VZCZCXRO8178
RR RUEHIK
DE RUEHLI #0022/01 0141440
ZNR UUUUU ZZH
R 141440Z JAN 10
FM AMEMBASSY LISBON
TO RUEHC/SECSTATE WASHDC 8060
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUCPCIM/CIMS NTDB WASHDC

UNCLAS SECTION 01 OF 07 LISBON 000022 
 
SIPDIS 
 
DEPT FOR EB/IFD/OIA 
DEPT ALSO FOR USTR 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ETRD ELAB KTDB PGOV OPIC USTR PO
SUBJECT: PORTUGAL'S 2010 INVESTMENT CLIMATE STATEMENT 
 
REF: 09 STATE 124006 
 
LISBON 00000022  001.2 OF 007 
 
 
¶1.  The following is Portugal's submission for the 2010 
 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 introduced the euro as its official currency, 
further integrating itself with the European Union's 
financial and economic policies. Prime Minister Jose 
Socrates, who began his second term in office in 2009, 
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 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 IAPMEI, the Institute for the 
Support of Small- and Medium-sized Enterprises (SMEs), which 
provides technical support, or to AICEP CAPITAL GLOBAL, 
which offers technology transfer, incubator programs and 
venture capital support. 
 
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 percent of a resident company's 
equity, provided that the direct investor also plays a role 
in the company's decision making. 
 
The Portuguese legal system is based on non-discrimination 
with regard to the national origin of investment, and 
foreigners are permitted to establish themselves in all 
economic sectors open to private enterprise.  However, 
foreign and domestic investments alike are limited in 
relation to certain economic activities. Portuguese 
government approval is required in the following sectors: 
defense, water management, public service telecommunications 
operators, railways, maritime transportation and air 
transport, or if they involve the exercise of public 
authority. Private-sector companies can operate in these 
areas only through a concession contract. 
 
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. The permanent authorization 
for residence is granted when an employee has a labor 
contract, rent contract or a permanent resident evidence 
document and is registered in the Social Security Services. 
The request is processed at the Servios de Estrangeiros e 
Fronteiras (SEF) Branch. The requests are regulated by the 
act Law 23/2007 dd 4/07 and by the Decree-Law 84/2007 dd 
05/11.  For more information visit http://www.sef.pt 
 
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 
 
LISBON 00000022  002.2 OF 007 
 
 
Employment, and Territorial Cooperation program. Portugal 
plans to use the funds to develop a skilled workforce, to 
promote sustainable growth, to guarantee social cohesion, to 
ensure territorial development, and to improve governance 
efficiency.  One of the most important public policy 
priorities for growth and competitiveness of the Portuguese 
economy is the Technological Plan, an action agenda which 
aims to mobilize enterprises, families and institutions to 
overcome the modernization challenges the country has faced 
during the last years.  For more information visit 
http://www.planotecnologico.pt 
 
Following are Portugal rankings for several widely-accepted 
measures of the business and investment environment: 
 
Measure                       Year         Ranking 
-------                       ----        --------- 
TI Corruption Index           2009        35 of 180 
Heritage Economic Freedom     2009        53 of 179 
World Bank Doing Business     2010        48 of 183 
 
For more information about these measures visit: 
http://www.transparency.org/policy research/surveys indices/ 
cpi/2009/cpi 2009 table 
http://www.heritage.org/index/ 
http://www.doingbusiness.org/economyrankings/ 
 
¶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 introduced the euro as its official currency, 
replacing the Portuguese escudo which is no longer in 
circulation.  Currently, there are sixteen 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 
about future expropriation. 
 
Banco Portugues de Negocios (BPN) was nationalized November 
2, 
2008, the first bank nationalization in Portugal since 1975. 
At the time of the nationalization BPN had lost approximately 
700 million euros from declining investment values from the 
global financial crisis, but the Ministry of Finance stressed 
that BPN was taken over as a result of an ongoing 
investigation into mismanagement and malfeasance. 
 
¶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. 
 
¶E. Performance Requirements and Incentives 
 
As an incentive to 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) with a 
rate of 12.5 percent for the first 12,500 euros of income 
and 25 percent for income exceeding 12,500 euros, and a set 
municipal surcharge of no greater than 1.5 percent of 
company's taxable profit subject to IRC.  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.portugalglobal.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 
 
LISBON 00000022  003.2 OF 007 
 
 
basis, including tax cuts and subsidized or interest-free 
loans, as well as cash grants. Large-scale investment 
projects are 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, 
including human resources, and to promote Portugal's brands 
and patents in the industrial, energy, construction, 
transport, tourism, commerce and services sectors. 
For more information visit http://www.portugalglobal.pt 
 
The National Strategic Reference Framework (NSRF) seeks to 
improve the quality of Portugal's workforce and encourage 
economic and socio-cultural development through expanded 
human resources development opportunities, support for 
entrepreneurship and innovation, streamlined public 
administration, and other measures. 
For more information visit http://www.qren.pt or 
http://www.incentivos.qren.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, public 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.  For more information 
visit http://www.concorrencia.pt/en/index.asp 
 
Privatization Program: Portugal engaged in a wide-ranging 
privatization program that sold 100 enterprises and 
generated approximately USD 14 billion in revenues between 
1996 and 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). 
 
¶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 eMAGE and eMARKS projects, 
which provide multilingual access to databases of trademarks 
and industrial designs. These international efforts assist 
participating customs authorities in preventing sales of 
counterfeit goods. Other countries involved include France, 
Austria, Hungary and Spain. 
 
