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Portugal: PORTUGAL'S 2010 INVESTMENT CLIMATE STATEMENT

     
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Reference ID: 10LISBON22
Created: 2010-01-14 14:40
Released: 2011-08-30 01:44
Classification: UNCLASSIFIED
Origin: Embassy Lisbon

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ZNR UUUUU ZZH
R 141440Z JAN 10
FM AMEMBASSY LISBON
TO RUEHC/SECSTATE WASHDC 8060
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUCPCIM/CIMS NTDB WASHDC

UNCLAS SECTION 01 OF 07 LISBON 000022

SIPDIS

DEPT FOR EB/IFD/OIA
DEPT ALSO FOR USTR

E.O. 12958: N/A
TAGS: EINV, EFIN, ETRD, ELAB, KTDB, PGOV, OPIC, USTR, PO
SUBJECT: PORTUGAL'S 2010 INVESTMENT CLIMATE STATEMENT

REF: 09 STATE 124006

LISBON 00000022 001.2 OF 007


1. The following is Portugal's submission for the 2010
Investment Climate Statement:

A. Openness to Foreign Investment

Portugal offers a favorable investment climate for foreign
capital, both in the near and long term. Its economy has
become increasingly diversified and service-based since the
country joined the European Community in 1986. On January 1,
2002, Portugal introduced the euro as its official currency,
further integrating itself with the European Union's
financial and economic policies. Prime Minister Jose
Socrates, who began his second term in office in 2009,
has made opening Portugal's economy to foreign investment
a key priority.

Government Promotion Agencies: The agency leading Portugal's
economic development policy is AICEP (the Portuguese Agency
for Foreign Investment and Commerce). AICEP is responsible
for the promotion of global Portuguese trademarks, exports of
goods and services, and attracting foreign direct investment
(FDI). It serves as the point of contact for investors with
projects over 25 million euros or companies with a
consolidated turnover of more than 75 million euros. For
foreign investments not meeting these requirements, AICEP
will make a preliminary analysis and direct the investor to
assistance agencies such as IAPMEI, the Institute for the
Support of Small- and Medium-sized Enterprises (SMEs), which
provides technical support, or to AICEP CAPITAL GLOBAL,
which offers technology transfer, incubator programs and
venture capital support.

Government Policies - General: According to the Bank of
Portugal, foreign direct investment is defined as an act or
contract that obtains or increases enduring economic links
with an existing Portuguese institution or one to be formed.
Foreign direct investment is thus all investment made by a
non-resident of, at least, 10 percent of a resident company's
equity, provided that the direct investor also plays a role
in the company's decision making.

The Portuguese legal system is based on non-discrimination
with regard to the national origin of investment, and
foreigners are permitted to establish themselves in all
economic sectors open to private enterprise. However,
foreign and domestic investments alike are limited in
relation to certain economic activities. Portuguese
government approval is required in the following sectors:
defense, water management, public service telecommunications
operators, railways, maritime transportation and air
transport, or if they involve the exercise of public
authority. Private-sector companies can operate in these
areas only through a concession contract.

Finance/Insurance: Investors wishing to establish new
credit institutions or finance companies, acquire a
controlling interest in such financial firms, and/or
establish a subsidiary must have authorization from the
Bank of Portugal (for EU firms) or the Ministry of Finance
(for non-EU firms). In both cases, the authorities
carefully consider the proposed transaction, but in the
case of non-EU firms, the Ministry of Finance especially
considers the impact on the efficiency of the financial
system and the internationalization of the economy.
Non-EU insurance companies seeking to establish an agency
in Portugal must post a special deposit and financial
guarantee and must have been authorized for such activity
by the Ministry of Finance for at least five years.

Foreign Workers: Non-Portuguese EU workers must obtain a
residence card for EU nationals but are not required to have
work permits. Non-EU workers are required to have both a
residence visa and a work permit. The permanent authorization
for residence is granted when an employee has a labor
contract, rent contract or a permanent resident evidence
document and is registered in the Social Security Services.
The request is processed at the Servios de Estrangeiros e
Fronteiras (SEF) Branch. The requests are regulated by the
act Law 23/2007 dd 4/07 and by the Decree-Law 84/2007 dd
05/11. For more information visit http://www.sef.pt

