Why foreign SMEs are choosing Portugal

Lisbon: After the crisis of the 2000s, Portugal recovered and established itself as a stable economy attractive to investment. With a skilled workforce, incentives for innovation, and a strong network of international relations, the country has positioned itself as fertile ground for companies looking to grow with stability and scale. The Bank of Portugal forecasts that the national economy will continue to grow above the eurozone average until 2027, driven by investment and exports. In this context, the arrival of small and medium-sized foreign enterprises (SMEs) has intensified, drawn by a favourable business environment, strategic location, and competitive tax regime.

Around 10,700 branches of foreign companies are currently operating in Portuguese territory, according to the UNCTAD World Investment Report 2024. These companies represent 18.5% of employment and 29% of turnover in the country, contributing €38 billion to GDP and providing 682,000 jobs.

According to AICEP – the Portuguese Trade and Investment Agency, the main investing countries are Spain (20.2%), the Netherlands (19.3%), Luxembourg (17.7%), France (7.5%), and the United Kingdom (7%). At the end of 2023, 87% of the stock of foreign direct investment was held by European Union countries.

Spanish SMEs, in particular, have taken advantage of geographical proximity and ease of integration to establish themselves in Portugal or acquire local companies. “The trend is visible in sectors such as agriculture, especially in Alentejo and the Algarve, fertilizers and agribusiness, industrial machinery, restaurants and hospitality, real estate and construction, and communications”, explains Maria Inês Assis, tax partner at Abreu Advogados.

Banking, energy, retail, and telecommunications also stand out among Spanish investments, while France focuses on the automotive and agri-food industries, and the United Kingdom is active in financial services, technology, and tourism, says António Rocha Mendes, tax partner at CS’Associados. Luxembourg and the Netherlands act as investment holding platforms, taking advantage of tax and corporate benefits. Fishing and transport are also among the most sought-after sectors.