Identifier
Created
Classification
Origin
07LISBON503
2007-02-28 11:47:00
UNCLASSIFIED
Embassy Lisbon
Cable title:  

PORTUGAL'S 2007 INVESTMENT CLIMATE STATEMENT

Tags:  EINV EFIN ETRD ELAB KTDB PGOV PO 
pdf how-to read a cable
VZCZCXYZ0008
RR RUEHWEB

DE RUEHLI #0503/01 0591147
ZNR UUUUU ZZH
R 281147Z FEB 07
FM AMEMBASSY LISBON
TO RUEHC/SECSTATE WASHDC 5596
INFO RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
UNCLAS LISBON 000503 

SIPDIS

SIPDIS

TREASURY FOR DO/JWALLACE
USDOC FOR ITA/SMATHEWS
USTR FOR DWEINER
OPIC FOR RO'SULLIVAN

E.O. 12958: N/A
TAGS: EINV EFIN ETRD ELAB KTDB PGOV PO
SUBJECT: PORTUGAL'S 2007 INVESTMENT CLIMATE STATEMENT

REF: STATE 178303

UNCLAS LISBON 000503

SIPDIS

SIPDIS

TREASURY FOR DO/JWALLACE
USDOC FOR ITA/SMATHEWS
USTR FOR DWEINER
OPIC FOR RO'SULLIVAN

E.O. 12958: N/A
TAGS: EINV EFIN ETRD ELAB KTDB PGOV PO
SUBJECT: PORTUGAL'S 2007 INVESTMENT CLIMATE STATEMENT

REF: STATE 178303


1. The following is Portugal's submission for the 2007
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 curreny,
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 key agency leading
Portugal's economic development policy is API (Invest in
Portugal Agency). API is a public company with a public
equity of 110 million Euros and acts as a single point of
contact for investors with projects over 25 million Euros or
companies with a consolidated turnover superior to 75 million
Euros. For foreign investments not meeting these
requirements, API will make a preliminary analysis and direct
the investor to the appropriate investment assistance agency
or program. API has published an "Investor's Guide" in
Portugal, which includes a description of the legal and
institutional framework for investments, as well as a section
on incentives, venture capital and mutual guarantees, and
fiscal incentives. This guide is available in Portuguese and
in English, on the website: http://www.investinportugal.pt.

Portugal's trade promotion agency, ICEP is planning to merge
with API in the near future. The new institution will be
named AICEP - Agncia para o Investimento e Comrcio Externo
de Portugal (Portuguese Agency for Foreign Investment and
Commerce).

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 possess effective
decision power.

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 industry,
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 take prudential considerations
into account, but in the case of non-EU firms, the Ministry
of Finance also 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 for at least
five years.

Foreign Workers: Foreigners who want to work in Portugal must
obtain a work permit and a residence permit. 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 API can recommend the granting of a work
permit to a non-EU national when the worker is essential to
national economy, possesses highly qualified competencies or
his/her work is of relevant scientific interest to the
country.

In the past, the Ministry of Health has allowed serious
arrears to develop in payments for goods and services used in
the government's health program. These delays have cut into
the profitability of U.S. companies working in the health
field, especially pharmaceuticals. U.S. firms are not
discriminated against compared to Portuguese or other foreign
firms with regard to timeliness of payments.


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.


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 2004. 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 power. 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,
Portugal reduced its corporate income tax (IRC) for net
profit from 30% to 25%, and set the municipal surcharge to no
greater than 2.5% of taxable profit. Rates vary from
municipality to municipality. Other tax regimes are in place
for the country's autonomous regions, the islands of the
Azores and Madeira.

The Portuguese Government also offers several incentive
packages tailored to investors' needs and investment capital.
Details about the programs are available on the API website
at: http://www.investinportugal.pt.

For example, under Portugal's investment incentive regime,
API - Invest in Portugal Agency - 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 superior to 75 million Euros. The goal of the
program is to leverage investments for proposed projects that
support the government's economic development goals. API
hopes to use 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


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, 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.

