Possible extension of domestic reverse charge in Portugal

Portuguese tax authorities are considering the extension of domestic reverse charge for non-established businesses

There have been ongoing discussions between business representatives and Portuguese tax authorities about the application of reverse charge. Until recently, the understanding and market practice was that domestic reverse charge in Portugal only applied where the supplier was not registered for VAT purposes. Under an undergoing change of procedures and new interpretation in light of new invoicing rules, reverse charge is now understood to also apply on sales of goods by non-established suppliers with a mere VAT registration.

The discussions with Portuguese authorities are evaluating also the conditions of the client for reverse charge to apply: if . Currently, the only condition is that the client should be registered for VAT purposes (which derives from the wording of the Portuguese VAT Code) or if reverse charge would only apply in case the client is established and VAT registered in Portugal (which seems to result from the preamble of the decree-law which introduced the reverse charge rule into national law). The latter means that reverse charge would be extended on the supplier conditions but restricted on the client conditions.

Additional information about domestic reverse charge

Domestic reverse charge in the European Union is foreseen in Article 194 of the VAT Directive 2006/112/EC. According to this article, Member States may introduce domestic reverse charge when the supplier of a local transaction is not established in the country where the sale takes place. The directive does not introduce further requirements about the supplier (eg. VAT registered or not), nor about the customer or the scope of transactions to which this scheme applies.

This option in the VAT Directive generates a diverse landscape of local rules among all Member States. Some countries apply reverse charge only if the supplier is not VAT registered and not established, whereas other apply this scheme even when the supplier is VAT registered locally. Also, some jurisdictions would only apply reverse charge when the customer is established locally, whereas other jurisdictions use an extended reverse charge that even if the customer has a mere VAT registration in the country where the sale takes place.

Our article, VAT reverse charge: Possible scenarios explains this scheme more in detail and provides examples of transactions where the regime applies in Europe.

Contact Marosa if you would like to understand whether domestic reverse charge applies to your sales in Portugal or any other European country.

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