What do you need to Know about Business Mergers and Acquisitions in Portugal?

Mergers and Acquisitions, or M&A as they are collectively referred to in business language, are quite a usual part of day-to-day life. There would not be a part of the globe that is untouched by M&A, especially in a time of such market uncertainty over the last two years, and Portugal is not different in that aspect. In fact, a foreign investor can easily buy existing/ running businesses in Portugal without much challenge. And while it is not something that makes Portugal unique, it is certainly helpful for investors that are planning Business Acquisitions in Portugal.

But before one goes and plans their Business Mergers in Portugal, there are a couple of things they need to be aware of specific, general laws that deal with the legal framework of M&A and, second, the tax and employment laws. So, let’s get into it.

Legal framework for M&A in Portugal

While the Business scene in Portugal is quite friendly, which is one of the reasons why there is such an interest in businesses moving or setting up a branch in Portugal, there is still a couple of legal frameworks they need to be aware of.

I.The Civil Code, enacted on November 25, contains the rules governing the sales, purchases, and contracts by the business in question.

II.The commercial company code creates a legal framework for the governing of Portuguese companies and also with the increasing and decreasing capital shares, mergers, demergers, etc.

III.The Security Code deals with the transfer of shares in limited liability companies.

IV.Competition Act; which was recently amended due to the challenges faced due to the ongoing pandemic

V.The Labour code

VI.And finally, the private equity legal regime.

And while there are several other regulations that businesses need to contend with, especially in the banking, financing, and insurance sector, these above-mentioned legal frameworks are applicable for all sorts of businesses based and operating in Portugal.

Impact of COVID-19

Before we go into the tax and employment laws, one needs to know about the impact COVID-19 has on businesses in Portugal and the sudden but relevant changes introduced from a corporate standpoint.

• Electronic meetings

It is now possible for corporate bodies and associations to conduct their meetings electronically, even if the articles of association do not expressly authorize them. This allows for corporate members to participate in corporate matters and go on the day-to-day working of their company but also be in compliance with the government's sanitary rules and recommendations.

• Restrictions to distributions to shareholders

Companies based in Portugal are benefiting from the lay-off procedure of gradual activity recovery procedure are not eligible to distribute any kind of dividend for any title whatsoever. Failure of compliance could result in immediate termination of incentives and repayment of the amounts received.

Tax Law

In effect from January 1, 2021, any acquisition by a single shareholder of more than the 75 percent of the share in any Portuguese company, of which at least 50 percent of the assets are composed of real estate that is located in Portuguese Territory, would be subject to Real Estate Transfer Tax that is at 6.5 percent. The stamp duty rate is also 0.8 percent. Additionally, this transfer of assets could invite a stamp duty of about 5 percent of the trade under certain circumstances.

Employment Law

Due to the pandemic, several laws have been passed in the last couple of years with a view to making it easier for companies operating in Portugal to maintain their level of employment. And while there are several measures taken, the simplified lay-off procedure and extraordinary incentive for the maintenance of the positions are undoubtedly the most crucial ones of the lot.

Companies that are receiving financial assistance through public funds cannot dismiss employees for economic reasons.

Conclusion

Portugal has certainly faced some hiccups due to the global impact of COVID-19, but sufficient adjustment has been made in the regulations governing the M&A that makes it easier for one to invest in businesses based in Portugal.