VAT, or value-added tax, is a consumption tax. It differs from sales tax, however, in that it is paid by businesses at each stage of production and distribution, so each company pays tax as they add value to a product. And except for the final consumer, those companies can claim a refund on the VAT they pay. The final consumer, in the end, bears the full VAT amount. Many countries have a VAT system in place, including all European Union (EU) countries, which includes Portugal.
Portugal introduced VAT, called imposto sobre o valor acrescentado (IVA), when it entered the European Communities (which later became the EU). So VAT has been in place in Portugal since 1986, although it was not fully implemented until 1989.
Nonresidents who do certain types of business in Portugal must register and remit VAT.
Portuguese VAT rates
Portugal’s VAT follows the EU VAT framework, but EU countries can set their own rates and some regulations within that framework. The standard VAT rate in Portugal is 23%, although some goods and services are taxed at one of the country’s reduced rates. Portugal’s VAT rates are:
- Standard, 23% rate: This standard rate applies to all taxable goods and services that are not subject to one of the reduced rates.
- Reduced, 13% rate: This reduced rate applies to some restaurant and cafe food, some nonessential food products, certain agricultural supplies, musical instruments, mineral water, and wine.
- Super-reduced, 6% rate: This super-reduced rate applies to certain essential food products, some medical equipment and drugs, books and e-books, hotel accommodations, some legal services, newspapers and magazines, and social housing.
- 0% rate: This rate applies to international passenger transport and to the purchase or sale of intra-community supplies. (Before January 2024, basic foods were also zero-rated, but that's no longer the case in Portugal.)
Portugal has two autonomous regions: Madeira and the Azores, and both have different tax rates:
- The standard rate is 22% in Madeira and 16% in the Azores.
- The intermediate rate is 12% in Madeira and 9% in the Azores.
- The reduced rate is 5% in Madeira and 4% in the Azores.
Registering for VAT
In Portugal, legal entities and self-employed individuals conducting business may be required to register with the Portuguese Tax and Customs Authority, or the Autoridade Tributária e Aduaneira (AT), and begin complying with local VAT rules.
However, the specifics of when you must register depend on whether you are a resident company doing business in Portugal or you are sending goods and services into Portugal without a presence there.
It's critical that your company is aware of the rules regarding registration, as failure to follow them could lead to audits, financial penalties, and reputational damage.
Resident businesses
In Portugal, the registration threshold for resident businesses is €15,000 in annual sales. However, if a company has only one taxable transaction that does not exceed €25,000, that transaction may be treated as an “isolated act.” In such a case, VAT must be charged on the transaction, but the business does not need to complete full registration.
Businesses that don’t reach this registration threshold can avoid registration only if:
- The business didn't engage in import, export, or related activities.
- The business’s turnover in the previous calendar year didn't exceed €15,000.
You are also required to register if your company stores products in Portugal or if your business participates in a Fulfilled by Amazon program that includes Portugal.
The EU also has a €10,000 distance-selling threshold that applies across all EU countries, including Portugal.
Under this rule, if your total annual cross-border sales (B2C) into other EU countries don't climb above €10,000, your company can declare and pay VAT for all EU-wide sales on a single return filed in your home country. However, once sales exceed €10,000 in a calendar year, you must begin charging VAT at the rate of the customer's country of residence or register for the One-Stop Shop (OSS) scheme. (If your total sales are below €10,000, you can also use the OSS.)
Nonresident businesses
Non-EU businesses do not have a €15,000 exemption. They are required to register immediately once they engage in any taxable activities. This requirement kicks in upon the very first taxable transaction a company completes in Portugal.
Who needs to register
Your nonresident business must register if you:
- Buy and sell goods in Portugal.
- Import goods into Portugal.
- Sell goods from a Portuguese warehouse.
- Offer supply and installation services in Portugal.
- Make any taxable business-to-consumer sales of digital products, including e-books or any items delivered over the Internet or electronically.
- Use a consignment stock warehouse in Portugal to hold goods.
- Receive goods in Portugal under the reverse charge rule (more on this rule later).
How to register
If you are required to register for VAT in Portugal, you must submit a declaration of commencement of activity. After registering, you'll receive a VAT number from the Portuguese authorities. This number will be used for all VAT-related transactions. It can take a few weeks to complete this registration process.
Appointing a fiscal representative in Portugal
If your business is not based in the EU and you are required to register for VAT in Portugal, you must appoint a fiscal representative. A fiscal representative is a local entity that your business appoints to be in charge of managing your VAT obligations.
Working with a tax representative in EU countries
When you appoint a fiscal representative, the representative takes responsibility for:
- Acting as your company’s local representative.
- Managing queries.
- Fulfilling VAT filing obligations.
