Accounting for Small and

Medium Enterprises in Portugal

Vítor Santos
ovitorsantos@hotmail.com

Marta Fernandes
marta_fernandesb@hotmail.com

Financial Accounting
2010/2011
 Table of contents
2
1. Introduction............................................................................................................................................ 3

2. Definition of European Small and Medium Enterprises ......................................................................... 4

2.1 Definition of SMEs according to the Commission recommendations of 2003 and 1996. ............ 4

3. Accounting for SMEs in Portugal ........................................................................................................... 6

3.1. Taxes ............................................................................................................................................ 7

3.1.1 Direct tax .............................................................................................................................. 7

Tax Personal Income tax........................................................................................................... 7

3.1.2 Indirect Tax ........................................................................................................................... 7

VAT ........................................................................................................................................... 7

Stamp Duty: .............................................................................................................................. 7

3.2. Staff.............................................................................................................................................. 7

4. Current Situation of SMEs and perspectives for the future ................................................................... 8

5. Conclusion ............................................................................................................................................ 10

6. Bibliography.......................................................................................................................................... 11

7. Attachments ......................................................................................................................................... 12

Accounting for Small and Medium Enterprises in Portugal

 1. Introduction
3
This paper, "Accounting for small and medium enterprises in Portugal", was
proposed by the teacher Mrs. Mariana FARCAŞ Course in Financial Accounting.
We will begin this work with the definition of Small and Medium Enterprise,
according to the European Commission's recommendation, also listing the objectives
that led to the need to change this setting.
Then we will describe the accounting standards applied to SMEs in Portugal, for
example, taxes applied, the rules on personnel and financial problems that these
companies have.
On this subject, the bibliography we refer to legal standards established in the
accounting rules for companies.
On another topic, we will talk about the current economic situation of SMEs in
Portugal and the challenges they will face in the future. In this topic, we will base
ourselves on the State Budget for 2011.

Accounting for Small and Medium Enterprises in Portugal

 2. Definition of European Small and Medium Enterprises

Recommendation of the European definition of SMEs 2003/361/EC European

4
Commission adopted in May 2003 a definition of micro and small and medium
enterprises (SMEs) to foster entrepreneurship, investment and growth, facilitating
access to venture capital reduce administrative burdens and increasing legal certainty,
which entered into force on January 1, 2005.

This definition is based on two series of extensive public consultations. Keeps

different thresholds that determine the actual categories of micro, small and medium
enterprise, but raises considerably the financial ceilings (turnover and balance sheet
total), particularly due to high inflation and productivity since 1996, the date that dates
back to the first EU definition of SMEs. There are several provisions whose purpose is
to book the benefit of access to mechanisms to the European and national SME support
only for companies that have characteristics of real SMEs (without the economic
strength of larger groups). This modernization of the SME definition has an impact on
promoting growth, entrepreneurship, investment and innovation, and foster cooperation
and the creation of clusters of independent.

2.1 Definition of SMEs according to the Commission recommendations

of 2003 and 1996.1

Category Staff Volume of business Balance sheet total

< 250
Medium enterprise
(Unchanged) (1996: 40 million) (1996: 27 million)
< 50
Small enterprise
(Unchanged) (1996: 7 million) (1996: 5 million)
< 10
Microenterprise
(Unchanged) (Previously not defined) (Previously not defined)

The main objectives of the review were:

Reduce the administrative burden and speed up procedures: It was proposed a

model of self-declaration of voluntary undertakings. This form only reduces the
administrative burden on businesses and accelerate the procedures, replacing the many
different forms previously used for administrative purposes.

1
Source: Portal Network Enterprises Europe,

Accounting for Small and Medium Enterprises in Portugal

 Promote entrepreneurship and micro enterprises: the first time, the revised
definition includes precise financial thresholds for micro-enterprises. The establishment
by regional and national programs to support this category of firms has become easier.
5
It is recognized in this way the essential role of micro enterprises for the development of
entrepreneurship. The activities in the field of social economy and craft businesses are
also recognized as business activities.

Encourage growth: the significant increase in financial ceilings, which serves to higher
prices and productivity since 1996, has not led to an increase in the number of SMEs,
but favored companies that have invested. The minority of large companies have also
been facilitated by SMEs, whilst preserving the independence of SMEs.

Make it easy access to venture capital: The revision makes it easier to equity finance
for SMEs, providing favorable treatment to regional funds, the venture capital
companies and business angels.

Promote investment in innovation and research: exemptions were introduced into

the same type for investment in the creation of new spin-offs (spin-offs) by universities
or research centers in order to promote investment in research and innovation.

Encourage clustering and increase legal certainty: The revision caused the formation
of clusters of independent companies, clearly defining a typology of enterprises
(autonomous, partner and affiliates) and a transparent method of calculating the
financial thresholds and on the workforce. This method gives a more realistic picture of
their economic strength, limiting the number of levels of connection between the
companies to have regard to the calculation and thus increasing considerably the legal
certainty.

