The 2023 Portugal Startup Law is Useless

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2024-05-12 10:30:05

You see, in May 2023, law 21/2023 went into effect. It establishes a legal definition for a "startup" and a "scalueup" in the country of Portugal. These definitions are fairly straightforward and I don't have too much of a problem with them (although I do find it strange that these definitions can be worked around if an entity called "Startup Portugal" intervenes).

Anyhow, what are these definitions for? Well, in the same law, some changes are introduced to a few tax rules, with the main focus being on the taxation of stock options of both startups and scaleups. This is great!! With the new regime, employees of these companies will be subject to significantly less tax when exercising stock options, and also taxation will only take place when the taxpayer disposes of the share.

The problem is that the vast majority of startups and scaleups in Portugal are not actually issuing stock options that map to shares of their Portuguese legal entities. Most startups and scaleups are registered outside of Portugal, most commonly in the US (Delaware); their Portuguese legal entities are only used for hiring local employees. This happens for a number of well-known reasons, including the fact that most VCs will only deploy capital to companies that are incorporated in Delaware or a few other states.

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