- Covering the VAT liability of your company.
- Other dealings with local tax authorities.
Fiscal representatives are established in the relevant country and must meet strict requirements to become licensed. They are responsible for verifying the accuracy of the tax declarations your company makes, and they assume responsibility for handling all tax and administrative obligations.
Accountants, lawyers, tax advisors, and auditors often serve as fiscal representatives, and they typically must provide financial security.
When to charge tax
VAT rates and the taxability of products vary across EU countries, so it's essential to understand what transactions you are required to charge VAT on. The rules also differ for sales to businesses (B2B) and sales to consumers (B2C).
Reverse charges
EU countries may apply a reverse charge to supplies of goods and services made by businesses that are not established locally, and Portugal has chosen to do so.
A reverse charge applies when:
- A supplier that is not established in Portugal or that has no fiscal representative supplies goods or services.
- Those goods or services are supplied to a customer who is a taxable person or entity established in Portugal or VAT-registered there.
With the reverse charge, the obligation to report and pay VAT shifts from the supplier to the customer. The supplier issues an invoice without VAT, and the Portuguese business accounts for the VAT in its return (both input and output tax). The reverse charge does not apply when the customer is a private individual who is not VAT-registered.
Taxable products and exempt products
Many goods and services are subject to VAT in Portugal.
Products taxed at the standard rate, 23%, include:
- Clothing
- Electronics
- General repair services
- Alcoholic beverages
- Cable TV and pay TV services
- Tickets and admission to amusement parks and certain other events
- Hairdressing
- Most sales of digital products sold directly to consumers, including e-books, software, and music.
- Most other consumer goods that are not considered basic necessities
Products taxed at the reduced rate, 13%, include:
- Agricultural or farming supplies
- Some food products
- Food from restaurants and cafes, except alcoholic beverages
- Musical instruments
- Admission to a limited number of cultural events
- Mineral and table water
Products taxed at the super-reduced rate, 6%, include:
- Basic food products
- Water
- Books
- Magazines
- Newspapers
- Medical equipment for people who are disabled
- Domestic passenger transportation (land)
- Social housing
- Hotels
Zero-rated products include:
- International passenger transport
- The purchase or sale of intra-community supplies
A small number of products are exempt from VAT in Portugal, including some nonprofit services and healthcare or medical care provided by professionals. The main difference between zero-rated goods and exempt goods is the ability to reclaim input VAT. When a business makes zero-rated sales, it can reclaim the VAT it has paid on its expenses. When it makes exempt sales, it cannot.
B2B vs. B2C
In Portugal, different rules govern B2B sales and B2C sales. The rules also differ based on where the seller and buyer are located.
Domestic transactions (within Portugal):
- B2B: The supplier charges VAT on the invoice. The buyer can usually reclaim this as input VAT on their return.
- B2C: The supplier charges VAT, which the consumer pays. The business remits the VAT to the Portuguese tax authority.
Intra-EU transactions:
- B2B: If both businesses are VAT-registered in EU countries, the reverse charge applies. The supplier invoices without VAT, and the buyer accounts for VAT in their country.
- B2C: The supplier must charge VAT based on the consumer’s location. The One-Stop Shop (OSS) scheme can simplify reporting across multiple EU countries.
Transactions with non-EU suppliers:
- B2B: The reverse charge generally applies. The Portuguese business is responsible for reporting and paying the VAT. The non-EU supplier must keep proof that the buyer is VAT-registered.
- B2C: The non-EU supplier must charge Portuguese VAT on sales. For goods valued under €150, they can use the Import One-Stop Shop (IOSS). For higher-value imports, VAT is collected at the border. For digital services, the supplier must register for VAT in Portugal and comply with Portuguese rules.
Marketplace facilitators
When a company sells goods on a marketplace, the marketplace may become responsible for collecting VAT on certain sales. The marketplace is considered a deemed seller if it facilitates the sale by:
- Directly or indirectly setting the terms of the supply.
- Being involved in authorizing payments or delivering the product
Marketplaces that meet these requirements are treated as deemed sellers and are responsible for collecting VAT when:
- Facilitating B2C sales for digital goods.
- Facilitating sales of certain goods valued at under €150 that are imported from non-EU countries.
- Facilitating the sale of goods of any value that are owned by non-EU sellers that are located in the EU when the sale takes place.
- Operating a platform in the short-term accommodation rental or passenger transport sector.
If your company sells goods through a marketplace facilitator, you may not be personally responsible for collecting and paying the VAT on those goods since the marketplace is treated as the seller and therefore has VAT compliance obligations.
VAT deductions
Under Portugal's VAT rules, your company can deduct input VAT, or VAT paid on purchases, if you are using the purchased items for your business. For example, VAT may be deductible if it is paid on:
- Goods and services that your company uses in day-to-day operations.
