Portugal has emerged as one of the most strategically attractive destinations for US investment and international business partnerships. EU membership, strong English-language proficiency among professionals, a favorable business climate, and deep historical and cultural ties to the US (and to Brazilian Portuguese-speaking communities) make Portugal a natural entry point for US companies looking to access the European market. For US companies working with Portuguese partners or expanding to Portugal, understanding the interplay between EU law, Portuguese national law, and US law is essential. Getting the legal structure right from the start is far less expensive than correcting it after the fact.

This guide covers Portugal’s legal system, key contract law differences from the US, franchise-specific considerations, entry structures for the Portuguese market, and tax planning fundamentals for US-Portugal transactions. At Lopes Law LLC, we serve Portuguese-speaking clients in English and Portuguese, with Anthony Lopes, Esq. available to advise directly in Portuguese without the need for translation.

How Is Portugal’s Legal System Different from the US?

Like Brazil, Portugal uses a civil law system. The primary source of private law is the Portuguese Civil Code (Codigo Civil), which derives from Roman law and the French Napoleonic Code tradition. Unlike the US common law system, where courts develop law through precedent over time, Portuguese courts apply written code provisions, and judicial decisions are persuasive but not binding in the same way US case law is.

EU Law Supremacy

Portugal is a member of the European Union, which adds a critically important layer: EU regulations apply directly in Portugal without needing national transposition, and EU directives must be transposed into Portuguese law within defined timeframes. For US companies doing business with Portuguese partners, this means compliance obligations exist at three levels: US law, Portuguese national law, and EU law. EU regulations like GDPR, EU commercial agents rules, and EU consumer protection directives all affect the structure of US-Portuguese commercial contracts.

Arbitration in Portugal

Portugal has a well-developed commercial arbitration framework under Law 63/2011 (Voluntary Arbitration Law). The Portuguese Arbitration Centre (CAC, Centro de Arbitragem Comercial) in Lisbon is an established institution for resolving commercial disputes. For US companies entering into contracts with Portuguese counterparties, ICC arbitration with a Portuguese seat or CAC arbitration are both viable approaches and are generally preferable to relying on either US or Portuguese court jurisdiction alone.

What Are the Key Legal Differences in Portuguese Contracts?

Several Portuguese contract law concepts differ significantly from their US equivalents and require careful attention when drafting or reviewing contracts with Portuguese parties.

Pre-Contractual Liability

Article 227 of the Codigo Civil creates broad good-faith obligations in contract negotiations. A party that breaks off contract negotiations in bad faith, after the other party has reasonably relied on the likelihood of a contract being formed, can be held liable for culpa in contrahendo (pre-contractual liability). This concept does not have a direct equivalent in US law. For US companies negotiating with Portuguese partners, this means that entering into negotiations and then withdrawing without cause can create legal exposure under Portuguese law, particularly if the Portuguese party has incurred costs or made decisions based on the expected deal.

Consumer Protection and EU Consumer Rights Directive

The EU Consumer Rights Directive has been transposed into Portuguese law and provides consumers with rights that significantly exceed what US consumer protection law requires. B2C contracts with Portuguese consumers must include mandatory withdrawal rights (14-day cooling-off period for online and distance contracts), detailed pre-contract information requirements, and pricing transparency rules. These obligations apply to any US company selling goods or services to Portuguese consumers, regardless of where the company is located.

Portuguese Labor Law

The Portuguese Labor Code (Codigo do Trabalho) is strongly protective of workers. Employment termination in Portugal requires justified cause (justa causa) for dismissal or, alternatively, a collective dismissal or economic restructuring process with specific procedural requirements. Severance obligations for terminated employees are significant. If a US company has Portuguese employees or engages Portuguese service providers in a manner that could be reclassified as employment, the exposure is substantial. Proper structuring of employment and service relationships from the outset is essential.

GDPR Compliance

GDPR applies to the processing of any personal data belonging to EU residents, including Portuguese nationals and residents. Any contract involving the collection or processing of Portuguese personal data must include compliant Data Processing Agreements (DPAs). The Portuguese supervisory authority is the CNPD (Comissao Nacional de Protecao de Dados). Fines for GDPR violations can reach 4% of global annual turnover or 20 million euros, whichever is higher.

What Franchise Issues Are Specific to Portugal?

Unlike Brazil, Portugal does not have a specific franchise disclosure law. Franchise relationships are governed by general contract law under the Codigo Civil and Portuguese commercial law principles. This creates a different compliance environment for US franchisors expanding to Portugal compared to expanding to Brazil.

No Mandatory Franchise Disclosure Law

Because Portugal has no specific franchise statute, US franchisors are not required to prepare a Portuguese equivalent of the FDD (Circular de Oferta de Franquia) the way they must for Brazil. However, the Codigo Civil’s good faith requirements under Art. 227 create de facto pre-contractual disclosure obligations: a franchisor that withholds material information during negotiations can face pre-contractual liability claims under Portuguese law. Best practice is to provide comprehensive pre-contractual disclosure even in the absence of a statutory mandate.

The E-2 Visa Advantage for Portuguese Nationals

One of the most significant practical advantages of the US-Portugal relationship, from a franchise investment perspective, is the E-2 Treaty Investor visa. Portugal has an E-2 treaty with the United States, which allows Portuguese nationals to obtain a nonimmigrant visa to live in the US and operate a qualifying franchise investment. This is in contrast to Brazilian nationals, who cannot use the E-2 program because Brazil has no E-2 treaty with the US.

