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  • Service: Tax, Global Indirect Tax
  • Type: Regulatory update
  • Date: 11/1/2012

Portugal: VAT essentials 

Essential information regarding VAT/GST as it applies in Portugal.


Scope and Rates

What supplies are liable to VAT?


Value-added tax (VAT) is due on any supply of goods or services made in Portugal, where it is a taxable supply made by a taxable person in the course or furtherance of a business carried on by said person. Supply includes all forms of supply. It is not restricted to the provision of goods and services by way of sale but can apply equally to other forms of transaction, including the leasing or hire of goods, the grant, assignment, surrender of a right, or even an agreement not to do something.


Supply does not include anything done otherwise than for a consideration. However, certain actions carried out for no consideration are deemed to be supplies; for example, giving business gifts, and private use of business assets, and movement of own goods for trade into Portugal from another European Union (EU) Member State.


What is the standard rate of VAT?


With effect from 1 January 2011 the standard rate of VAT is 23 percent in the mainland (previously it was 21 percent) and 16 percent in Azores (previously it was 15 percent).


With effect from 1 April 2012 the standard rate of VAT for Madeira is 22 percent (previously it was 16 percent).


Are there any reduced rates, zero rates, or exemptions?


Yes. There is a reduced rate of 13 percent (9 percent for Azores and 12 percent for Madeira) for certain goods and services including:


  • preserves of meat and shellfish
  • ordinary wines
  • spring, mineral, medicinal and carbonated water (except carbonated water with added flavoring)
  • tickets for cultural events.

In addition, there is a reduced rate of 6 percent (4 percent for Azores and 5 percent for Madeira) for certain goods and services, including:


  • cereals, meat, shellfish, fruit, and vegetables
  • other essential foods
  • books and newspapers
  • medicines
  • passenger transport
  • hotel accommodation.

There is an extensive list of zero-rate supplies, including:


  • exports
  • intra-EU dispatches
  • international services provisions
  • transport of goods and people between the mainland and the islands of Azores and Madeira and in between the islands
  • supplies to NATO forces
  • supplies to national exporters
  • supplies to international organizations recognized as such by Portugal or other Member States.

The list of exemptions includes:


  • immovable property (subject to option to tax)
  • financial transactions
  • insurance
  • services of a cultural nature (artists, libraries, and museums)
  • agricultural activity (option to tax)
  • postage stamps
  • health and welfare
  • betting and similar games of chance
  • education
  • public garbage collection.

Note: it is not possible to recover VAT incurred in the performance of exempt supplies.


What are the other local indirect taxes beside VAT?


In Portugal, there are also excise duties on certain goods, such as alcohol and alcoholic beverages, manufactured tobacco products and energy products. These indirect taxes are applicable on the use or consumption of certain products and are mainly composed by specific taxes which are applied, per quantity, according to their specifications.

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Registration

Who is required to register for Portuguese VAT?


Portuguese Entities


If a business carries out taxable supplies in Portugal, it is required to register for VAT. If the turnover exceeds EUR 10,000 it is also required to account for Portuguese VAT. Optional VAT registration is possible.


Non-Portuguese Entities


The registration rules that apply to Portuguese entities should also apply to non-Portuguese entities that carry out taxable supplies in Portugal. However, in practice the threshold does not apply for foreign established businesses.


To deal with their VAT affairs, businesses which are not established in the European Union, must appoint a VAT representative with joint and several liability to the tax authorities.


If a business is not registered for VAT in Portugal, but sells and delivers goods from another Member State to customers in Portugal who are not VAT registered (distance sales), where the value of those sales exceeds a threshold of EUR 35,000 it is required to register and account for VAT in Portugal.


Are there penalties for not registering or late registration?


Yes, there is a penalty of EUR 600 on the act of retroactive registration.


Is voluntary VAT registration possible for an overseas company?


Yes.


Are there any simplifications that could avoid the need for an overseas company to register for VAT?


Generally the obligation to account for the VAT due can be shifted to the company’s customer, if the customer is registered for VAT purposes in Portugal.


Triangulation


If a business is an intermediate supplier to a Portuguese acquirer of goods which are purchased from a business in an European Union (EU) Member State other than the intermediate’s and are delivered from there directly to Portugal, VAT due can be accounted for by the customer in Portugal.


Call-Off/Consignment Stock


No simplification procedures apply.


Supply and Install


If a business supplies goods and installs or assembles them in Portugal, its customer can account for any VAT due in effect as an acquisition. If third-party supplies are carried out from outside Portugal directly to the place of installation, VAT registration will generally be inevitable in order to account for acquisition VAT.


Reverse charge Services


These services are covered in more detail at (section International Supplies of Goods and Services).


Does an overseas company need to appoint a fiscal representative?


Businesses not established within the European Union must appoint a fiscal representative. EU established businesses can appoint a fiscal representative.

