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DE RUEHLI #0503/01 0591147
ZNR UUUUU ZZH
R 281147Z FEB 07
FM AMEMBASSY LISBON
TO RUEHC/SECSTATE WASHDC 5596
INFO RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS LISBON 000503 
 
SIPDIS 
 
SIPDIS 
 
TREASURY FOR DO/JWALLACE 
USDOC FOR ITA/SMATHEWS 
USTR FOR DWEINER 
OPIC FOR RO'SULLIVAN 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ETRD ELAB KTDB PGOV PO
SUBJECT: PORTUGAL'S 2007 INVESTMENT CLIMATE STATEMENT 
 
REF: STATE 178303 
 
¶1. The following is Portugal's submission for the 2007 
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 adopted the Euro as its official curreny, 
further integrating itself with the European Union's 
financial and economic policies. Prime Minister Jose 
Socrates, who took office in 2005, has made opening 
Portugal's economy to foreign investment a key priority. 
 
Government Promotion Agencies: The key agency leading 
Portugal's economic development policy is API (Invest in 
Portugal Agency). API is a public company with a public 
equity of 110 million Euros and acts as a single point of 
contact for investors with projects over 25 million Euros or 
companies with a consolidated turnover superior to 75 million 
Euros. For foreign investments not meeting these 
requirements, API will make a preliminary analysis and direct 
the investor to the appropriate investment assistance agency 
or program.  API has published an "Investor's Guide" in 
Portugal, which includes a description of the legal and 
institutional framework for investments, as well as a section 
on incentives, venture capital and mutual guarantees, and 
fiscal incentives. This guide is available in Portuguese and 
in English, on the website: http://www.investinportugal.pt. 
 
Portugal's trade promotion agency, ICEP is planning to merge 
with API in the near future. The new institution will be 
named AICEP - Agncia para o Investimento e Comrcio Externo 
de Portugal (Portuguese Agency for Foreign Investment and 
Commerce). 
 
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% of a resident company's 
equity, provided that the direct investor possess effective 
decision power. 
 
Foreigners are permitted to establish themselves in all 
economic sectors open to private enterprise.  Currently, 
however, Portuguese government approval is required for 
non-EU investment in the following sectors: defense industry, 
water management, public service telecommunications 
operators, railways, and maritime transportation.  Also, 
Portugal restricts non-EU investment in regular air transport 
to 49 percent. 
 
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 take prudential considerations 
into account, but in the case of non-EU firms, the Ministry 
of Finance also 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 for at least 
five years. 
 
Foreign Workers: Foreigners who want to work in Portugal must 
obtain a work permit and a residence permit.  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. According to 
Decree-law 34/2003 API can recommend the granting of a work 
permit to a non-EU national when the worker is essential to 
national economy, possesses highly qualified competencies or 
his/her work is of relevant scientific interest to the 
country. 
 
In the past, the Ministry of Health has allowed serious 
arrears to develop in payments for goods and services used in 
the government's health program.  These delays have cut into 
the profitability of U.S. companies working in the health 
field, especially pharmaceuticals.  U.S. firms are not 
discriminated against compared to Portuguese or other foreign 
firms with regard to timeliness of payments. 
 
¶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 adopted the Euro as its official 
currency, replacing the Portuguese Escudo which is no longer 
in circulation. 
 
¶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 for future expropriation. 
 
¶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 2004. 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 power. The reform also 
establishes new rules for management within the judicial 
system. 
 
¶E. Performance Requirements and Incentives 
------------------------------------------ 
As an incentive for both national and foreign companies, 
Portugal reduced its corporate income tax (IRC) for net 
profit from 30% to 25%, and set the municipal surcharge to no 
greater than 2.5% of taxable profit. Rates vary from 
municipality to municipality. Other tax regimes are in place 
for the country's autonomous regions, the islands of the 
Azores and Madeira. 
 
The Portuguese Government also offers several incentive 
packages tailored to investors' needs and investment capital. 
 Details about the programs are available on the API website 
at: http://www.investinportugal.pt. 
 
For example, under Portugal's investment incentive regime, 
API - Invest in Portugal Agency - is empowered to negotiate a 
tailored incentives package for large investment projects on 
a case-by-case basis, including tax cuts and subsidized or 
interest-free loans as well as cash grants. Large-scale 
investment projects are all 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 superior to 75 million Euros. The goal of the 
program is to leverage investments for proposed projects that 
support the government's economic development goals.  API 
hopes to use the program to address Portugal's long-term 
competitiveness issues, including human resources, and to 
promote Portugal's own brands and patents, in the industrial, 
energy, construction, transport, tourism, commerce and 
services sectors. 
 
For more information: 
http://www.planotecnologico.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, 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. 
 
Privatization Program: Portugal has engaged in a wide-ranging 
privatization program that sold off 100 enterprises and 
generated approximately $14 billion in revenues in its first 
ten years of existence. 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), and GALP (petroleum refining and marketing, 
natural gas distribution). Firms, which are expected to be 
privatized in the near future, include TAP (Airline) and REN 
(Electricity Transmission System Operator). In some cases, 
the process of identifying and selecting strategic partners 
has not been transparent. In one recent high-profile case, 
the GOP's parastatal holding company, Parpblica, was to 
choose a new strategic partner for a state company in a 
resale of its privately held shares. There was no formal 
tender issued, and bidders participated by invitation of the 
GOP. Parpblica chose, as a strategic partner, a Portuguese 
company with no other activities in that industrial sector. 
The U.S. bidder, whose consortium did include a Portuguese 
company with activities in that sector, was not short-listed. 
 
