Skip to main content

HOW TO SUCCESSFULLY COLLECT A DEBT IN PORTUGAL

To evaluate the chances to successfully collect a debt in Portugal, one should ask the following main six questions:

1 - Is the debt business or consumer related?
Business-related debts often have more chances to receive an immediate positive response than consumer debts. So if the debtor is a company, there are more chances of collecting the debt, unless de company is insolvent or out of business.

2 - How old is the debt?
The age of the debt is critical. Despite the fact that in Portugal the period of limitation is 20 years, the older overdue invoices are, the more difficult it becomes to collect.

3 - Are there documentation to support the debt? 
To make a strong case towards the debtor, and to start legal actions to enforce payment of overdue invoices or a contractually agreed payment, it is mandatory on file the documentation that supports the claim. Supporting documentation regarding the debt may consist of contracts, invoices, order forms, order confirmations, debt acknowledgement, and (email) correspondence about the outstanding invoices or reasons for not pay.

4 - What is the reason why the debtor is not paying? 
Financial problems? The debt is disputed? This helps to guide debt collection strategy towards attempts to fully collect or look for a settlement or payment plan.

5 - The debtor can be located? 
Essential information includes the full company name or full name of the person, full address details, telephone numbers, cell phone numbers, e-mail addresses and VAT number. It is important to keep such information up to date during the whole commercial or consumer relationship, as it may turn out to be vital once payment problems show up later on.

6 - What is the current solvency of debtor?
Before starting it is essential to be aware of the debtor’s solvency status as well as other data such as pending legal actions. If insolvency proceedings have been initiated, it indeed becomes impossible to enforce a debt and if there are pending legal actions against the debtor the chances of collecting decrease substantially.In these cases writing the debt off and stop spending more time or money on something which is practically impossible to collect could happen to be the best solution. It is also important to check company records and relevant financial information (in Portugal publishing yearly financial results is mandatory).

To determine chances for success in collecting a debt in Portugal, we suggest to ask yourself these 6 questions. We can help answer these issues, especially the last two. The answer is crucial to determine the next steps to collect a debt in Portugal.

POPULAR

WHAT IS THE MOST COMMON FORM OF SECURITY TAKEN OVER REAL ESTATE IN PORTUGAL?

There is three standard security taken over real estate: voluntary mortgage, retention of title and seizure. Concerning mortgage, it should be formalised through public deed or by a certified private document. To produce its legal effects, a mortgage must be registered at the land registry office. As for the retention of title, it should be incorporated using a duly authenticated contract or public deed and is also subject to registration at the land registry office so it can be used against any third parties. Finally, a seizure is done through a lawsuit and is not subject to specific conditions. The mortgage is by far the most widely used security.

WHAT IS A PLEDGE?

A Pledge is a security for an obligation to ensure that payment will be made by selling some specific assets of the debtor. Under Portuguese law, a pledge (penhor) may be created over cash or fungible securities. To be valid, a pledge depends on delivery of the asset or assets to the creditor or the third party as a trustee or bailee. There are two types of pledge: civil and commercial. A commercial pledge is a pledge between entities or individuals subject to the regulations of the Commercial Code. These will be individuals with the capacity to carry out commercial acts or entities that engage in commercial activities. In general, the requirements for a civil pledge are somewhat stricter than those for a commercial pledge. A civil or commercial pledge may be used depending on the status of the parties. In practice, a civil pledge is more likely to be used.

I FOUND THAT THE PROPERTY I PURCHASED HAS DEFECTS, WHAT CAN I DO NOW?

Every consumer purchase is covered by a mandatory legal guarantee. As long as you are a consumer, no seller can claim otherwise. Legally, the property must not suffer from any defect which has a negative impact on its value or which renders its regular use impossible. If these warranties are breached, the consumer can choose between repair, replacement, refund or a price reduction. However, the buyer must notify the seller of defects within one year of their discovery. If the property is newly built, the purchaser will also benefit from a five-year warranty period. According to Art. 1225 of the Civil Code, the seller is liable for damages in respect of certain defects during five years, if he has also constructed, repaired or modified the building.

Corporate tax rate reduction

The State Budget for 2015 lowered the corporate income tax rate to 21% (it was 23%). Corporate tax is a tax levied on profits derived by both resident and non-resident entities. This decrease corresponds to a loss of tax revenue of around EUR 200 million. The aim is to create conditions to attract foreign investment. It is important to note however the adding of the state tax (between 3% and 5%, depending on the amount of taxable income) and the municipal surcharge (up to 1.5%) wich give a real tax rate of around 25%.

NUMBER OF NEW COMPANIES RISES

Business formation with new businesses having been started in Portugal went up in 2017. Over 3,687 new companies were registered in Lisbon (14.5% more than in 2016), while Porto registered 7,107 new firms (5% up on the previous year). On the other hand, business failures in Portugal fell 12.7% in 2017 compared with 2016 to 6,284, while the number of new companies being set up rose 9.1%, to 40,465. Lisbon and Porto saw the highest number of bankruptcies – 1,683 and 1,330 respectively, but these were still 2.4% and 15.4% lower than in 2016.