Structural and Cohesion Funds: For the 2007-2013 programming
period, Portugal has been allocated 21.5 billion euros of
Structural and Cohesion Funds financing under the European
Union's Convergence, Regional Competitiveness and

LISBON 00000022 002.2 OF 007


Employment, and Territorial Cooperation program. Portugal
plans to use the funds to develop a skilled workforce, to
promote sustainable growth, to guarantee social cohesion, to
ensure territorial development, and to improve governance
efficiency. One of the most important public policy
priorities for growth and competitiveness of the Portuguese
economy is the Technological Plan, an action agenda which
aims to mobilize enterprises, families and institutions to
overcome the modernization challenges the country has faced
during the last years. For more information visit
http://www.planotecnologico.pt

Following are Portugal rankings for several widely-accepted
measures of the business and investment environment:

Measure                       Year         Ranking
-------                       ----        ---------
TI Corruption Index           2009        35 of 180
Heritage Economic Freedom     2009        53 of 179
World Bank Doing Business     2010        48 of 183

For more information about these measures visit:
http://www.transparency.org/policy research/surveys indices/
cpi/2009/cpi 2009 table
http://www.heritage.org/index/
http://www.doingbusiness.org/economyrankings/

B. Conversion and Transfer Policies

Portugal maintains no current or capital account
restrictions.
On January 1, 1999, Portugal and ten other European countries
formed the European Monetary Union. On January 1, 2002,
Portugal introduced the euro as its official currency,
replacing the Portuguese escudo which is no longer in
circulation. Currently, there are sixteen member-states that
use the euro.

C. Expropriation and Compensation

There have been no cases of expropriation of foreign assets
or
companies in Portugal in recent history, nor is there concern
about future expropriation.

Banco Portugues de Negocios (BPN) was nationalized November
2,
2008, the first bank nationalization in Portugal since 1975.
At the time of the nationalization BPN had lost approximately
700 million euros from declining investment values from the
global financial crisis, but the Ministry of Finance stressed
that BPN was taken over as a result of an ongoing
investigation into mismanagement and malfeasance.

D. Dispute Settlement

The Portuguese legal system is slow and deliberate, with many
cases taking years to resolve. In an effort to address this
problem, the government introduced reforms in litigation
procedures and public administration in 2007. These reforms
are intended to reduce delays in the justice system and
improve its effectiveness by reorganizing the court system
and redefining the division of the court's jurisdiction.

E. Performance Requirements and Incentives

As an incentive to both national and foreign companies,
resident entities or branches of non-resident entities whose
main activity is of a commercial, industrial or agricultural
nature are subject to a corporate income tax (IRC) with a
rate of 12.5 percent for the first 12,500 euros of income
and 25 percent for income exceeding 12,500 euros, and a set
municipal surcharge of no greater than 1.5 percent of
company's taxable profit subject to IRC. Rates vary from
municipality to municipality. Other tax regimes are in place
for the country's two autonomous island regions: the Azores
and Madeira.

The Portuguese Government also offers several incentive
packages tailored to investors' needs and capital based on
industry, proposed size of investment and project
sustainability. Details about the programs are available
on the AICEP website: http://www.portugalglobal.pt

For example, under Portugal's investment incentive regime,
AICEP is empowered to negotiate a tailored incentives
package for large investment projects on a case-by-case

LISBON 00000022 003.2 OF 007


basis, including tax cuts and subsidized or interest-free
loans, as well as cash grants. Large-scale investment
projects are investment projects exceeding 25 million euros,
within a period of three years, or those promoted by a
company, or group of companies with a total turnover greater
than 75 million euros. The goal of the program is to leverage
investments for proposed projects that support the
government's economic development goals. AICEP has designed
the program to address Portugal's long-term competitiveness,
including human resources, and to promote Portugal's brands
and patents in the industrial, energy, construction,
transport, tourism, commerce and services sectors.
For more information visit http://www.portugalglobal.pt

The National Strategic Reference Framework (NSRF) seeks to
improve the quality of Portugal's workforce and encourage
economic and socio-cultural development through expanded
human resources development opportunities, support for
entrepreneurship and innovation, streamlined public
administration, and other measures.
For more information visit http://www.qren.pt or
http://www.incentivos.qren.pt

F. Right to Private Ownership and Establishment

Private Ownership/Enterprise: Private ownership is limited
to 49 percent in the following sectors: basic sanitation
(except waste treatment), international air transport,
railways, ports, arms and weapons manufacture, and airports.
The government requires private firms to obtain concessions,
contracts, and licenses to operate in a number of sectors
(public service television, waste distribution, waste
treatment), but grants these on a non-discriminatory basis.
Foreign firms have the right to establish themselves in all
economic sectors open to private enterprise. Foreign
investments affecting public health, public order or
security, or relating to the arms industry, require
approval of the competent authorities.