At Lopes Law LLC, we frequently work with Portuguese nationals purchasing US franchises as part of an E-2 visa strategy. The legal process involves: reviewing the FDD and franchise agreement to confirm the franchise is a qualifying investment, confirming the investment amount meets the E-2 substantiality threshold (there is no fixed dollar minimum, but the investment should be substantial relative to the total cost of the franchise), structuring the ownership entity correctly for visa and tax purposes, and coordinating with an immigration attorney on the visa application.

US Franchisors Expanding to Portugal

For US franchisors expanding to Portugal, the master franchise structure is common. The master franchise agreement should address Portuguese contract law’s good faith requirements, EU consumer protection obligations for any consumer-facing sub-franchise relationships, GDPR compliance for franchisee and customer data processed within the system, and Portuguese labor law compliance for any direct employees. EU commercial agents law also applies if any intermediaries involved in recruiting sub-franchisees could be characterized as commercial agents under the EU Commercial Agents Directive.

How Can US Companies Enter the Portuguese Market?

US companies have several standard market-entry options for Portugal, each with different legal and tax implications.

Distribution Agreement

The most straightforward option for product-based businesses: appoint a Portuguese distributor who buys and resells the US company’s products. If the distributor acts as a commercial agent (soliciting orders on behalf of the US company rather than buying for its own account), the EU Commercial Agents Directive applies and gives the agent rights to compensation upon termination that cannot be waived by contract.

Portuguese Subsidiary

Establishing a Portuguese private limited company (Lda., Sociedade por Quotas) or public company (S.A., Sociedade Anonima) creates a separate legal entity in Portugal with its own tax residency. Registration with the RNPC (Registo Nacional de Pessoas Coletivas) is required. A Portuguese subsidiary can employ staff, enter into contracts, and operate under Portuguese regulatory supervision independently from the US parent.

Branch Office

A branch of the US parent company, registered in Portugal. The branch is not a separate legal entity: the US parent is directly liable for the branch’s obligations. Branches are simpler to establish than subsidiaries but create direct exposure of US parent assets to Portuguese law claims.

Franchise

As discussed above, franchise expansion to Portugal uses either a master franchise structure (one Portuguese master franchisee develops the territory) or direct franchising (the US franchisor deals directly with individual Portuguese franchisees). The choice depends on the size of the target market, the US franchisor’s resources for direct support, and the availability of qualified master franchisee candidates.

What Tax Considerations Apply to US-Portugal Business?

The tax environment for US-Portugal business transactions is significantly more favorable than for US-Brazil transactions, primarily because the US and Portugal have a bilateral income tax treaty.

The US-Portugal Tax Treaty

The US-Portugal income tax treaty addresses withholding rates on dividends, interest, royalties, and capital gains paid between US and Portuguese entities. Treaty-reduced withholding rates reduce the tax cost of cross-border royalty payments from a Portuguese subsidiary to a US parent, compared to the statutory Portuguese withholding rate. This makes Portugal a more tax-efficient base for European franchise expansion than many non-treaty jurisdictions.

Portuguese Corporate Tax: IRC

Portuguese corporate income tax (IRC, Imposto sobre o Rendimento das Pessoas Coletivas) applies at a standard rate of 21%, with additional municipal surcharges (derrama municipal) of up to 1.5% and a state surcharge (derrama estadual) for profits exceeding certain thresholds. Portugal also has participation exemption rules that can exempt dividends and capital gains from Portuguese subsidiaries in certain circumstances.

VAT: IVA

Portuguese VAT (IVA, Imposto sobre o Valor Acrescentado) applies at a standard rate of 23% (mainland Portugal; reduced rates in Azores and Madeira). US companies selling digital services or products to Portuguese consumers may have Portuguese VAT registration and collection obligations under EU e-commerce VAT rules, regardless of whether the US company has a physical presence in Portugal.

A Real Scenario: E-2 Visa and US Franchise Investment

A couple from Portugal had been living in the US on H-1B visas tied to their US employer. They wanted a path to remain in the US that was not dependent on employer sponsorship. They identified a retail franchise brand with a strong track record and received the FDD. Because they were not fluent in US legal terminology, they wanted an attorney who could review the document and explain it to them in Portuguese.

At Lopes Law LLC, Anthony Lopes, Esq. reviewed the FDD in full and confirmed: the franchise investment amount was sufficient to meet E-2 substantiality requirements for their investment category, the franchise was a real operating enterprise (not a passive investment), and the franchise agreement did not include provisions that would prevent the couple from operating the business themselves as required by E-2 rules. We structured the investment through a Portugal-citizen-owned US LLC, coordinated with the couple’s immigration attorney on the E-2 visa application, and confirmed that the franchise agreement correctly identified the entity as the franchisee with the couple as the managing members. The franchise agreement was signed after a 14-day FDD review period, and the E-2 visa application was filed approximately six weeks later.

How Does Lopes Law LLC Help with US-Portugal Transactions?

At Lopes Law LLC, we draft and review international commercial contracts in English and Portuguese. Anthony Lopes, Esq. is a native Portuguese speaker with direct experience advising Portuguese clients and counterparties in franchise and commercial transactions. We advise on franchise structure, E-2 visa investment considerations, cross-border commercial agreements, and coordination with Portuguese counsel for in-country regulatory compliance.

International contract review is available at a flat fee of $1,500 to $2,000. International FDD review for Portuguese nationals investing in US franchises: $6,000. For related reading, see our guide on E-2 Visa and Franchise Investment: What Portuguese Nationals Need to Know, our post on Why a Bilingual Attorney Is Different from a Translator, and our overview of International Franchise Investment: A Complete Legal Guide.

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