Prevent abuse: The alignment of the concept of companies "affiliated" with the
directive on consolidated accounts makes it extremely difficult to circumvent the
definition. In this regard, the definition exploits the experience gained in the field of
state aid control.

Increase vocational and life balance professional and private life: Learners and
students who follow a vocational training are not taken into account in the ceilings of
employees in order to favor companies which provide vocational training. Similarly,

Accounting for Small and Medium Enterprises in Portugal

 parental leave or maternity leave are not counted, not to penalize companies that
promote a balance between work and private life. 6
3. Accounting for SMEs in Portugal

In Portugal, the Accounting Standards Committee (CNC) is responsible for

standards and the accounting procedures in accordance with international and EU
standards in this area.
Companies operating in Portugal must have at least once a year, two documents:
the balance2 (part of the financial situation) and Profitability Analysis 3 (by nature and
by function).
The accounts of each company should be organized by an Official Account
Technical (TOC) - a professional who flatten, calculates and prepares the accounts of
companies and has the technical responsibility of coordinating the accounting
operations. These professionals must be registered at the Chamber of Account Official
Technical.
The account held by the TOC has to be reviewed by an Official Account Reviser
(ROC) which is responsible for carrying out all tests and all necessary review and
certification of accounts. These professionals have exclusive jurisdiction to the statutory
accounting firms or other entities.
From 1 January 2010 the Portuguese accounting system has changed. At issue is
the passage of the Official Plan of Accounts (POC) for the System of Accounting
Standards (SNC)4, and may result in deficiencies in the accounts in force until then.
"Most companies are not technically ready" to change the system, says José Pedro
Farinha, a specialist who coordinated the survey between July and September this year.
The problem is that coaches are not sufficiently informed of the new accounting system
"based on economic principles and not rules" as the POC, dated 1977, says Pedro
Farinha.
The value of the companies also may be affected. "The problems will arise in the
balance sheet in the assets." "In 2006, when listed companies have applied the new
rules," he says, "saw their equity decline in value." This is because they recognized in

2
Attachment 1
3
Attachment 2
4
Attachment 3

Accounting for Small and Medium Enterprises in Portugal

 the balance "impairment losses in excess." That is, not unlike those quoted on the Stock
Exchange, the fear is now that the actual value of assets is less than book value.
"The Portuguese companies in general are not prepared" for this change,
7
recognizes Joaquim Rocha da Cunha Association of SME Portugal, admitting that
"most companies know" the implications of changing the accounting system. "I hope
there is good sense in how the monitoring will be done," he says, referring to the strong
possibility of imposing substantial fines.

3.1. Taxes

Businesses have tax obligations that must comply with: Tax Personal Income,
Value Added Tax (VAT), Vehicle Tax and Customs duty. In Portugal, the organization
of the entire tax system depends on the Directorate General of Taxes.

3.1.1 Direct tax

Tax Personal Income tax: applies to all income of legal persons, even when derived
from unlawful acts (Article 1 of the Tax Code on Corporate Income Tax).

3.1.2 Indirect Tax

VAT: levied on the expenditure or consumption. This tax must be declared for any
business and must be paid at time of issuance of the invoice or equivalent document
proving that a sale of goods or services.

Stamp Duty: focuses on all acts, contracts, documents, securities, books, papers and
documents provided in the General Table, including gratuitous transfers of assets.

3.2. Staff

The Labour Code establishes the procedures and rules to comply with the workers
of a company.5

The value of the guaranteed monthly minimum wage for 2009 was 450 Euros,
with the objective of achieving medium-term value of 500 Euros in 2011.6

5
Such procedures can be found at: http://dre.pt/pdf1sdip/2009/02/03000/0092601029.pdf
5
The employer conducts discounts on Social Security that can be found at: http://195.245.197.202/left.asp?02.03

Accounting for Small and Medium Enterprises in Portugal

 4. Current Situation of SMEs and perspectives for the future

According to the state budget 201, consolidation measures proposed by the

8
Portuguese government for Small and Medium Enterprises and other economic actors
will help to balance the public accounts, increasing competitiveness, developing the
confidence of markets and promoting economic stability.
In any economic sphere, SMEs are crucial to the development of the country.
The economic recession in Portugal influenced by the world, makes the
performance of SMEs decreases and their sustainability is questioned.
SMEs face enormous challenges today and will be subject to austerity measures
that alter their accounts through tax revenue and increased need to invest in technology
and training.
All this recession involves rapid adaptation of SMEs to the new global reality.
In place of Income Tax Panel (ITP), the Proposed Law on State Budget 2011 also
introduces measures to circumscribe some tax-planning practices that are considered
unjustifiable.
So far as the limitation of tax planning in the distribution of profits, it is proposed
that no longer contribute to the formation of taxable income write-downs and other
losses related to equity investments, part of the value that corresponds to a distribution
that have benefited from the deduction provided for in Article 51 of the Code of ITP in
the last 4 years.
From now on, the distribution of intra-group profits is subject to general rules of
elimination of double taxation, namely the criterion of minimum of 10%.
The actual rate of tax under the Income Tax Panel in 2011 will be 22.5%.
The financing needs of the state and the goals of correction of the public require it
to proceed to the VAT increase.
This is the most important of the taxes that feed the Portuguese treasury and a tax
whose changes can produce a fitting relevant in the short term, as shown in this vital
moment.
The Draft State Budget for 2011 therefore introduces an increase in the standard
VAT rate, making it from the current 21% to 23%.
Also in the VAT, it proceeds to a review / evaluation of goods and services to be
taxed at the reduced rate of 6% and 13% intermediate.

