Madeira VAT Rate Reduction to 4% in 2024: Impact on Businesses & Consumers

Madeira is one of the two autonomous regions in Portugal, and its VAT rates differ from those in mainland Portugal. With already lower VAT rates than in the rest of mainland Portugal, the reduced VAT rate in Madeira will further decrease.

The decision to implement this policy was announced on July 29 and explained in the Regional Legislative Decree No. 6/2024/M (Decree).

Impact on VAT Rates

To further reduce the tax burden and relieve businesses and consumers, the Decree prescribes lowering the VAT rate from 5% to 4%. The change in the VAT rate is planned for October 1, 2024, meaning businesses have a short period to adjust their prices, accounting and reporting systems and software to the new reduced rate.

The amendments do not affect Madeira's standard and intermediate VAT rates, which are currently set at 22% and 12%. 

For comparison, the standard VAT rate in mainland Portugal is 23%, the intermediate rate is 13%, and the reduced rate is 6%.

In Portugal's second autonomous region, the Azores, the standard VAT rate is 16%, the intermediate VAT rate is 9%, and the reduced VAT rate is 4%.

Once the Decree comes into effect, the reduced VAT rates of Madeira and Azores will be the same.

Conclusion

The decision to decrease the VAT rate on food products, books, newspapers, and magazines should have a positive overall effect on Madeira's economy. This could also be an additional effort to make specific products and goods more available to Madeira residents and businesses.

As a place known for its tourism attractions, lowering VAT rates for camping and caravan park rental services could increase the number of bookings and tourists attracted by the potentially lower prices.

Source: Deloitte, Regional Legislative Decree No. 6/2024/M