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VAT grouping

Is VAT grouping possible?


No.


Can an overseas company be included in a VAT group?


N/A.

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Returns

How frequently are VAT returns submitted?


Most registered businesses are required to submit VAT returns on a monthly basis. However, if the estimated annual turnover is lower than EUR 650,000, companies may opt to submit quarterly VAT returns.


In addition to periodic returns, your business must also submit an annual summary VAT return and an annual listing of national clients and suppliers with which the total transactions in the year exceed EUR 25,000.


Failure to furnish VAT returns and settle any outstanding VAT payments on time may result in a penalty ranging between 30 percent and 100 percent of the VAT in default with a maximum of EUR 45,000. In addition, penalty interest is charged at 4 percent per year.


Are there any other returns that need to be submitted?


European Sales List (ESL)


If your business supplies goods or services that are supplied from Portugal to VAT registered businesses in other EU Member States, it is required to complete monthly or quarterly European Sales Lists (ESLs) - recapitulative statement. This return must be submitted by the 20th day of the following month after the month/quarter in reference.


Declaration on Supplies in Autonomous Regions


Mainland VAT registered tax payers who supply goods and/or services within the fiscal boundaries of the autonomous regions of Madeira and Azores must declare these on a separate return to be attached to the ordinary periodic VAT return.


Intrastat Supplementary Declarations


VAT registered businesses with a value of dispatches or arrivals to or from other EU Member States, which exceeds a certain threshold (EUR 200,000 for arrivals and EUR 250,000 for dispatches per calendar year) must complete supplementary declarations each month. This return must be submitted by the 15th day of the following month after the month in reference.


Failure to submit Intrastat declarations on time may result in a penalty ranging from EUR 500 to 50,000.


If a business receives a purchase invoice in foreign currency, which exchange rate should be used for VAT reporting purposes? (e.g. central bank’s exchange rate applicable on the date of the invoice)


The exchange rate to be used for VAT purposes is the one listed in the tables released by the European System of Central Banks or by any bank’s selling rate established in the country.


Additionally, taxpayers may choose to consider the rate of the day in which the chargeability of the tax occurred or the rate of the first working day of the respective month.  

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VAT recovery

Can a business recover VAT if it is not registered?


Yes. If a company is established in another EU Member State, it should make a claim to its local EU tax authority which will then be sent to the tax authorities of the Member State of refund. A non-EU business can recover the VAT under the 13th Directive, provided that there is a reciprocity agreement between Portugal and the tax authorities of the home country of the claimant.


Under both of these provisions there are strict time limits for making claims - the claim period covers the calendar year and claims must be submitted by the 30th September of the following year. Quarterly claims are also allowed.


Does your country apply reciprocity rules for reclaims submitted by non-established businesses?


Information not available. The Portuguese tax authorities have reciprocity agreements with some countries, but the list of the countries covered is not publically available. A case by case inquiry needs to be made.


Are there any items that businesses cannot recover VAT on?


Yes. There are certain items that businesses cannot recover VAT on. For example:


  • Exempt supplies: where VAT relates to both taxable and exempt supplies, an apportionment is required.
  • Non-business (including private) activities: where VAT relates to both business and non-business activities, an apportionment is required.
  • Passenger vehicles up to nine seats: with certain exceptions businesses cannot recover VAT on the purchase of passenger vehicles.
  • Accommodation, food, drinks, taxis, car hire and petrol: VAT is not generally recoverable on these costs. However, as per 1 January 2005, VAT incurred is recoverable at 50 percent on transport, accommodation, food, drink, and other expenses incurred for the purpose of organization of congresses, fairs, and exhibitions, when these are directly contracted with the service supplier(s) or through entities legally qualified and these clearly contribute to carry out VATable supplies; and 25 percent of the VAT when such costs are incurred only in participation in these events, contracted directly with the organizers of those events and duly justified as contributing in the performance of VATable supplies.
  • Purchases falling within the Tour Operators' Margin Scheme: the VAT on goods and services that fall under this scheme cannot be reclaimed.
  • Goods sold under one of the margin schemes for second hand goods: there are a number of schemes which provides for VAT to be accounted for on the goods' sales margin, but do not allow VAT recovery on the purchase of those goods.

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International Supplies of Goods and Services

How are exports of goods and services treated?


Goods


If a company sells goods to a customer who is registered for VAT in another EU Member State and the sale involves the dispatch of those goods from Portugal (either by the supplier or the customer) to that Member State, then the supplier does not need to charge VAT and may zero rate the supply as an intra-EU dispatch. It must obtain your customer's VAT number and quote it on its invoice. It should also obtain evidence of the goods' dispatch from Portugal.


