Value Added Tax

Value Added Tax (VAT)

• 1. General framework

  Value Added Tax is a consumption tax and is charged on goods and services supplied in the course of business. Credit is given for VAT paid by most registered businesses, thus this tax is ultimately borne by the final consumer. For VAT purposes, the territory of Portugal includes the autonomous regions of Azores and Madeira with reduced rates applicable to supplies in these islands. The EU VAT Directives have been implemented in Portuguese law and the main provisions of these Directives are harmonized in the different EU Member States.

• 2. Taxable transactions

  The following transactions are subject to VAT when they are carried out by traders and professionals in the course of their business:
  
  - Supplies of goods, generally defined as the transfer of the right to dispose of tangible property against consideration, although certain transactions not involving a transfer of this kind may also be treated as supplies of goods for the purposes of VAT (assimilated supplies of goods).
  
  - Supplies of services, generally defines as encompassing any transaction which does not constitute a supply of goods.
  
  - Intra-community acquisitions of goods, generally defined as acquisitions of goods dispatched or transported to Portuguese territory from another EU Member State and the transferor thereof is a taxable person duly identified for VAT purposes in another Member State.
  
  - Imports of goods, generally defined as including the entry into the Portuguese territory of goods proceeding from outside the EU. These transactions are subject to VAT regardless of who performs them unless they fall under. No import of goods is deemed to exist when goods are placed under certain customs or economic arrangements, such as, warehousing arrangements, inward processing arrangements, temporary importation or external or internal transit arrangements.
  
  Every taxable person is obliged to issue an invoice in respect of all goods and services supplied by him, as well as in respect of any advance payments. The issuance of an invoice is equally required whenever a change is made to the taxable amount of a transaction or to the corresponding tax. Any invoice must be issued no later than the fifth working day following that of the taxable event and must be processed by computer.

• 3. VAT rates

  The VAT rates are as follows:
  
  - Reduced rate – 6% (4% for the Azores and 4% for Madeira) for goods and services included in List I annexed to the VAT Code;
  
  - Intermediate rate – 13% (9% for the Azores and 12% for Madeira) for goods and services included in List II annexed to the Code;
  
  - Standard rate - 23% (16% for the Azores and 22% for Madeira) applying to all other goods and services.
  
  The reduced rate is applicable, namely, to some essential goods and services, such as food, agricultural goods (if not exempt), electricity, transport of passengers, accommodation in hotel units, pharmaceutical, health products and some entertainment tickets.
  
  The intermediate rate is applicable to other foodstuff, wine, and certain equipment or machinery intended for agriculture.

• 4. Exemptions and exclusions

  The following are exempt from VAT, without the right to deduct, the supply of medical services, education, the transfer and rental of immovable property, the shares of non-profit-making organisations, certain financial transactions, insurance and reinsurance transactions and food and beverage services provided by employers to their employees.
  
  In some of these transactions, and subject to certain conditions, it is possible to waive this exemption and pay VAT. The waiver of the exemption allows input VAT to be deducted.
  
  Other exempt transactions, however, (mainly those relating to international trade, such as exports) do confer the right to deduct input VAT. There is an extensive list of “zero-rate” transactions that includes amongst others:
  
  - Intra-Community transfers of goods;
  
  - Exports, operations assimilated to exports and international transport;
  
  - Transfers of goods intended to be placed in customs and tax warehouses and while the goods are under a suspensive regime;
  
  - Free transfers: of goods for distribution to people in need, made to the State, private social solidarity institutions and non-governmental non-profit organizations; and, of books made to government departments in the areas of culture and education, to cultural and educational institutions, to educational centers for social reintegration and to prisons.
  
  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.

• 5. Location rules

  Supplies of goods that are in Portuguese territory at the time when transport to the purchaser begins or, in the absence of dispatch, that are in Portuguese territory at the time the goods are made available to the purchaser are subject to VAT in Portugal.
  
  The supply of services made to:
  
  - A taxable person whose registered office, permanent establishment or domicile, for which the services are provided, is located in Portuguese territory ("B2B" rule);
  
  - A non-taxable person, when the provider has in Portuguese territory the headquarters, permanent establishment or domicile from which the services are provided ("B2C" rule).