Competitive Equality: Law No.18/2003, of June 6, 2003,
governs protection and promotion of competition in Portugal.
It specifically outlaws collusion between companies to fix
prices, limit supplies, share markets or sources of supply,
discriminate in transactions, or force unrelated obligations
on other parties. Similar prohibitions apply to any company
or group with a dominant market position. The law also
requires prior government notification of mergers or
acquisitions which would serve to give one company more than
30 percent market share in one sector or among entities
which had total sales in excess of 150 million euros in the
preceding financial year. The Competition Authority has 60
days to determine if the merger or acquisition can proceed.
The European Commission may claim authority on cross-border
competition issues or those involving entities large enough
to have a significant EU market share. For more information
visit http://www.concorrencia.pt/en/index.asp

Privatization Program: Portugal engaged in a wide-ranging
privatization program that sold 100 enterprises and
generated approximately USD 14 billion in revenues between
1996 and 2006. Privatization involves the sale of government
shares in state-owned companies, typically in a series of
share offerings. These share offerings often include private
transactions, usually to attract a "strategic partner" as an
equity holder, and public offerings.

Major privatizations in recent years included sales of
interest in Portugal Telecom (telecommunications), EDP
(electricity), REN (Electricity Transmission System Operator)
and GALP Energia (petroleum refining and marketing, natural
gas distribution).

G. Protection of Property Rights

The government adopted the Agreement on Trade Related
Aspects of Intellectual Property Rights (TRIPS) and
provisions of General Agreement on Tariffs and Trade (GATT)
in 2003. Portuguese legislation for the protection of
intellectual property rights has been consistent with WTO
rules and EU directives since 2004.

Portugal is a participant in the eMAGE and eMARKS projects,
which provide multilingual access to databases of trademarks
and industrial designs. These international efforts assist
participating customs authorities in preventing sales of
counterfeit goods. Other countries involved include France,
Austria, Hungary and Spain.

LISBON 00000022 004.2 OF 007



Trademark Protection: Portugal is a member of the
International Union for the Protection of Industrial Property
(WIPO) and a party to the Madrid Agreement on International
Registration of Trademarks and Prevention of the Use of False
Origins. Portugal's current trademark law entered into force
on June 1, 1995. The law, however, is not considered to be
entirely consistent with TRIPS.

Copyright Protection: Portugal has transposed the EU
information society and protection of databases directives
into national legislation (Decree-Law 50/2004 and 112/2000,
respectively). However, the software piracy rate is slightly
greater than average software piracy rate in EU.

Patent Protection: Currently, Portugal's patent protection is
governed by the Code of Industrial Property that went into
effect on June 1, 1995. In 1996, new legislation was passed
to extend the life of then-valid patents to 20 years,
consistent with the provisions of TRIPS. A new industrial
property code, designed to bring Portugal into full
conformity with EU and international norms, came into effect
at the beginning of 2003.

Portugal grants health (FDA-equivalent) approval to market
new drug products without crosschecking for existing products
with unexpired patent protection already in the market. This
forces companies to pursue redress through the court system,
an expensive and time-consuming process. U.S. pharmaceutical
companies have brought a number of cases before Portuguese
tribunals for the violation of patent rights by Portuguese
companies. One U.S.-owned pharmaceutical company has won
five cases and has several more pending.

H. Transparency of Regulatory System

In the recent past, businesses frequently complained about
red tape with regards to registering companies, filing
taxes, receiving value-added tax refunds and importing
materials. Decision-making tended to be centralized and
obtaining government approvals/permits can be time-
consuming and costly.