If a company sells goods to a consumer (who is not a taxable person for VAT) in another EU Member State, it will have to charge Portuguese VAT. If the sales exceed a certain threshold established by that Member State it may have to register in the Member State under what is known as the Distance Selling Scheme.


If a company exports goods to a customer (business or private) outside the EU, it does not need to charge VAT but, as for intra-Community sales, it should make sure that in all cases to keep proof of dispatch/delivery to support the zero rating.


Services


The Directive 2008/9 has been transposed to the Portuguese legislation by the Decree-Law no. 186/2009 dated 12 August 2009. Accordingly, there are now two general rules on the location of the supply of services, based on the status of the acquirer:


  • when the acquirer of the services is a taxable person (B2B transactions), VAT is generally due in the place where the acquirer of the services is located
  • when the acquirer of the services is a non taxable person (B2C transactions), VAT is generally due in the place where the supplier of the services is located.

The following exceptions apply to the B2B and B2C main rules as described above:


  • services involving real estate (taxable in the country where the real estate is located)
  • restaurant and catering services (taxable in the country where these services are performed. Other rules apply if these services are performed on board of a ship, aircraft, or train)
  • passenger transport (taxable in the country where the transport services are actually performed)
  • admission to cultural, artistic, sports, scientific, educational, entertainment, and similar activities and the appurtenant admission-related services (taxable in the country where those activities are physically carried out) when performed to VAT entrepreneurs.

The following exceptions apply to the B2C main rule:


  • intermediary services (taxable in the country where the underlying transaction is taxable)
  • intra-Community transport of goods (taxable in the country of departure). For other types of goods transportation to non-taxable customers, the place of service is the place where the transportation is actually performed
  • transportation-related services (taxable in the country where the services are physically carried out)
  • services involving movable tangible goods (taxable in the country where the activities are actually carried out)
  • services performed electronically by a VAT entrepreneur not established in the EU (taxable in the country where the customer of the service is located)
  • services concerning cultural, artistic, sports, scientific, educational, entertainment, and similar activities, along with the ancillary services (taxable in the country where those activities are physically carried out).

The following services rendered to non-taxable customers established or resident outside the EU are taxable in the country where the customer is established:


  • the transfer of licenses and similar rights
  • advertising services
  • services performed by consultants, as well as data-processing and information-provision services
  • the obligation to refrain, in whole or in part, from pursuing a business activity
  • banking and insurance services
  • supply of staff
  • hiring out of movable property, with the exception of means of transport
  • operating natural gas and electricity-distribution systems
  • telecommunications services
  • radio and television broadcast services and
  • services performed electronically.

How are goods dealt with on importation?


When goods are imported into Portugal from outside the EU, import VAT and customs duties may be due. The customs duties must be paid or secured before the goods will be released from customs' control. The VAT paid can be offset against the VAT charged by the acquirer on its VATable operations, on its VAT return.


How are services which are brought in from abroad treated for VAT purposes?


If a company buys services from outside Portugal, it will be required to apply the reverse charge. This is intended to take away any VAT advantage of buying those services from outside Portugal.


Under the reverse charge, a company is required to account for a national amount of VAT as output tax on its VAT return covering the period in which it made the payment and it recover this VAT as input tax on the same return.


If the company is able to recover all your VAT, the reverse charge has no cost effect and is a VAT compliance matter only. However, if the company is partially exempt, it is likely to be a VAT cost depending on the level of recovery allowed under the partial exemption method.

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Invoices

Is a business required to issue tax invoices?


According to the Portuguese tax legislation, a business is required to issue tax invoices.


What do businesses have to show on a tax invoice?


A tax invoice it must contain the following data:


  • a sequential invoice number (maximum of 11 digits)
  • the time of the supply
  • the date of issuance of the document
  • the name, address, and registration number of the supplier
  • the name and address of the customer
  • the VAT registration number, if any, of the customer
  • the quantity and nature of the goods/services supplied at each VAT rate
  • unit price (exclusive of any VAT) at each VAT rate
  • each rate of VAT chargeable and the net amount of VAT chargeable at each such rate
  • the rate of any discount
  • the total amount of VAT payable, expressed in EUR. If it is in another currency, the exchange rate used must be stated on the invoice and the foreign exchange rate used in accordance with the rate from a Portuguese commercial bank's selling rate either on the date of issuance of the invoice or on the first working day of the month
  • the legal basis for exemption (if applicable)
  • margin schemes legend should be included
  • invoices are required for zero-rated and exempt supplies. Although Portuguese suppliers that exclusively carry VAT-exempt supplies do not need to issue invoices for these supplies.
  • there are local language requirements for invoicing
  • the invoices regarding new means of transport (on intra-EU supplies) should include the identification of the vehicle (license plate number or register number), specification of its characteristics and number of kilometers traveled at the time of the supply.

Can businesses issue invoices electronically?


