When it comes to European destinations, foreigners are always drawn to Portugal and Spain. Both have warm climates, magnificent landscapes and are rooted in cultural heritage, but the appeal is far beyond aesthetics. These neighbours both offer a laidback and low cost of living compared to other European countries.
It’s no surprise then that you may be considering starting a business with these two countries as the top contenders. This side-by-side comparison will take a look at each country’s regulations around taxes, their work cultures, language barriers to foreigners and the process for setting up a business in each one.
Are Portugal And Spain Startup-Friendly?
Beyond its charming coastal towns, Portugal is gaining a reputation as a strong digital hub. Its capital, Lisbon, is quickly becoming home to a number of entrepreneurs in the technology sector. The government has also launched a few initiatives, including Startup Portugal, which offers tax benefits and funding to encourage the growth of startups.
Similarly, Spain’s startup scene is also on the rise, particularly in Barcelona and Madrid. The country has its own Startup Act aimed at providing startups with mentorship, grants and tax incentives.
Overall, both countries offer a supportive environment for entrepreneurs and startups.
Work Culture
Portugal: The country values family and leisure-time, with a slower pace of life as a result. The standard workweek is 40 hours and employees can enjoy up to 22 days of annual leave including public holidays. There are plenty of cafés dotted around for remote workers and there is a heavy focus on maintaining one’s personal well-being.
Spain: Spain is well-known for its laidback lifestyle and approach to work. While the workweek is also 40 hours, there is general annual leave available to employees. It’s not uncommon for workers to enjoy long lunches and socialising, so there is definitely a strong work-life balance.
Language
Portugal: The official language is Portuguese, but the country is a bit more accommodating to English-speaking foreigners. English is also widely spoken when conducting business, especially in Lisbon and Porto. You will find that most business or government documentation is available in English, which makes it easier for foreign entrepreneurs to settle in.
Spain: Here, Spanish is the official language spoken. English may be spoken for business dealings in areas such as Barcelona or Madrid, but very little outside of these cities. Local businesses and government documentation generally work in Spanish so this could pose a challenge for non-Spanish speakers.
Cost Of Living
Portugal: Urban cities may be more expensive than smaller towns, but overall the cost of living in Portugal is more affordable than other Western European countries. A one-bedroom apartment in Lisbon usually starts at around 1,200 euros with utilities averaging around 40/50 euros per month. Dining out is not too expensive, with the average meal costing around 12/15 euros.
Spain: The cost of living is slightly more expensive than Portugal, typically in areas such as Barcelona and Madrid. Other cities like Valencia or Seville can be more affordable. Here, a one-bedroom apartment can start from 1,400 euros with utilities at around 120 euros per month. Lifestyle expenses such as eating out are also a bit pricier, ranging from 15/20 euros.
Taxes
Portugal: The standard corporate tax rate is currently set at 21%, although small and medium size enterprises (SMEs) can enjoy reduces rates of 17% if their annual profits are less than 50,000 euros. The VAT rate is set a 23% while some goods are at 13% and essential goods at 6%.
Spain: Spain’s corporate tax rate is 25%. For new businesses, they will pay a reduced rate of 15% for their first two years of profitability, which can be a drawcard for entrepreneurs. The country’s VAT is currently 21% with 10% and 4% for essential goods.
How To Set Up Your Business
Portugal: Firstly, you will need to determine your business structure, whether it be a sole proprietorship, partnership or private limited company. You can also check the availability of your desired business name through the National Register of Collective Entities. The next step is to get your tax identification number (NIF) and open a Portuguese bank account which is required. After this, you can submit your documentation to be officially registered with the Commercial Registry.
Spain: Following a similar process to Portugal, you will choose your business structure and get your foreign identification number (NIE), which is mandatory for non-residents who wish to start a business. You can then register your company’s name with the Central Mercantile Registry and open a bank account. There is a minimum share capital amount of 3,000 euros required for sole proprietors. Lastly, you can formally register with the Commercial Registry.
Where Should You Start Your Business?
Both countries are attractive options for entrepreneurs when compared to other Western European countries. Portugal tends to stand out for its affordability and its attraction of companies in the tech sector.
On the other hand, Spain has a larger market to serve with your products or services.
The decision will ultimately come down to your own lifestyle preferences and the industry in which you want to operate.
