Remote work is here to stay.
Although remote work was already a tendency, the Covid-19 pandemic forced companies and employees to try remote work. The forced experienced has been generally positive and the number of companies that stated that they wish to maintain remote work after the pandemic is over, either allowing employees to be fully remote workers or employing a mix of work from home and office work, is substantial.
This will bring opportunities, both for employer and from employees. Employers will have an opportunity to save on office space, improve job satisfaction and will be able to find the talent they are looking for outsider their geographical zone of influence. They may start looking for talent in other countries, in particular in countries with lower wages.
For employees there are also benefits. They will be able to cut on commute costs and time, get a better work life balance and will be able to look for remote jobs outside their geographical area, and may inclusively accept jobs with lower wages while still improving their available income.
This mobility will allow employees, inclusively to move abroad looking for locations that give them better living conditions and tax benefits. On the other hand, employers will be looking for employees abroad for certain functions, which will increase the number of remote work executed abroad.
- Cost of living and others. Portugal, and Lisbon in particular, has been one of the places that is in the top of preferences of digital nomads, usually ranking high in best places for digital nomads due to reasonable cost of living, good internet and infrastructure, safety, health, access to culture and fun and great Mediterranean weather just minutes from the beach.
- Easy visa. While European citizens do not require any visa, highly qualified employees or entrepreneurs would not have a problem in getting a visa, being able to apply to the so-called tech visa.
- Beneficial tax regime. From a tax perspective such employees would likely be able to apply for a special non habitual tax resident status that could grant them a flat 20% tax on their income received in Portugal, while, as a rule, tax from foreign origin would not be taxable.
- Available qualified talent. The Portuguese education system, although not perfect has been improving and ranks relatively high based on OCDE rankings (on 27th, just 2 places after the USA in 25th) and the number of workers with higher education has been increasing year after year. Also, the percentage of Portuguese citizens speaking English as a second language is very high, especially if compared with other European countries like France, Spain, or Italy.
- Salaries. Salaries in Portugal are not high, compared with other European Countries being the average salary in Portugal for an employee with a university degree around € 1600.00.
Employing someone in a different country brings challenges and such employers should be aware of the following challenges, although some of them may not apply to independent contractors.
- Applicable Law. As a general rule Portuguese employment law shall apply to employees performing work in Portugal, even if the work is performed remotely to a foreign entity.
- Payroll and social security. Social security shall be due in Portugal (either the employee becomes a tax resident or not). Also, in case an employee is tax resident, tax withholding shall apply. Thus, the employer must obtain a Portuguese tax number as a non-resident entity without activity (which does not create an obligation to pay taxes in Portugal) and ideally the payroll should be made by a local payroll company.
- Risk of creating a representation office. Depending on the functions performed by the employees and the number of employees engaged, there may be the possibility that the company qualifies as having a local representation office, which may have a tax impact. However, there are forms of reducing this risk.
- Personal Data. If the functions to be performed may imply the processing of personal data, the European General Data Processing Regulation shall apply. The processing of personal data in Europe and the transfer of personal data from Europe to the United States may require the compliance with legal requirements, and it may imply the need to appoint a data protection representative in Europe.
Although opportunities and advantages exist, both for employees and employers, before embarking in such a new adventure, a careful assessment should be made to tackle the foreign jurisdiction challenges imposed by foreign remote work.