Investors benefit from Portugal’s open regulatory framework, with fewer discriminatory statutory restrictions on FDI, more competition-friendly rules and fewer barriers to services trade and investment than OECD average. Regulatory harmonisation within the Single Market has lowered barriers for investors from the European Economic Area (EEA), and simplification efforts have reduced administrative and regulatory burden for firms. Funding opportunities, financial and regulatory incentives are in place to attract FDI and foreign talent. Investors praise Portugal’s skilled labour force and the quality of higher education.

Nonetheless, a few remaining regulatory barriers and broader factors of the business climate may contribute to hold back FDI:

• Investors perceive business licenses and permits as particularly burdensome, despite recent simplification and consolidation of procedures, e.g. in industrial and environmental licensing.
• There is room to further advance regulatory impact assessment (RIA) and stakeholder engagement practices in the drafting of business regulation. For instance, RIA documents are not made available online and ex post evaluation of existing rules is not mandatory.
• Firms spend more time on tax compliance in Portugal than in most peer countries, despite simplification efforts by the tax authority. Foreign investors consider that tax regulation remains too complex, changes too frequently and clarification on new rules is difficult to obtain.
• Despite improvements in the efficiency of Portuguese courts in recent years, processing times remain long compared to peer countries, particularly in administrative courts.
• Skilled labour is the leading driver of FDI to Portugal, but skill shortages are increasingly a concern for investors in some sectors. Many investors do not use or are not aware of incentives for skill upgrading. Bottlenecks in the entry of non-EEA talent thwart efforts to recruit workers from abroad.
• Labour market duality continues to constitute an obstacle for productivity growth and social equity, despite recent measures limiting the excessive use of temporary contracts.
• Investors find the tax incentive for research and development effective, but certain other funding and incentives might be too complicated to apply for or insufficiently aligned with business needs. Many investors are not aware of existing support for firms’ green and digital transitions.
• In professional services, ownership restrictions for non-licensed professionals, combined with rules restricting access to the profession for foreign practitioners, currently limit possibilities for FDI. Remaining obstacles in transport and logistics services, such as limitations on maritime cabotage by foreign-flagged vessels and non-competitive award of port service concessions can affect foreign and domestic firms in downstream industries economy-wide.