For Portugal, I see three ways to go.
1- Democratic- Honor the old Anglo-Portuguese Alliance and join the allies as well as get a boost in democratic support in exchange for some of their old colonies (may I suggest Ceylon [Sri Lanka], The mollucas, western sundra islands, Labrador, and Nigeria) as well as gaining claims on the canary islands and Spanish Africa.
2- Fascist- Go with Germany and gain claims for all old colonies (Including Brazil if it is not fascist)
3- Go with Brazil, and revive the United Kingdom of Portugal, Brazil and the Algarve. (Algarve is a region in southern Portugal) either by making a faction or annexing/puppeting Brazil
*Note that the third option should not be mutually exclusive with the other two, as it would not conflict with either.

PFiuza made 3 excelent suggetions.

Make sense to point out that Portugal's leader at that time was António de Oliveira Salazar, a fascist leader who didn't wanted to abdicate the colonies.

Even when Japan took Timor, Portugal made a deal with USA to return Timor in exchange to allow USA to build a military base at Azores to increase the range of airplanes in Europe.
In this case you could use this to align Portugal with the Allies

Thanks mate!