Labour laws, wages, and taxes
It is very important to understand the tax laws and employment laws of a country for doing business. The employment laws in Portugal are labour friendly and it is very important to consider them while drafting the contracts between the company and the employee(s). The company should be aware of the following:
the minimum working age is 16 years and any individual above 18 can obtain an employment contract even though if he/she has not completed school. There are different types of contracts namely:
- Fixed term contract.
- Contract with unspecified duration.
- Very short duration contract.
- Intermittent contract.
- Part time contract.
All of the above contracts except the short duration contract should be in writing. The contract must include information about the employer, employee, the objects of the contract (job description), dates of the contract and date of expiry (if fixed term), justification as to why an employee is needed for the specified time, location of the job and normal working times.
It is also worth noting about the Portuguese culture when opening a business in Portugal. The following table provides info about the working hours, holidays, leaves and wages:
|Working hours||9:00 A.M – 1:00 P.M|
|Lunch/Break hours||1:00 P.M – 3:00 P.M|
|Working hours||3:00 P.M – 7:00 P.M|
|Total working week hours||40 hours|
|Annual leaves||22 days|
|Obligatory public holidays||12|
|Optional public holidays||3|
|Maternity leave||120 days|
|Minimum wage (Madeira)||723.00 Euros per month (as of Jan 2022)|
The minimum wage in Portugal is based on the monthly rate as opposed to hourly rate. This is updated every year based on different factors like the cost of living, governments’ prices, income policy and national productivity. There are officially three minimum wages based on the three regions:
- National Portuguese minimum wage.
- Minimum wage for the Region of Azores.
- Minimum wage for the Region of Madeira.
It is really important for the companies to adhere to the minimum wage laws. In any case, the companies fail to meet the minimum wage requirements, they will be faced with heavy penalties and are fined under article 273 of the Labour code.
The companies should withhold the employee taxes and they must make sure that both the personal and social security taxes are withheld.
The personal income taxation (Madeira) follows a progressive income tax and it looks like the following:
|Taxable income||Tax on this income|
|Up to €7.112||10.15%|
|€7.112 to €10.732||16.10%|
|€10.732 to €20.322||22.80%|
|€20.322 to €25.075||29.75%|
|€25.075 to €36.967||33.67%|
|€36.967 to €80.882||43.65%|
The social security contribution is a standard 11% of the employee’s salary, and it is 23.75% of the employer’s contribution. There is no income ceiling here and it covers pension, unemployment, health care and insurance.
For personal income taxes, the tax year is a calendar year. The filing deadline is May 31st and the payment deadline for taxes is August 31st.