Country Guide - VAT in Portugal

VAT in Portugal - Three Types of Rates

There are three types of VAT rates in Portugal:

1. Standard VAT rate,

2. Intermediate VAT rate,

3. Reduced VAT rate.

How much is VAT in Portugal's Regions?

There are two regions with different VAT rate Portugal: Madeira and Azores.

In Madeira, the standard VAT rate is 22%, the intermediate VAT rate is 12%, and the reduced VAT rate is 5%.

Azores have even lower VAT rates; therefore, the standard VAT rate is 16%, the intermediate VAT rate is 9%, and the reduced VAT rate is 4%.

VAT Registration Threshold

Portuguese VAT legislation and interpretation provided by the Tax Authority are valuable sources of information regarding the VAT threshold in Portugal and its applicable provisions. 

From these sources, we can conclude that non-resident businesses have no VAT registration threshold. In contrast, the threshold for resident businesses is EUR 14,500.

As in other EU countries, Portugal implemented the same VAT registration threshold of EUR 10,000 for intra-EU distance sales of goods and B2C supplies of services.

There is no registration VAT threshold in Portugal for businesses from third countries regarding electronically supplied services.

Types of Taxable Activities in Portugal

Any legal or natural person who carries out economic activity can be considered taxable if the activity is performed independently. The purpose and results of such activities are not important from this point of view.

In Portugal VAT law, the supply of goods and services in Portugal for a fee, reception of reverse-charge services by a Portuguese taxable person, and export and import of goods are outlined as taxable activities.

VAT Registration Process

There is no voluntary VAT Portugal registration for taxable persons, meaning that registration for VAT purposes is mandatory for all persons performing taxable activities from the moment they start business operations.

Portugal VAT Registration for Domestic Businesses

All individuals and businesses should submit a declaration of commencement of activities when they start engaging in taxable activities. Once domestic businesses are registered, they receive a tax identification number that is later used on all VAT-related documents.

Self-employed individuals who issue only one invoice that does not exceed EUR 25,000 per year are not required to submit a commencement declaration.

VAT Portugal legislation provides two VAT schemes for small businesses. The first is the exemption scheme, or Regime de isenção, and the second is a simplified scheme for small retailers, or Regime dos pequenos retalhistas. More information about these schemes can be found in Articles 53 and 60 of the Portugal VAT Law.

Portugal VAT Registration for Foreign Businesses 

Businesses established outside Portugal and the EU that sell their goods or provide services in Portugal should appoint a tax representative to complete the registration process for VAT purposes.

Businesses established outside Portugal but in other EU Member States can choose if they want to complete the registration process independently or appoint a tax representative.

VAT Returns in Portugal

Depending on their turnover, businesses should file monthly or quarterly VAT returns. Businesses with an annual turnover of EUR 650,000 and above should file monthly returns, and businesses with an annual turnover below EUR 650,000 generally submit quarterly returns. However, businesses with a turnover of less than EUR 650,000 can choose to file monthly returns.

The deadline for filing VAT returns is the 20th day of the second month following the reporting period, regardless of the return type. The only exception to this rule is the return that should be submitted in June, relating to the second quarter, where VAT returns should be filed by September 20th instead of August 20th.

Penalties for Failure to File Tax Return

Penalties for failing to file a tax return vary depending on who breaches the Law. If the individual fails to comply with the filing rules and does not file the return or files it late, penalties from EUR 150 to EUR 3,750 can be imposed. Individuals who do not issue an invoice or do not issue it on time risk a fine between EUR 200 and EUR 10,000, and submitting inaccurate tax returns can lead to penalties of EUR 375 to 22,000.

Businesses failing to comply with the same rules risk even higher fines. So, if legal entities do not submit VAT returns or do it late, potential penalties are between EUR 600 and EUR 7,500. Penalties for failing to issue invoices or supporting documents are between EUR 187.50 and EUR 5,625, and those who submit inaccurate returns can receive a fine between EUR 750 and EUR 22,500.

VAT Rules for Electronically Supplied Services 

The Portuguese government implements VAT rules for Electronically Supplied Services (ESS), adopted at an EU level through the EU VAT Directive.

Taxability Rules for ESS:

Under the taxability rules for ESS defined by the EU VAT Directive, general rules for the place of supply apply for transactions related to the supply of ESS to a taxable person (B2B supply of ESS).

The VAT rate rules that apply to the B2C supply of ESS are the same for companies established outside Portugal, regardless of whether they are based in another EU Member State or third country. EU and non-EU companies should follow the same rules and apply the VAT rate from the consumers' country of residence.

VAT rules for distance sales of goods and B2C ESS are directly linked with the EU-wide EUR 10,000 threshold. Companies that remain under the threshold can choose to apply VAT rates defined in their country or register for One-Stop Shop (OSS). On the contrary, companies that exceed this threshold are mandated to use the VAT rate in force in the country where the customer is located.

How much is VAT in Portugal on ESS?

The Portugal VAT rate for ESS is 23%.

E-Commerce Rules 

After the introduction of the Mini One-Stop Shop (MOSS) system in 2015, a new e-commerce package implemented in 2021 changed the EU landscape by introducing rules for the importation of low-value goods into the EU from non-EU countries, the deemed supplier rules, an EU-harmonized threshold for distance sales.

Furthermore, a new Import One Stop Shop (IOSS) scheme was introduced as part of the MOSS revision. Now, there are three schemes under the new OSS:

• Union Scheme,

• Non-Union Scheme,

• Import Scheme.

VAT EU Reporting

In Portugal, both EC Sales List and Intrastat reports are required.

EC Sales List

Portuguese businesses involved in EU transactions should file an EC Sale List (ECL) that includes information about their supplies of goods and services made in other EU Member States. However, businesses not involved in such transactions do not have to file a nil ESL.

The same rules that apply to regular VAT returns apply to the filing frequency of the ESL and deadlines. The only exception is when the value of the intra-community supply of goods exceeds EUR 50,000 in the current or any of the past four quarters. In that case, a monthly ECL should be submitted.

Intrastat 

The Instituto Nacional de Estatística (INE), or National Institute for Statistics, has two separate departments for intrastat reporting. One department is responsible for Intrastat reports submitted by companies on the Mainland and in the autonomous region of the Azores, and the second department oversees reports from companies in the autonomous region of Madeira.

Businesses on the Mainland and in the autonomous region of the Azores should submit in paper format or electronically by the 15th day of the month following the reporting period Intrastat if their EU imports or EU exports are EUR 600,000 or higher. For the autonomous region of Madeira, these thresholds are set at EUR 25,000.

Digital Reporting

Local Businesses

There are two types of digital reporting that local businesses in Portugal should comply with:

1. E-invoicing, and

2. SAF-T

E-invoicing

In Portugal, all local businesses should issue e-invoices for B2G transactions. This obligation was introduced in two phases. In 2022, large companies started issuing e-invoices for B2G transactions, and in 2023, this became mandatory for SME companies.

Local businesses are still not required to issue e-invoices for B2C and B2B transactions.

SAF-T

Local businesses should file monthly electronic reports to the Tax Authority that include data on all invoices and simplified invoices issued, as well as debit and credit notes.

These reports are filed in the OECD’s Standard Audit File-Tax, also known as SAF-T, and should be submitted by the 5th day of the following month after the documents were issued.

Non-Resident Businesses

Non-resident businesses are subject to the exact SAF-T requirements as local businesses, with the exemption of the obligation to submit accounting SAF-T.