• 6. VAT deduction

  It only confers the right to deduct the tax mentioned in invoices, issued in legal form, as well as the VAT payment receipt that is part of the import declarations and the documents issued electronically by the Portuguese Tax Authority in which the number and date of the cash movement are included. In addition, the tax subject to deduction must have been levied on:
  
  - Goods and services acquired for effective use in the taxable activity of the taxable person;
  
  - Goods for export or acquired in the context of operations treated as exports and international transport;
  
  - Goods and services acquired to carry out exempt financial transactions, when the acquirer is established outside the European Union;
  
  - Other goods and services acquired for the performance of certain exempt transactions;
  
  - Where the reverse charge mechanism for VAT applies, only the amount paid under that obligation is deductible.
  
  There are some operations which do not give the right to deduct VAT, even when incurred for the purposes of a taxable activity, such as:
  
  - Tourist vehicles, pleasure boats, helicopters, planes, motorcycles and motorcycles;
  
  - Fuels for motor vehicles, except for diesel, liquefied petroleum gases (LPG), natural gas and biofuels, whose tax is deductible at the rate of 50%;
  
  - Transportation, meals and accommodation;
  
  - Tobacco, entertainment and luxury.
  
  In the case of transport, meals and accommodation expenses for the organisation of congresses, fairs, exhibitions, seminars, conferences and the like, the respective VAT is deductible at 50%. If these expenses refer to participation in the aforementioned events, the deduction allowed will be in the proportion of 25%.
  
  A taxpayer carrying both operations giving right to deduction and exempt operations determines the appropriate deductions either by applying a pro rata (based on the value of taxable supplies made compared with total turnover) or through an direct allocation method (whereby input tax that is not allocated directly to exempt and taxable supplies is apportioned).
  
  If amount of VAT deducted exceeds amount of tax due on taxable transactions in the same period, the excess may be carried forward to the next tax periods. Taxpayer may under certain circumstances opt for claiming a tax refund to the Portuguese Tax Authority.

• 7. Registration and ancillary obligations

  For a resident entity, if a taxpayer carries out taxable supplies in Portugal, it is required to register for VAT. If the turnover exceeds EUR 15,000 it is also required to account for Portuguese VAT. Businesses which are not established in the European Union, must appoint a VAT representative with joint and several liability for the delivery of VAT obligations.
  
  Distance sales of goods to other Member States are usually taxed in the country of destination, i.e. where the purchaser is located. However, if the total annual value of these sales – also including certain electronic services – does not exceed €10,000 (net of VAT), the seller may choose to continue to pay the tax in the Member State of origin. This simplified scheme aims to exempt small operators from the obligation to register for VAT in other Member States.
  
  If this limit is exceeded, the operator becomes subject to taxation in the Member State of destination. In these cases, you can use the One-Stop Shop (OSS) scheme, which allows you to declare and pay VAT due in different Member States through a single electronic declaration submitted in the Member State where you are established.
  
  Businesses are generally required to submit VAT returns on a monthly basis (until the 20th day of the second month following transaction). However, if the estimated annual turnover is lower than EUR 650,000, companies may opt for quarterly VAT returns (until 20th day of the second month following the end of each 3-month). VAT grouping is not permitted under Portuguese law.
  
  The taxpayer is required to deliver a Start-up Activity form for the purposes of a taxpayer’s registration. Any changes in the activity must be communicated within 15 days and the termination within 30 days.
  
  Besides VAT returns, taxpayers have also to submit recapitulative statement in respect of any supply of goods to another Member State, annual VAT return and tax statements concerning the identification of any customers and suppliers with transactions higher than € 25,000 in the previous year.
  
  Taxable persons shall keep an appropriate accounting allowing for a clear and accurate disclosure of all elements needed for tax assessment and its control by tax authorities. Books, records and any supporting documents or elements must be filed and kept in good order for 10 civil years.
  Several penalties may apply for late submission or other compliance related failures. Such penalties are structured as lump-sum penalties set based on the offence (negligence or wilful misconduct) involved. Penalties up to 100% of the mistake may apply to negligence cases. Interest at 4% annual rate also applies.

• 8. Special regimes

  In addition to the general taxation regime, there are also special VAT regimes, namely:
  
  - Special waiver of exemption regime in real estate transactions.
  
  - Special regime for small retailers.
  
  - Taxation regime for liquid fuels applicable to dealers.
  
  - Special regime for travel agents and touristic operators.
  
  - Special taxation regime for second-hand goods, art collection works and antiques.
  
  - Special regime for investment in gold.
  
  - Special taxation regime for taxpayer with an annual turnover below €15,000.