Yes. Invoices and equivalent documents may be issued by electronic means provided that the origins, authenticity, and integrity are guaranteed by an advanced electronic signature or Electronic Data Exchange (EDI). Your customer must agree with this method of invoicing in advance.


Is it possible to operate self-billing?


Yes, provided there is a written agreement with your customer before doing so. If the customer is established outside the EU, a previous authorization from the Portuguese tax authorities is required.


Can a business issue VAT invoices denominated in a foreign currency?


Yes. However, if the invoices are issued in another currency, the taxable amount and the VAT must also be expressed in EURO, and the exchange rate used must be included in the invoice.

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Transfers of Business

Is there a relief from VAT for the sale of a business as a going concern?


Yes. If a company sells its business as a going concern, then VAT may not be due. There are certain conditions to be met: for example, the purchaser should be registered for VAT in Portugal at the time of the transfer (or immediately register as a consequence of the transfer) and should intend to use the assets to carry out transactions that are subject to VAT.

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Options to Tax

Are there any options to tax transactions?


There is an option to tax services supplied by health establishments. In addition, there is an option to tax certain types of transaction in immovable property, as well as on meals provided by companies to their employees.

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Head Office and Branch transactions

How are transactions between head office and branch treated?


According to new guidelines from the Portuguese tax authorities, charges between head office and branch are not treated as supplies for Portuguese VAT purposes.


Intra-Community movement of goods between a head office and a branch established in different Member States (i.e. one in Romania, one in another Member State) is treated as a deemed intra-Community acquisition or a deemed intra-Community supply, respectively depending on whether Romania qualifies as the country of dispatch or arrival.

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Bad Debt

Are businesses able to claim relief for bad debts?


Businesses may claim VAT relief for bad debts under different circumstances such as bankruptcy of the customer or his/her insolvency.

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Anti-Avoidance

Is there a general anti-avoidance provision under VAT law?


There is a general anti-avoidance provision under the Portuguese law that also applies to VAT.


VAT “Transfer pricing” regime


A new regime is introduced for transactions between related parties with a limited right to VAT deduction. Further to the new provisions, the taxable amount of the supplies of goods and services carried out between taxpayers with “special relationships”, as foreseen in the CIT Code, will be the open market value, instead of the declared transaction value, whenever any of the following situations occur:


  • the consideration is lower than the open market value and the purchaser is not entitled to the full deduction of the VAT incurred
  • the consideration is lower than the open market value and the supplier is not entitled to fully deduct the tax incurred and the operation is exempt under the Portuguese VAT Code rules
  • If the consideration is higher than the open market value and the supplier is not entitled to the full deduction of the VAT incurred.

This regime will not apply in case the taxpayer is able to demonstrate that the difference between the consideration and the open market value was due to factors other than the existence of a “special relationship” between the parties.

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Penalty Regime

What is the penalty and interest regime like?


There are a number of penalties that apply in Portugal for compliance failures. Penalties are usually confined to lump-sum penalties that are fixed dependent on the type of taxpayer and offence involved.


If the taxpayer makes an error on a VAT return that understates your liability or overstates your entitlement to a VAT credit, a penalty of up to 100 percent of the error may apply. If, however, it voluntarily discloses the error to the tax authorities, the penalty can be mitigated. Interest would normally apply to an error.

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Tax authorities

Tax audits


How often do tax audits take place?


There is no time limit established for the occurrence of tax audits.


Are there audits done electronically in your country (e-audit)? If so, what system is in use?


N/A.


Advance rulings and decisions from the tax authority


Is it possible to apply for formal or informal advance rulings from the (indirect) tax authority?


Yes, both of them are possible.


Are rulings and decisions issued by the tax authorities publicly available in your country?


Yes. Those documents can be found in the Portuguese tax authorities’ website.

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Miscellaneous

In your country, are there unique specific indirect tax rules (regimes) that differ from standard indirect tax rules in other jurisdictions?


Yes. The specific indirect tax rules in Portugal are:


VAT regime for construction work and scrap


The supply of construction services and the supply of waste by Portuguese companies to other Portuguese taxable entities, which are allowed to deduct, wholly or partially, the VAT incurred are subject to the reverse charge mechanism, according to which no VAT is assessed in the invoices issued.


As such, the settlement of the VAT due on such transactions is made by the acquirer, according to the established specifications.


VAT exemption waiver regime


The transfer or lease of real estate located in Portuguese territory is VAT exempt, preventing the recovery of the VAT incurred upstream.


Nonetheless, as far as certain conditions are met, and provided there is an agreement between the transferor/lesser and the transferee/lessee, the exemption may be waived, allowing the VAT recovery on input costs.


Are there indirect tax incentives available in your country (e.g. reduced rates, tax holidays)?


There are reduced rates and exemptions presented in the section “Scope and rates”.

 

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