¶G. Protection of Property Rights 
-------------------------------- 
The government adopted the trade-related intellectual 
property (TRIPS) provisions of 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 E-MAGE project, an Internet 
based service, which provides multilingual access to 
databases of trademarks and industrial designs. This 
international cooperation helps customs authorities prevent 
sales of counterfeit goods. Other countries involved include 
France, Austria, Hungary and Spain. 
 
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 is finishing the process of 
adopting EU directives in the form of national legislation. 
Most recently, the country adopted the EU Directive on 
protection of databases (Decree Law 122/2000, July 4, 2000). 
However, software piracy remains a problem. 
 
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, like other European countries, 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 
------------------------------------ 
Businesses frequently complain about red tape with regards to 
registering companies, filing taxes, receiving value-added 
tax refunds and importing materials. Decision-making tends to 
be centralized and obtaining government approvals/permits can 
be time-consuming and costly. A process of appeals for 
administrative complaints and litigation was introduced in 
2004 to reduce delays in the justice system and improve its 
effectiveness. The program has alleviated many of the 
requirements for company licensing and reduced the length of 
time required to incorporate a company. In addition, notarial 
services were also privatized in 2004. 
 
The government initiated the rapidly expanding "Empresa na 
Hora" (Business in an Hour) program in 2005 to facilitate 
navigation of the bureaucracy of starting a business. To 
date, over 1200 businesses are using the have been 
established between July and December 30, 2005 using this 
program. More information can be found at Empresa na Hora's 
website at http://www.empresanahora.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 50 banking institutions.  The largest five 
bank groups, however, accounted for a majority of the 
sector's total assets.  Nevertheless, Portugal's bank sector 
is still undergoing consolidation in order to create banks 
large enough to compete in the European market.  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. 
 
In addition to banks and stock markets, Portugal has taken 
specific steps to ensure that the financial needs of small 
and medium sized enterprises (SMEs) are met. Portugal's 
Institute for Supporting Small and Medium-Sized Enterprises 
and Investment (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. 
 
Of the 25.3 billion Euros in projects to date under the 
government's 2000-2006 program to support Portugal's economic 
development (POE and PRIME from 2002 onwards), 14.6 billion 
Euros has been invested in 13,794 projects approved by these 
Programs.  For more information on PRIME, visit the homepage 
at http://www.prime.min-economia.pt. 
 
Steps have been taken to improve the educational and 
vocational training programs in Portugal, in hopes of 
improving education attainment and labor productivity, which 
lag behind the EU-15 average. 
 
¶J. Political Violence 
--------------------- 
There have been no incidents involving politically motivated 
damage to projects and/or installations. Potentially 
destructive civil disturbances are not likely. 
 
¶K. Corruption 
------------- 
Corruption is a relatively limited aspect of the business 
culture in Portugal. Although U.S. firms occasionally 
encounter limited degrees of corruption in the course of 
doing business in Portugal, they generally are able to manage 
it and do not identify corruption as an obstacle to foreign 
direct investment. In Transparency International's 2006 
Corruption Perceptions Index, Portugal ranked 26th out of 163 
countries considered (listed from least to most corrupt). The 
U.S. was ranked 20th. 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 undertaking steps to address 
the limited degrees of corruption that businesses, both U.S. 
and other, face in Portugal. 
 
¶L. Bilateral Investment Agreements 
---------------------------------- 
http://www.apinvest.pt/ 
 
¶M. OPIC and Other Investment Insurance Programs 
--------------------------------------------- -- 
Portugal is a country with low political risk, and the 
potential for significant OPIC insurance programs in Portugal 
is limited.  Portugal is a member of the Multinational 
Investment Guarantee Authority (MIGA) of the World Bank. 
 
¶N. Labor 
-------- 
A package of labor reform laws took effect in 2003 permitting 
greater geographic and functional mobility for employers. The 
labor code limits the role of unions and makes it more 
difficult for workers to strike. It also addresses 
absenteeism and fraudulent leave. 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 the past two 
years, work stoppages have been more common among public 
sector workers, including the transportation sector, than in 
the private sector. 
 
Portugal is a member of the International Labor Organization 
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 2006 unemployment rate was 7.3%, 
lower than the EU-25 average of 7.6%. The outlook for job 
creation, although low, has improved recently with the 
government having taken steps to improve educational and 
vocational training programs to improve labor productivity 
which consistently lag behind the EU-25 average. 
 
¶O. Foreign-Trade Zones/Free Ports 
--------------------------------- 
Portugal has two foreign trade zones/free ports in the 
autonomous regions of the islands 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 eligible activities. 
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 free trade zone has approximately 6500 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. 
 
¶P. Foreign Direct Investment flows into Portugal 
--------------------------------------------- --- 
http://www.apinvest.pt/ 
 
¶Q. Portuguese Trade with the U.S. 
--------------------------------- 
http://www.census.gov/ 
 
¶R. Major Foreign Direct Investors 
--------------------------------- 
Selected Major Foreign Investors in Portugal: 
http://www.apinvest.pt/ 
 
¶S. Web Resources 
---------------- 
Bank of Portugal: 
http://www.bancoportugal.pt 
 
Invest in Portugal Agency: 
http://www.investinportugal.pt 
 
Empresa na Hora: 
http://www.empresanahora.pt 
 
PRIME: 
http://www.prime.min-economia.pt 
 
EUROSTAT: 
http://ec.europa.eu/eurostat 
 
U.S. Census: 
http://www.census.gov 
 
Technological Plan: 
www.planotecnologico.pt/ 
 
 
Hoffman