LISBON 00000022  004.2 OF 007 
 
 
 
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, the software piracy rate is slightly 
greater than average software piracy rate in EU. 
 
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. 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 Company) 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 
 
¶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 45 banking institutions, and the six 
largest bank groups account for seventy-eight 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. 
 
 
LISBON 00000022  005.2 OF 007 
 
 
In addition to banks and stock markets, Portugal has taken 
specific steps to ensure that the financial needs of SMEs 
are met. 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. 
 
¶J. Competition from State Owned Enterprises 
 
The Portuguese system is based on non-discrimination 
regarding national origin of investment.  Foreign and 
domestic private companies are limited in relation to 
certain economic activities, such as water utilities, 
postal services, rail transport and the maritime ports. 
Private sector companies, regardless of national origin, 
can operate in these restricted fields only through a 
concession contract. 
 
There is no sovereign wealth fund in Portugal. 
 
¶K. Corporate Social Responsibility 
 
There is strong awareness of corporate social responsibility 
in Portugal, and broad acceptance of the need to consider the 
community among the key stakeholders of any company.   RSE 
Portugal (Corporate Social Responsibility Portugal), the 
leading association for corporate social responsibility in 
Portugal, was formed in 2002 as the successor to the 
Portuguese Business Network for Social Cohesion, which was 
formed in 1996.  RSE Portugal aims to build bridges between 
the private sector and key stakeholders towards a more 
responsible and sustainable future.  RSE Portugal's mission 
is to promote corporate social responsibility as business' 
contribution for sustainable development through the 
conception, execution, and support of programs and projects 
in educational, formative, social, cultural, scientific, 
environmental, civic, and economic areas in Europe and in 
developing countries.  Since its formation RSE Portugal has 
sponsored numerous classes and workshops promoting corporate 
social responsility and collaborated with Nike to fund and 
support innovative projects for young people in the areas of 
social sciences, health, education, and training.  RSE 
Portugal has also carried out studies of competitiveness 
and sustainability in the construction industry in 
collaboration with counterpart organizations in Italy, 
Spain, Hungary, and Austria. 
 
For more information visit http://www.rseportugal.eu 
 
¶L. Political Violence 
 
There have been no incidents involving politically 
motivated damage to projects and/or installations. 
Potentially destructive civil disturbances are not likely. 
 
¶M. 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 
2009 Corruption Perceptions Index, Portugal ranked 35 out 
of 180 countries considered (listed from least to most 
corrupt). 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 taking steps to address the 
limited degrees of corruption that businesses, both U.S. 
and other, face in Portugal. 
 
¶N. Bilateral Investment Agreements 
 
http://www.portugalglobal.pt 
 
Listing of International Treaties: 
http://www.gddc.pt/siii/paises-organizacoes.a sp 
 
¶O. OPIC and Other Investment Insurance Programs 
 
Portugal is a country with low political risk, and the 
potential for significant OPIC insurance programs in 
 
LISBON 00000022  006.2 OF 007 
 
 
Portugal is limited.  Portugal is a member of the 
Multinational Investment Guarantee Authority (MIGA) of 
the World Bank. 
 
¶P. Labor 
 
Numerous labor reform packages aimed at improving the 
productivity of Portugal's workforce have been enacted 
over recent years, with limited success.  A package of 
labor reform laws took effect in 2003 permitting greater 
geographic and functional mobility for employees. The labor 
code limits the role of unions and makes it more difficult 
for workers to strike. It also addresses absenteeism and 
fraudulent leave. Additional changes were enacted in 2009 
clarifying rules concerning intermittent and seasonal 
employment, specifying leave flexibility regarding 
parenthood and family support, and other issues.  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 recent years 
work stoppages have been more common among public sector 
workers, including the transportation sector and teachers, 
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 unemployment rate reached 10.3 
percent in the 4th quarter of 2009. This is an increase of 
30 percent from the same quarter of 2008 (7.8 percent) and 
up 0.5 percent from the previous quarter (9.8 percent). The 
number of unemployed was estimated to be 575.6 thousand 
individuals. 
 
¶Q. 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 6,500 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.  For more 
information visit 
http://www.madeira-management.com 
 
¶R. Foreign Direct Investment flows into Portugal 
 
http://www.portugalglobal.pt 
 
¶S. Portuguese Trade with the U.S. 
 
http://www.census.gov/foreign-trade 
 
¶T. Major Foreign Direct Investors 
 
Selected Major Foreign Investors in Portugal: 
http://www.portugalglobal.pt 
 
¶U. Web Resources 
 
Bank of Portugal: 
http://www.bportugal.pt 
 
Portuguese Agency for Foreign Investment and Commerce: 
http://www.portugalglobal.pt 
 
"Cutting Red Tape": 
http://www.cuttingredtape.mj.pt 
 
Empresa na Hora (On-the-Spot Firm): 
 
LISBON 00000022  007.2 OF 007 
 
 
http://www.empresanahora.pt 
 
QREN (National Strategic Reference Framework 2007 - 2013) 
http://www.qren.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 
 
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 
 
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 
BALLARD 
 
 
For more reporting from Embassy Lisbon and information about Portugal, 
please see our Intelink site: 
 
http://www.intelink.sgov.gov/wiki/portal:port ugal 
BALLARD