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DE RUEHLI #0157/01 0180858
ZNR UUUUU ZZH
R 180858Z JAN 08
FM AMEMBASSY LISBON
TO RUEHC/SECSTATE WASHDC 6583
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 06 LISBON 000157 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EB/IFD/OIA 
STATE PASS TO USTR 
STATE FOR EUR/WE KEVIN OPSTRUP 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ETRD ELAB KTDB PGOV USTR OPIC PO
SUBJECT: PORTUGAL'S 2008 INVESTMENT CLIMATE STATEMENT 
 
REF: STATE 158802 
 
¶1. The following is Portugal's submission for the 2008 
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 currency, 
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 agency leading Portugal's 
economic development policy is AICEP (the Portuguese Agency 
for Foreign Investment and Commerce). AICEP is a public 
company that was created in 2007 following the merger of API 
(the Portuguese Investment Agency) and ICEP (the Portuguese 
Foreign Business Institute). AICEP is responsible for the 
promotion of global Portuguese trademarks, exports of goods 
and services, and attracting foreign direct investment (FDI). 
It serves as the point of contact for investors with projects 
over 25 million euros or companies with a consolidated 
turnover of more than 75 million euros. For foreign 
investments not meeting these requirements, AICEP will make a 
preliminary analysis and direct the investor to assistance 
agencies such as INOVCAPITAL, which offers technology 
transfer and incubator programs for small- and medium-sized 
enterprises (SMEs), or the Institute for the Support of SMEs 
(IAPMEI) which provides technical and financial support. 
AICEP also publishes a monthly newsletter entitled "Portugal 
Global" which provides information on the state of play of 
FDI in Portugal. This newsletter is available in Portuguese 
and in English, on the website: 
http://www.portugalglobal.pt/ CmsAPI/AICEP/newsletter EN.pdf 
 
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 also plays a role 
in the company's decision making. 
 
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, 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 carefully consider the 
proposed transaction, but in the case of non-EU firms, the 
Ministry of Finance especially 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 by the Ministry of Finance 
for at least five years. 
 
Foreign Workers: Non-Portuguese 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, a foreign worker can be granted a permit for work 
that is essential to the national economy, or if the worker 
possesses highly qualified competencies or his/her work is of 
relevant scientific interest to the country. 
 
Structural and Cohesion Funds: For the 2007-2013 programming 
period, Portugal has been allocated 21.5 billion euros of 
Structural and Cohesion Funds financing under the European 
Union's Convergence, Regional Competitiveness and Employment, 
and Territorial Cooperation program. Portugal plans to use 
 
LISBON 00000157  002 OF 006 
 
 
the funds to develop a skilled workforce, to promote 
sustainable growth, to guarantee social cohesion, to ensure 
territorial development, and to improve governance 
efficiency. For more information visit: 
http://ec.europa.eu/regional policy/ atlas2007/fiche/pt en.pdf 
 
¶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.  Currently, there are fifteen member-states 
that use the euro. 
 
¶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 2007. 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 the court's jurisdiction. 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, 
resident entities or branches of non-resident entities whose 
main activity is of a commercial, industrial or agricultural 
nature are subject to a corporate income tax (IRC) rate of 
25%, and a set municipal surcharge of no greater than 2.5% of 
taxable profit. Rates vary from municipality to municipality. 
Other tax regimes are in place for the country's two 
autonomous island regions: the Azores and Madeira. 
 
The Portuguese Government also offers several incentive 
packages tailored to investors' needs and capital based on 
industry, proposed size of investment and project 
sustainability. Details about the programs are available on 
the AICEP website: http://www.investinportugal.pt 
 
For example, under Portugal's investment incentive regime, 
AICEP 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 greater than 75 
million euros. The goal of the program is to leverage 
investments for proposed projects that support the 
government's economic development goals. AICEP has designed 
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/ 
default.aspx?idLang=2&Site=planotecnologico 
 
¶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, public order or 
security, or relating to the arms industry, require approval 
of the competent authorities. 
 
LISBON 00000157  003 OF 006 
 
 
 
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 engaged in a wide-ranging 
privatization program that sold 100 enterprises and generated 
approximately $14 billion in revenues between 1996-2006. 
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), REN (Electricity Transmission System Operator) 
and GALP Energia (petroleum refining and marketing, natural 
gas distribution). TAP Airlines is expected to be privatized 
in the near future. 
 
¶G. Protection of Property Rights 
-------------------------------- 
The government adopted the Agreement on Trade Related Aspects 
of Intellectual Property Rights (TRIPS) and provisions of 
General Agreement on Tariffs and Trade (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 has transposed the EU 
information society and protection of databases directives 
into national legislation (Decree-Law 50/2004 and 112/2000, 
respectively). 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 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 
------------------------------------ 
In the recent past, businesses frequently complained about 
red tape with regards to registering companies, filing taxes, 
receiving value-added tax refunds and importing materials. 
 