The Ministry of Economy has promoted various initiatives
to improve the situation. In 2007, it worked with the
Ministry of Justice to launch the "Cutting Red Tape"
website, a repository of information for all measures taken
since 2005 to reduce bureaucracy in the incorporation,
registration, certification, liquidation, dissolution and
merging of businesses in Portugal. Other initiatives include
the "Empresa na Hora" (On-the-Spot Company) which allows for
the incorporation of companies in less than one hour at
Corporate Formalities Centers and Business Registration
Offices; and other services such as online company
incorporation, labor mediation, bilingual commercial
registration, and patents and trademarks. Since 2005, a
total of 14,471 companies have been incorporated under the
"Empresa na Hora" program, while over 450 companies have
been incorporated using the online service. More information
can be found at the "Cutting Red Tape" website:
http://www.cuttingredtape.mj.pt

I. Efficient Capital Markets and Portfolio Investment

One result of Portugal's participation in the European
Monetary Union is the country's increasing integration into
a European-wide financial market. As a member of the Euro-
zone, Portugal offers low exchange rate risk for foreign
investors, interest rates comparable to other EU countries
and a greater availability of credit. In addition to bank
lending, the private sector has access to a variety of credit
instruments, including bonds. Legal, regulatory, and
accounting systems are consistent with international norms.

The Portuguese capital markets code (the CVM) came into
effect on March 1, 2000, and has rationalized and streamlined
Portuguese capital markets legislation. The Lisbon stock
market is part of Euronext, which also includes the Paris,
Brussels and Amsterdam markets.

Portugal has about 45 banking institutions, and the six
largest bank groups account for seventy-eight percent of
the sector's total assets. The country's largest bank,
Caixa Geral de Depositos (CGD), is controlled by the
Portuguese government. Despite recent economic challenges,
the financial sector continues to perform well.


LISBON 00000022 005.2 OF 007


In addition to banks and stock markets, Portugal has taken
specific steps to ensure that the financial needs of SMEs
are met. IAPMEI has a program of mutual guarantees so that
SMEs do not have to use their assets or those of their
shareholders to collateralize debt. The companies pay an
initial evaluation fee and an annual fee equal to 0.75-3.00
percent of the guarantee. IAPMEI has also supported the
creation of venture capital funds and venture capital
companies, which will channel capital to SMEs.

J. Competition from State Owned Enterprises

The Portuguese system is based on non-discrimination
regarding national origin of investment. Foreign and
domestic private companies are limited in relation to
certain economic activities, such as water utilities,
postal services, rail transport and the maritime ports.
Private sector companies, regardless of national origin,
can operate in these restricted fields only through a
concession contract.

There is no sovereign wealth fund in Portugal.

K. Corporate Social Responsibility

There is strong awareness of corporate social responsibility
in Portugal, and broad acceptance of the need to consider the
community among the key stakeholders of any company. RSE
Portugal (Corporate Social Responsibility Portugal), the
leading association for corporate social responsibility in
Portugal, was formed in 2002 as the successor to the
Portuguese Business Network for Social Cohesion, which was
formed in 1996. RSE Portugal aims to build bridges between
the private sector and key stakeholders towards a more
responsible and sustainable future. RSE Portugal's mission
is to promote corporate social responsibility as business'
contribution for sustainable development through the
conception, execution, and support of programs and projects
in educational, formative, social, cultural, scientific,
environmental, civic, and economic areas in Europe and in
developing countries. Since its formation RSE Portugal has
sponsored numerous classes and workshops promoting corporate
social responsility and collaborated with NIKE to fund and
support innovative projects for young people in the areas of
social sciences, health, education, and training. RSE
Portugal has also carried out studies of competitiveness
and sustainability in the construction industry in
collaboration with counterpart organizations in Italy,
Spain, Hungary, and Austria.

For more information visit http://www.rseportugal.eu

L. Political Violence

There have been no incidents involving politically
motivated damage to projects and/or installations.
Potentially destructive civil disturbances are not likely.

M. Corruption

Corruption plays a limited role in Portugal's business
culture. Although U.S. firms occasionally encounter limited
degrees of corruption in the course of doing business in
Portugal, they do not identify corruption as an obstacle to
foreign direct investment. In Transparency International's
2009 Corruption Perceptions Index, Portugal ranked 35 out
of 180 countries considered (listed from least to most
corrupt). Portugal has ratified the OECD Anti-bribery
Convention and recently passed legislation to bring its
criminal code in compliance with the Convention. Tax evasion
remains a problem for the government, which has implemented
several initiatives to improve collection rates. The
Socrates administration is taking steps to address the
limited degrees of corruption that businesses, both U.S.
and other, face in Portugal.

