An Israeli Company Operating in Portugal: Branch, Subsidiary or Direct Activity, Permanent Establishment, VAT, Employing Staff and Annual Filings

An Israeli company that starts working with customers in Portugal does not always need a local entity. The question is the scale of the activity, how long it will last, and whether the company will have employees, an office or a representative signing deals in Portugal. This guide explains the options, the legal and tax implications of each, and the ongoing obligations.

1In what ways can an Israeli company operate in Portugal?

There are four main routes: direct activity from Israel, working through an independent distributor or agent, a registered branch of the Israeli company, or a Portuguese subsidiary. The main difference is who is liable for debts, where corporate tax is paid and which registration and reporting obligations apply.

In Portugal we did not find a separate status of a “representative office” that is exempt from registration. Any ongoing activity of a foreign company, if it lasts more than a year, is assessed under the permanent representation requirement in article 4 of the Companies Code. An office engaged only in preparatory and auxiliary activities may not create a permanent establishment for tax purposes, but that is a separate question from registration.

2When must an Israeli company register in Portugal?

When it intends to operate in Portugal for more than a year - that is the rule in article 4(1) of the Commercial Companies Code, as of November 2026. Under article 4(1) of the Commercial Companies Code (Código das Sociedades Comerciais), a company that does not have its effective seat in Portugal and wishes to operate there for more than a year must set up a permanent representation and comply with Portuguese commercial registration law. Registration is made in the commercial register (Conservatória do Registo Comercial), after which an identification number is received and activity is opened with the tax authority.

3When does activity in Portugal create a permanent establishment?

When it has a fixed place of business in Portugal, a construction site lasting more than 12 months, or a dependent agent who concludes contracts in its name. Under article 5 of the treaty between Israel and Portugal, a permanent establishment is a fixed place of business through which the company's business is carried on, including a place of management, a branch, an office, a factory or a workshop. Where there is a permanent establishment, Portugal may tax the profit attributed to it, and Israel gives a credit.

• A building site or installation project: a permanent establishment only if it lasts more than 12 months.
• A dependent agent: a person acting on the company's behalf who habitually exercises an authority to sign contracts in its name creates a permanent establishment, even without an office.
• An independent agent: a broker or independent agent acting in the ordinary course of its business does not create a permanent establishment.
• Preparatory and auxiliary: storage, display or delivery of goods, or collecting information, do not create a permanent establishment when that is the whole activity.
• A subsidiary: the mere control of a Portuguese subsidiary does not make it a permanent establishment of the Israeli company.

4Branch or subsidiary: which is better for an Israeli company?

There is no single answer. A branch is simpler in corporate terms, but the Israeli company is directly exposed to every one of its liabilities. A subsidiary separates the risk, looks local to customers and banks, and allows local partners to come in, but it requires management, bookkeeping and reporting of a separate entity. On setting up a subsidiary see tax for an Israeli investor in a foreign project company, and on the Israeli side the Israeli side of activity abroad.

5Does an Israeli company need to register for VAT in Portugal?

Usually yes, through a tax representative, if it makes VAT-taxable supplies in Portugal and has no seat or permanent establishment in the EU. This is required by article 30 of the Portuguese VAT Code, and registration is made through the representative. An important exception: where all the supplies are ones on which the Portuguese customer accounts for VAT under the reverse charge mechanism, under article 2(1)(e), (g) or (h) of the Code, registration should not be required. The standard rate on the mainland is 23%, as of November 2026 according to PwC Worldwide Tax Summaries.

6What are the employer's obligations when employing staff in Portugal?

An employer in Portugal, whether a branch or a subsidiary, registers with social security (Segurança Social), pays at least the minimum wage of 920 euros a month on the mainland in 2026 (under Decreto-Lei 139/2025), withholds and pays social security contributions and income tax, and insures employees under mandatory workplace accident insurance. The main figures for 2026:

• Minimum wage: 920 euros a month on the mainland from 1 January 2026 (Decreto-Lei 139/2025). In the Azores 966 euros and in Madeira 980 euros, under regional legislation.
• Social security: 23.75% for the employer and 11% for the employee, on gross salary, with no ceiling. Members of management bodies have separate rates.
• Workplace accident insurance: mandatory, and the premium depends on the type of work and the risk.
• An employee posted from Israel: under article 15 of the treaty, a salary for work in Portugal may be taxed there, unless the stay is up to 183 days in a 12-month period, the employer is not resident in Portugal and the salary is not borne by a permanent establishment in Portugal.
• Employees relocating to Portugal: some may be eligible for the IFICI regime. See residency and tax in Portugal.

Portuguese employment law is detailed and protective of the employee, among other things on fixed-term contracts, working hours and dismissals. Before recruiting the first employee, it is advisable to draft a Portuguese employment contract with a local lawyer rather than use a translated Israeli contract.

7Under which law and in which language should contracts in Portugal be written?

In a business-to-business contract, the parties can usually choose both the governing law and the language. In a contract between businesses, the EU Rome I Regulation allows the parties to choose the governing law, and a Portuguese court will respect the choice subject to mandatory provisions. A contract in English is common in international transactions, but if proceedings take place in a Portuguese court, a translation may be required. Contracts with consumers and employees are subject to special protective rules, so they need local review. On jurisdiction and arbitration clauses see arbitration or court in a dispute abroad.

8Does the activity need a licence in Portugal?

It depends on the sector. Some activities are regulated and require a licence or registration before the activity begins, for example financial services, insurance, construction, real estate brokerage, imports of certain products and health services. The regulator varies by sector. Short-term rental also requires registration, as explained in our Alojamento Local guide. Before signing an office lease or a first contract with a customer, check whether the sector requires a licence.

9What do you need to know about banking and payments?

A branch and a subsidiary need a bank account in Portugal for paying salaries, taxes and suppliers. The bank will check the Israeli company, the ownership structure up to the beneficial owner and the source of funds, so it is advisable to prepare in advance up-to-date company documents with an apostille, an ownership chart and an explanation of the activity. The Israeli bank may also ask for documents for large transfers. See delayed transfers abroad.

10What does the annual reporting calendar of a branch or subsidiary look like?

A subsidiary and a branch that is a permanent establishment file a corporate tax return (Modelo 22) by the last day of May and make three advance payments, in July, September and by 15 December, according to PwC Worldwide Tax Summaries, as of November 2026. Employers pay over withholdings and social security contributions monthly.

11How do you start operating in Portugal in an orderly way?

Start by mapping the activity and checking permanent establishment and VAT, and only then choose a structure and register. The practical sequence:

1. Map the activity: remote sales, an employee on the ground, an office, a project, and for how long.
2. Check permanent establishment and VAT: against article 5 of the treaty and the Portuguese VAT rules.
3. Choose a structure: direct activity, a branch or a subsidiary, according to risk, duration and business plan.
4. Check licences: if the sector is regulated.
5. Register: a branch in the commercial register or incorporation of a subsidiary, and then the tax authority, VAT and social security.
6. Arrange management and the place where decisions are made: to reduce the risk of dual residence.
7. Draft contracts: Portuguese employment contracts, contracts with customers and distributors, and jurisdiction and arbitration clauses.
8. Set a reporting calendar: with a certified accountant in Portugal and an accountant in Israel.

This guide is general information as of November 2026 and is not legal or tax advice, and every case is examined on its merits with a lawyer and an accountant in Portugal and in Israel.

More on doing business in Portugal: Setting up a company in Portugal · Corporate tax and transferring profits to Israel from Portugal · Commercial disputes and litigation in Portugal · Comparison of 8 countries · All guides for companies and businesses

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