Accounting for Small and Medium Enterprises in Portugal

 The financial crisis and economic crisis has weakened the business community,
particularly SMEs. Since SMEs are key to generating wealth and employment in the
country.
9
The Government will enhance support to SMEs through the establishment of
SME credit line VII invests with the objective of facilitating SME access to bank credit,
particularly through the subsidy of interest rates and reducing the risk of banking
operations.
Private investment in R & D is vital to accelerate the change in the pattern of
specialization in the creation of higher value and greater differentiation and
competitiveness of national production will continue to be encouraged through financial
support. For 2011, the Government will further strengthen the system of fiscal support
for R & D in companies, including investment in R & D companies and start-up
investment in R & D associated with major projects.
In short, SMEs will be subject to measures of support for 2011 with the aim of
increasing productivity by strengthening their capitalization, modernization and increase
in the value chain.
Alongside these measures, there is still internationalization SME strategy, which
relies on five objectives:
- Increase the activity of existing firms producing tradable goods;
- Broadening the base of companies with export capacity;
- To increase exports of higher value added;
- Strengthen the attraction of investment modernization;
- Improve the position of the national economy into new markets.
The budget for the Ministry of Economy, Innovation and Development, covering
SMEs, amounting to 476.1 million, of which 78.6 million will be made available to
SMEs.

Accounting for Small and Medium Enterprises in Portugal

 5. Conclusion

Small and Medium Enterprises (SMEs) who have concentrated their activities in
10
Portugal will face a particularly difficult year in 2011.
The shrinking domestic market, which will result in less consumption, along with
the added pressures that are made by large companies - for example, from supermarkets
to their suppliers - are two factors that reduce the discretion of SMEs. Many jobs will be
at risk, the risk of default from the bank will grow and the record number of
bankruptcies, of course, increased. SMEs can move beyond this desert recession will
emerge stronger.
The output is, increasingly, in overseas market. The budget for 2011 indicates that
opportunity to create a line of credit to SMEs than three billion, and especially to
strengthen the line for credit insurance. In doing so, the state signals that the market
risk, the inevitable Angola and the Maghreb countries, constitute an alternative for
companies to be able to balance their business. Moreover, Germany and France, for
example, traditional markets for Portuguese exports should grow, which will also help
minimize the negative impacts of 2011. But here too, buyers will press for lower prices,
knowing that they are in a strong negotiating position.
If to this be added, as is common knowledge that over 90% of the national
companies are SMEs, we find the dimension of the problem. The question is whether
the state will use the SME Invest to float saving, without regard to whom, or will take to
help create a corporate culture where merit and efficiency do away with the idea of
being a beggar.
On a practical level, the SNC will indeed require a major effort to update the part
of the accounting profession (TOC) of the audit the accounts (ROC) and the teaching of
accounting in higher education.

Accounting for Small and Medium Enterprises in Portugal

 6. Bibliography
11
 http://www.enterpriseeuropenetwork.pt/info/polserv/pol%C3%ADticas/Paginas/p1.aspx

 http://ec.europa.eu/youreurope/business/managing-business/paying-taxes/portugal/index_en.htm

 http://www.jornaldenegocios.pt/home.php?template=SHOWNEWS_V2&id=449911

 http://info.portaldasfinancas.gov.pt/pt/apoio_contribuinte/calendario_fiscal/

 http://info.portaldasfinancas.gov.pt/pt/informacao_fiscal/codigos_tributarios/circ/irc3.htm

 http://info.portaldasfinancas.gov.pt/pt/apoio_contribuinte/guia_fiscal/iva/

 http://info.portaldasfinancas.gov.pt/pt/informacao_fiscal/codigos_tributarios/selo/index_selo.htm

 http://dre.pt/pdf1sdip/2009/02/03000/0092601029.pdf

 http://195.245.197.202/left.asp?02.03

Accounting for Small and Medium Enterprises in Portugal

 7. Attachments

Attachment 1 :: The Balance

12

Accounting for Small and Medium Enterprises in Portugal

 Attachment 2 :: Profitability Analysis by nature
13

Accounting for Small and Medium Enterprises in Portugal

 Attachment 3 :: System of Accounting Standards
14

Accounting for Small and Medium Enterprises in Portugal