal	Company in Portugal	Company in Estonia
Registration	– €0 government fees. – On your own or with an accountant (≃€200).	– Reduced fee of €220 with lawyer or notary (commission ≃€500-€700). – On your own: €360.	– Flat fee of €265+VAT (22%). – e-Residency card: €120.
Monthly Payments	Accountant (optional): ≃€50/month	Compulsory accountant: ≃€150/month + VAT	Mandatory accounting: €79/month with Companio (varies according to the number of invoices).
Obligations and Taxes	– No Social Security payments in the first year. Afterwards, 15%. – VAT exemption – up to €14,500/year. – Without VAT exemption: 23%.	– Social Security: 33% – Annual income tax: 17%-21%. – Mandatory VAT or VAT number registration. – Mandatory fiscal address (≃€30-€75).	– Monthly VAT or VAT reports (if you have a VAT number). – Monthly TSD reports (if dividends are distributed). – Annual report. – You only pay taxes if you distribute dividends (20% gross).
Advantages	– No obligation to hire an accountant. – Business expenses deductible.	– Business expenses deductible. – Possibility of VAT refund. – EU fund financing options.	– Zero taxes on money retained in the company. – VAT number not always mandatory. – If you have a VAT number and are a UV country, 0% VAT. – Ecosystem of +100,000 entrepreneurs.
Global Hiring	You cannot hire employees. For service providers it is advisable to hire a lawyer.	You can hire with the help of a legal counsel (lawyer).	International solutions like Companio Work.

Portugal vs. Estonia: Where’s Better to Start Your Business?

The differences between establishing a company in Estonia and Portugal are clear, and each offers its own pros and cons.

Based on our experience, online entrepreneurs often find more advantages in starting a business in Estonia. But remember, the choice should fit your specific situation and business needs.

For more information, check out the video below for our webinar, where we explore the detailed pros and cons of opening a company in Portugal vs. Estonia. 👇🏻