N. Bilateral Investment Agreements

http://www.portugalglobal.pt

Listing of International Treaties:
http://www.gddc.pt/siii/paises-organizacoes.a sp

O. OPIC and Other Investment Insurance Programs

Portugal is a country with low political risk, and the
potential for significant OPIC insurance programs in

LISBON 00000022 006.2 OF 007


Portugal is limited. Portugal is a member of the
Multinational Investment Guarantee Authority (MIGA) of
the World Bank.

P. Labor

Numerous labor reform packages aimed at improving the
productivity of Portugal's workforce have been enacted
over recent years, with limited success. A package of
labor reform laws took effect in 2003 permitting greater
geographic and functional mobility for employees. The labor
code limits the role of unions and makes it more difficult
for workers to strike. It also addresses absenteeism and
fraudulent leave. Additional changes were enacted in 2009
clarifying rules concerning intermittent and seasonal
employment, specifying leave flexibility regarding
parenthood and family support, and other issues. However,
low productivity and difficulty in firing workers continue
to hamper Portugal's ability to attract foreign investment.

Labor strikes and work stoppages in Portugal, as in much of
Europe, are more common than in the United States. Most
strikes, however, are of short duration. In recent years
work stoppages have been more common among public sector
workers, including the transportation sector and teachers,
than in the private sector.

Portugal is a member of the International Labor Organization
(ILO) and adheres to the ILO Conventions Protecting Labor
Rights. Portugal ratified ILO Convention 138, which
establishes a minimum employment age of 15 for all economic
sectors. As of January 1, 1997, the minimum working age in
Portugal is 16, thereby exceeding the ILO norm.

Unemployment: Portugal's unemployment rate reached 10.3
percent in the 4th quarter of 2009. This is an increase of
30 percent from the same quarter of 2008 (7.8 percent) and
up 0.5 percent from the previous quarter (9.8 percent). The
number of unemployed was estimated to be 575.6 thousand
individuals.

Q. Foreign-Trade Zones/Free Ports

Portugal has two foreign trade zones (FTZ)/free ports in the
island autonomous regions of Madeira and the Azores. These
foreign trade zones/free ports were authorized in conformity
with EU rules or incentives granted to member states.
Industrial and commercial activities, international service
activities, trust and trust management companies, and
offshore financial branches are all eligible. Companies
established in the foreign trade zones enjoy import/export-
related benefits, financial incentives, tax incentives for
investors and tax incentives for companies.

The Madeira FTZ has approximately 6,500 registered
companies. Under the terms of Portugal's agreements with
the EU, companies in the Madeira FTZ can take full advantage
of the tax incentives provided until December 2011, when
those incentives will begin to be phased out. For more
information visit
http://www.madeira-management.com

R. Foreign Direct Investment flows into Portugal

http://www.portugalglobal.pt

S. Portuguese Trade with the U.S.

http://www.census.gov/foreign-trade

T. Major Foreign Direct Investors

Selected Major Foreign Investors in Portugal:
http://www.portugalglobal.pt

U. Web Resources

Bank of Portugal:
http://www.bportugal.pt

Portuguese Agency for Foreign Investment and Commerce:
http://www.portugalglobal.pt

"Cutting Red Tape":
http://www.cuttingredtape.mj.pt

Empresa na Hora (On-the-Spot Firm):

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http://www.empresanahora.pt

QREN (National Strategic Reference Framework 2007 - 2013)
http://www.qren.pt

EUROSTAT (Statistical Office of the European Communities):
http://ec.europa.eu/eurostat

U.S. Census Bureau:
http://www.census.gov

Technological Plan:
http://www.planotecnologico.pt

The "Cutting Red Tape" Investment Incentive Program:
www.cuttingredtape.mj.pt

Portuguese Government:
http://www.portugal.gov.pt

American Chamber of Commerce in Lisbon:
http://www-cca.cliente.imediata.pt

IAPMEI (Institute for S.M.E. Support and Investment):
http://www.iapmei.pt

INPI (Portuguese Patent and Trademark Office):
http://www.inpi.pt

Trade and Competition Directorate-General:
http://www.dgcc.pt

US Commercial Service in Portugal:
http://www.buyusa.gov/portugal/en
BALLARD


For more reporting from Embassy Lisbon and information about Portugal,
please see our Intelink site:

http://www.intelink.sgov.gov/wiki/portal:port ugal
BALLARD

 
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