Hiring developers in Portugal — do I need a local entity?

US-based startup (Delaware C-Corp). We want to hire 2-3 full-time developers in Lisbon. They want to be proper employees with benefits, not contractors.

Options I've heard about:

1. Set up a Portuguese subsidiary (sounds expensive/complex)
2. Use an Employer of Record like Deel or Remote
3. Just hire them as contractors and hope for the best

What's the actual right way to do this?

Option 3 is the wrong answer. Portugal (like most of EU) will reclassify your "contractors" as employees if they work full-time, exclusively for you, on your schedule. Then you owe back taxes, social contributions, severance — it gets expensive fast.

For 2-3 employees, EOR is usually the right call. You're paying a premium (~$400-700/employee/month) but that's cheaper than setting up and maintaining a foreign subsidiary.

$500/month/employee = $18K/year for 3 people. That's a lot of overhead. At what headcount does a subsidiary make more sense?

General rule of thumb: 10+ employees in one country, consider a subsidiary. Portugal subsidiary formation runs maybe $5-10K, then ~$10-15K/year for compliance (accountant, registered office, annual filings, payroll admin). At 10 employees, that's $1-1.5K/employee/year vs $6K+ with EOR.

But there are other factors: do you want the administrative burden? Do you plan to expand further in EU? A subsidiary gives you more control and can be cheaper at scale, but EOR is turnkey.

Developer in Lisbon here, hired through Deel by a US company. It works fine from my end — I get proper employment contract, Portuguese labor protections, vacation time, health contributions. My employer deals with Deel, not directly with Portuguese bureaucracy.

One thing to watch: make sure the EOR handles the Christmas subsidy (subsidio de Natal) and vacation subsidy (subsidio de ferias) correctly. Those are legally required 13th and 14th month payments in Portugal. Some EORs just roll it into monthly salary which technically works but some employees prefer the traditional lump sums.

Our portfolio companies almost all use EORs for international hires until they hit ~15+ in a country. Remote.com and Deel are the big ones. Oyster is another option.

Key things to compare: per-employee pricing, contractor conversion fees if someone wants to switch, expense reimbursement process, and how they handle equity grants (some EORs can administer stock options, others can't).

@VC_Backed_SF — equity is a big question. We want to give these developers stock options. How does that work with an EOR?

Equity gets complicated. The EOR is the legal employer, so technically you're granting options to an employee of another company. Most EORs handle this by having your company grant options directly to the individual, with the EOR acting as an intermediary for administrative purposes.

Portugal taxes equity compensation differently than the US. Generally, the taxable event is at exercise (not vest), and the gain is taxed as employment income. Your EOR should help with reporting requirements.

Talk to a tax advisor before structuring option grants for international employees. RSUs vs ISO vs NSO have different implications in different countries.

+1 on getting tax advice. Portugal has a special regime for non-habitual residents (NHR) that used to give favorable tax treatment to foreign-source income. That regime is being phased out but existing NHR status holders might have different tax treatment on equity gains.

Also check if your EOR handles the Portuguese social security registration correctly. There are different contribution rates for different types of work.

UPDATE: Went with Remote.com. Onboarding the first developer next week. Total cost is about $599/month + Portuguese employer costs (social security, etc.) which come out to roughly 23% on top of gross salary.

Turns out the equity piece isn't that complicated — Remote has a stock options administration add-on and they handle the Portuguese tax withholding.

Thanks everyone for the guidance.