- Raw materials.
- Office supplies.
- Equipment bought for business use.
- Services provided by a third-party contractor or service provider.
VAT paid on personal purchases isn't deductible, and companies that claim deductions are required to keep records, including invoices, to prove their eligibility for the deduction.
Statute of limitations
There is a four-year statute of limitations for VAT collection in Portugal, with the clock starting at the beginning of the year after the one when VAT was due.
An extended, 12-year statute of limitations applies in situations involving deposit and securities accounts held in financial institutions outside of Portugal.
If a criminal investigation is opened, the statute of limitations is extended until one year after the close of the process or its res judicata.
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Staying compliant with Portuguese VAT regulations
If your company is obligated to register in Portugal and to collect and remit VAT, it's critical that you remain compliant with these rules to avoid penalties:
Invoicing requirements
The Portuguese VAT code requires taxable entities to issue invoices for all supplies of goods and services. This includes for exports and for intra-community supplies. Invoices must also be issued in cases where advance payments are made and situations where changes occur to taxable transactions.
Invoices must be dated and sequentially numbered, and must include specific information such as:
- The names (including trade names and/or company names) and registered domicile of the supplier of the goods or services.
- Information on the registered office of the supplier.
- The names and registered domicile of the taxpayer.
- The tax ID number of the supplier and taxpayer.
- The quantity of goods and services supplied.
- Information about the transaction needed to determine the correct VAT rate, including the net price and the rate that applies.
- The total amount of VAT due.
- The date when goods or services were made available or provided to the buyer, if this date is different from the date the invoice is issued.
- The date when payment was made, if it is different from the date of invoice issue.
- Information on the reverse charge in applicable transactions.
- The jurisdiction for the nonapplication of VAT in appropriate situations.
- A notation that the transaction is subject to the triangular transaction simplification scheme, if applicable.
If a seller is supplying goods to a non-taxable individual and the total amount of the sale is equal to or below €1,000 or if the seller is making other supplies and the invoice is equal to or below €100, a simplified invoice is allowed.
If the transaction is a B2G (business-to-government) transaction or a transaction between specific businesses, e-invoicing is required. It's optional in other circumstances, and an e-invoice alone is sufficient for B2C transactions with no requirement for printing paper invoices.
Filing VAT returns
VAT returns in Portugal must be submitted electronically through the Portal das Finanças, which is the Portuguese Tax and Customs Authority's website.
Filing deadlines
VAT returns must be either monthly, if your turnover is €650,000 or more in the previous calendar year, or quarterly, if there is a turnover of less than €650,000 in the prior calendar year. An annual return is also due.
VAT returns are due by the 20th day of the second following month, and payments are due by the 25th day of the second following month. Annual returns are due by July 15 of the following year.
Recordkeeping requirements
Businesses must keep VAT records for 10 years in Portugal. Required records include:
- Invoices
- Accounting data
- Filed tax returns
Portugal also mandates the use of the Standard Audit File for Tax (SAF-T) to compile records including invoices, accounting records, and records of transactions. Beginning in 2027, this will be mandated throughout the EU.
Risks of noncompliance
Noncompliance can have serious consequences including:
- Audits
- Penalties
- Owing back taxes
- Damage to your company's reputation
You'll want to avoid these consequences, as the fines and penalties can be costly.
Tips on staying compliant with Portuguese VAT regulations
To stay compliant with Portuguese VAT regulations:
- Understand the rules that apply to your business.
- Maintain all required records.
- Learn your filing schedule and submit paperwork and payments by the deadline.
- Determine whether you are eligible for and should become part of the One-Stop Shop and Import One-Stop Shop programs.
Taking these steps can help ensure that your business doesn't run afoul of Portuguese laws on VAT collection, so you can remain in good standing without fear of audits or penalties.
Software solutions
Manually managing VAT compliance in Portugal can be a challenge, especially if Portugal is just one of many countries where you have tax obligations to fulfill. You should strongly consider using a software solution that automates the process for you.
Numeral can help. Numeral streamlines the VAT process for companies around the world, and can assist you with remaining compliant in Portugal and more than 55 other countries. Numeral takes care of:
- Determining when you must register for VAT or sales tax.
- Completing the registration process.
- Finding a fiscal representative.
- Collecting the appropriate amount of tax.
- Filing tax paperwork and remitting forms on schedule.
- Record-keeping to be audit-ready.
With Numeral's help, complying with VAT rules will take you less than five minutes a month, so you can do business almost anywhere in the world without worrying about your tax collection obligations.
Portugal's VAT rules can be complicated, but compliance doesn't have to be.
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