Privatization Program: Portugal has engaged in a wide-ranging
privatization program that sold off 100 enterprises and
generated approximately $14 billion in revenues in its first
ten years of existence. 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),and GALP (petroleum refining and marketing,
natural gas distribution). Firms, which are expected to be
privatized in the near future, include TAP (Airline) and REN
(Electricity Transmission System Operator). In some cases,
the process of identifying and selecting strategic partners
has not been transparent. In one recent high-profile case,
the GOP's parastatal holding company, Parpblica, was to
choose a new strategic partner for a state company in a
resale of its privately held shares. There was no formal
tender issued, and bidders participated by invitation of the
GOP. Parpblica chose, as a strategic partner, a Portuguese
company with no other activities in that industrial sector.
The U.S. bidder, whose consortium did include a Portuguese
company with activities in that sector, was not short-listed.


G. Protection of Property Rights
--------------
The government adopted the trade-related intellectual
property (TRIPS) provisions of 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 is finishing the process of
adopting EU directives in the form of national legislation.
Most recently, the country adopted the EU Directive on
protection of databases (Decree Law 122/2000, July 4, 2000).
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, like other European countries, 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
--------------
Businesses frequently complain about red tape with regards to
registering companies, filing taxes, receiving value-added
tax refunds and importing materials. Decision-making tends to
be centralized and obtaining government approvals/permits can
be time-consuming and costly. A process of appeals for
administrative complaints and litigation was introduced in
2004 to reduce delays in the justice system and improve its
effectiveness. The program has alleviated many of the
requirements for company licensing and reduced the length of
time required to incorporate a company. In addition, notarial
services were also privatized in 2004.

The government initiated the rapidly expanding "Empresa na
Hora" (Business in an Hour) program in 2005 to facilitate
navigation of the bureaucracy of starting a business. To
date, over 1200 businesses are using the have been
established between July and December 30, 2005 using this
program. More information can be found at Empresa na Hora's
website at http://www.empresanahora.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 50 banking institutions. The largest five
bank groups, however, accounted for a majority of the
sector's total assets. Nevertheless, Portugal's bank sector
is still undergoing consolidation in order to create banks
large enough to compete in the European market. 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.

Of the 25.3 billion Euros in projects to date under the
government's 2000-2006 program to support Portugal's economic
development (POE and PRIME from 2002 onwards),14.6 billion
Euros has been invested in 13,794 projects approved by these
Programs. For more information on PRIME, visit the homepage
at http://www.prime.min-economia.pt.

Steps have been taken to improve the educational and
vocational training programs in Portugal, in hopes of
improving education attainment and labor productivity, which
lag behind the EU-15 average.


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 is a relatively limited aspect of the business
culture in Portugal. Although U.S. firms occasionally
encounter limited degrees of corruption in the course of
doing business in Portugal, they generally are able to manage
it and do not identify corruption as an obstacle to foreign
direct investment. In Transparency International's 2006
Corruption Perceptions Index, Portugal ranked 26th out of 163
countries considered (listed from least to most corrupt). The
U.S. was ranked 20th. 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
the limited degrees of corruption that businesses, both U.S.
and other, face in Portugal.


L. Bilateral Investment Agreements
--------------
http://www.apinvest.pt/


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
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 2006 unemployment rate was 7.3%,
lower than the EU-25 average of 7.6%. The outlook for job
creation, although low, has improved recently with the
government having taken steps to improve educational and
vocational training programs to improve labor productivity
which consistently lag behind the EU-25 average.


O. Foreign-Trade Zones/Free Ports
--------------
Portugal has two foreign trade zones/free ports in the
autonomous regions of the islands 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 eligible activities.
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 free trade zone 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.


P. Foreign Direct Investment flows into Portugal
-------------- ---
http://www.apinvest.pt/


Q. Portuguese Trade with the U.S.
--------------
http://www.census.gov/


R. Major Foreign Direct Investors
--------------
Selected Major Foreign Investors in Portugal:
http://www.apinvest.pt/


S. Web Resources
--------------
Bank of Portugal:
http://www.bancoportugal.pt

Invest in Portugal Agency:
http://www.investinportugal.pt

Empresa na Hora:
http://www.empresanahora.pt

PRIME:
http://www.prime.min-economia.pt

EUROSTAT:
http://ec.europa.eu/eurostat

U.S. Census:
http://www.census.gov

Technological Plan:
www.planotecnologico.pt/


Hoffman