LISBON 00000157  004 OF 006 
 
 
Decision-making tended to be centralized and obtaining 
government approvals/permits can be time-consuming and 
costly. 
 
The Ministry of Economy has promoted various initiatives to 
improve the situation. In 2007, it worked with the Ministry 
of Justice to launch the "Cutting Red Tape" website, a 
repository of information for all measures taken since 2005 
to reduce bureaucracy in the incorporation, registration, 
certification, liquidation, dissolution and merging of 
businesses in Portugal. Other initiatives include the 
"Empresa na Hora" (On-the-Spot Firm) which allows for the 
incorporation of companies in less than one hour at Corporate 
Formalities Centers and Business Registration Offices; and 
other services such as online company incorporation, labor 
mediation, bilingual commercial registration, and patents and 
trademarks. Since 2005, a total of 14,471 companies have been 
incorporated under the "Empresa na Hora" program, while over 
450 companies have been incorporated using the online 
service. More information can be found at the "Cutting Red 
Tape" website: http://www.cuttingredtape.mj.pt/ 
CuttingRedTape/index.htm 
 
¶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, account for eighty percent of the 
sector's total assets.  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. 
 
Steps have been taken to improve the educational and 
vocational training programs in Portugal, in hopes of 
increasing skill levels and productivity of the workforce, 
which generally lag behind the EU-15 average, and expanding 
professional opportunities. 
 
¶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 plays a limited role in Portugal's business 
culture. Although U.S. firms occasionally encounter limited 
degrees of corruption in the course of doing business in 
Portugal, they do not identify corruption as an obstacle to 
foreign direct investment. In Transparency International's 
2007 Corruption Perceptions Index, Portugal ranked 29 out of 
179 countries considered (listed from least to most corrupt). 
The U.S. was ranked 20. 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 
 
LISBON 00000157  005 OF 006 
 
 
the limited degrees of corruption that businesses, both U.S. 
and other, face in Portugal. 
 
¶L. Bilateral Investment Agreements 
---------------------------------- 
http://www.investinportugal.pt/ MCMSAPI/HomePage 
 
Listing of International Treaties: http://www.gddc.pt/ 
siii/paises-organizacoes.asp 
 
¶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 
(ILO) 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 2007 unemployment rate was 8.0%, 
above the EU-27 average of 7.0%. The unemployment rate is 
expected to level off in 2008 before improving slightly over 
the coming years The outlook for job creation, although low, 
is expected to improve as government educational and 
vocational training programs designed to strengthen labor 
productivity take effect. 
 
¶O. Foreign-Trade Zones/Free Ports 
--------------------------------- 
Portugal has two foreign trade zones (FTZ)/free ports in the 
island autonomous regions 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 all eligible. 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 FTZ 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. 
http://www.madeira-management.com/ 
aboutmadeira/introduction.html 
 
¶P. Foreign Direct Investment flows into Portugal 
--------------------------------------------- --- 
http://www.apinvest.pt/MCMSAPI/ 
HomePage/PortugalToday/PortugalAdvantages/ 
 
¶Q. Portuguese Trade with the U.S. 
--------------------------------- 
http://www.census.gov/foreign-trade/balance/c 4710.html 
 
¶R. Major Foreign Direct Investors 
--------------------------------- 
Selected Major Foreign Investors in Portugal: 
http://www.apinvest.pt/MCMSAPI/ 
HomePage/PortugalToday/FDI TrackRecord/ 
 
¶S. Web Resources 
---------------- 
 
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Bank of Portugal: 
http://www.bancoportugal.pt 
 
Portuguese Agency for Foreign Investment and Commerce: 
http://www.icep.pt/CmsAPI/AICEP/index.html 
 
"Cutting Red Tape": 
http://www.cuttingredtape.mj.pt/ CuttingRedTape/index.htm 
 
Empresa na Hora (On-the-Spot Firm): 
http://www.empresanahora.pt/ ENH/sections/EN homepage 
 
PRIME (Incentive Program for Economic Modernization): 
http://www.prime.min-economia.pt 
 
EUROSTAT (Statistical Office of the European Communities): 
http://ec.europa.eu/eurostat 
 
U.S. Census Bureau: 
http://www.census.gov 
 
Technological Plan: 
http://www.planotecnologico.pt/ 
default.aspx?idLang=2&Site=planotecnologico 
 
The "Cutting Red Tape" Investment Incentive Program: 
www.cuttingredtape.mj.pt 
 
Portuguese Government: 
http://www.portugal.gov.pt 
 
American Chamber of Commerce in Lisbon: 
http://www-cca.cliente.imediata.pt/ html/main.htm 
 
IAPMEI (Institute for S.M.E. Support and Investment): 
http://www.iapmei.pt 
 
INPI (Portuguese Patent and Trademark Office): 
http://www.inpi.pt 
 
Trade and Competition Directorate-General: 
http://www.dgcc.pt 
 
US Commercial Service in Portugal: 
http://www.buyusa.gov/portugal/en 
Stephenson