Use of EORs in Portugal
Engaging the services of an Employer of Record (EOR) in Portugal enables foreign companies to hire local talent without creating a legal entity. Still, it carries significant legal, tax, and operational risks that must be carefully managed. While the EOR formally manages employment contracts, payroll, and compliance with Portuguese labour laws, the foreign company typically retains control over the employee’s daily activities, deliverables, and compensation. This dual role can blur the lines of employment, raising concerns about the true nature of the employment relationship and potential misclassification.
One of the central legal risks is the possibility that Portuguese authorities or courts will requalify the employment relationship, treating the foreign company as the de facto employer. This could expose the company to retroactive liabilities, including unpaid employment taxes, social security contributions, severance pay, and compliance failures under Portuguese labour law.
A further complication is the risk of triggering a permanent establishment (PE) despite using an employment organization (EOR). An EOR structure does not automatically shield a company from PE risk if the employee’s function reflects ongoing business activity.
In addition to labour and tax risks, intellectual property (IP) and ownership of inventions are often overlooked when using an EOR. Under Portuguese labour law, inventions created by an employee generally belong to the legal employer — meaning the EOR, not the foreign company itself. This creates uncertainty over the ownership of IP developed during employment, particularly for companies engaged in software development, product design, research, or technology development. Without clear and enforceable IP assignment clauses, the foreign company may not have full legal rights to the work product or inventions generated by the employee.
This issue becomes more complex if the IP is patentable, commercially valuable, or forms a core part of the company’s competitive strategy. Portuguese courts may consider the factual circumstances — such as who supervised and funded the work — but unless IP rights are explicitly assigned, they may default to the EOR. To mitigate this, companies should execute standalone IP assignment agreements directly with the employee, in addition to any provisions in the EOR’s master service agreement. These contracts should comply with Portuguese law and include confidentiality, invention disclosure, and post-termination clauses.
In conclusion, while EORs offer flexibility and a streamlined hiring process, they do not eliminate the legal and commercial risks associated with employment in Portugal. Companies must carefully manage the boundaries of control, protect their tax position by assessing permanent establishment exposure, and secure legal ownership of intellectual property developed by local employees.
A properly structured EOR arrangement — combined with direct IP contracts, clear job roles, and legal oversight — can help mitigate these risks; however, it should be viewed as a temporary or transitional solution rather than a long-term substitute for a local establishment.
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