VAT Rates in Portugal

Portugal has opted for the reduced VAT rates on a number of items allowed by the VAT Directive.

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VAT rates by goods and services in Portugal

The standard VAT rate is 23%. The standard VAT rate generally applies for all goods and services for which no exemption, 0% or one of the reduced VAT rates is foreseen.

The first reduced VAT rate is 13%. This reduced rate applies to certain food products and wine, certain types of fossil fuels, as well as musical instruments, among others.

In addition, there is a reduced VAT rate of 6%. This reduced rate applies to basic food products, certain books, and newspapers, some pharmaceutical products, medical equipment, passenger transport, and hotel accommodation, among others.

Supplies and services at 0% are the standard supplies, such as exports or intra-Community supplies.

Finally, some supplies are VAT exempt, such as health services, public education, and financial services, among others.

To confirm the VAT rate applicable to your product or service in Portugal, we recommend that you contact us.

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VAT deduction limits in Portugal

Input VAT is generally deductible as long as the goods or services are used for business purposes.

According to the national legislation, in particular article 21 of the Portuguese VAT Code, following expenses are excluded from the right to deduct:

• Acquisition/hiring/use/transformation/repair/manufacturing or import of passenger cars, pleasure crafts, helicopters, planes, motorcycles, except for goods which sale or exploitation is the object of activity;
• Fuel:
• Petrol
• Partially deductible (50%) - diesel, LPG, natural gas and biofuels, except
• Fully deductible (100%) - diesel, petrol, LPG, natural gas and biofuels, in the case of: Heavy passenger vehicles; Vehicles licensed for public transport, rent-a-car vehicles excluded; Diesel; LPG, natural gas or biofuel consuming machines, which are not registered vehicles; Tractors exclusively or predominantly used for fieldwork related to agricultural activity; Vehicles transporting goods, weighting more than 3 500Kg.
• Business travels made by taxable person and staff, including toll fees.
• Food, accommodation, beverages and tobacco, except in cases the expense is related to conferences, fairs, expositions or congresses, where a deduction of 50% or 25% can be applied, according to the Portuguese VAT Code (Art. 21, paragraph 2, Portuguese VAT Code).
• Fun and luxury, not considered normal operating expenses.

A valid and fully compliant VAT invoice must be issued for each expense on which VAT is deducted.

The VAT deduction limits in Portugal are regulated in Article 21 CIVA.

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Statute of Limitations in Portugal

The statute of limitations in Portugal is four years, counted from the beginning of the natural year following the date when the VAT became deductible or due.

The statute of limitations period determines the periods on which the tax authority can go back to review the information declared, and apply additional VAT assessments, penalties or interests. Also, the statute of limitations determines the period a taxpayer can voluntarily correct any errors on past submissions, and deduct input VAT. There is a limit to arithmetical errors, which is two years for making these corrections.

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Tax point rules in Portugal

The tax point is the time when VAT becomes due. VAT due should be distinguished from VAT payable. VAT is due when the tax point occurs. VAT is payable between the day after the end of the reporting period and the due date to submit and pay the VAT return.

• General rule: When the supply of goods or services is subject to the mandatory issuance of an invoice, then the tax point is by the time the invoice is issued, or should have been issued. Otherwise, VAT becomes due when the goods are put at the customer’s disposal, or when the services are completed.  
• Prepayments or advanced payments create a tax point because an invoice must be issued for each instalment or prepayment.
• Intra-Community acquisitions: Tax point occurs on the invoice date or the 15th day of the month following the month in which the invoice was issued, whichever occurs earlier. This rule does not apply in case of partial advanced payments prior to the moment in which the goods are placed at the customer’s disposal.
• Import: Tax point occurs when the goods are imported according to the relevant import documents.

Tax point rules in Portugal are regulated in Articles 7 and 8 CIVA.

Use and enjoyment rules in Portugal

When it comes to establishing the place of supply of a transaction, Member states may introduce another exception to the B2B rule according to the place where the services have been used and enjoyed. This exception may be introduced to avoid double taxation (positive use and enjoyment rules), to avoid non-taxation (negative use and enjoyment rules), or both.

Portugal introduced the negative use and enjoyment rule, hence attracting the place of supply to Portugal. This concerns the supplies of services when provided by a Supplier established in a country outside the EU to final customers (B2C) established in Portugal, provided that the services are used and enjoyed in this country in the following scenarios.

• Lease of tangible movable assets B2C made to a person established or domiciled outside the EU, when the actual use or exploitation of these assets occurs in national territory.
• Short-term lease of a means of transport B2C when the transport is put at the customer’s disposal outside the Community and the effective use or exploitation of the means of transport occurs in the national territory.
• Lease of means of transport B2C, other than short-term leasing, when it is established or domiciled outside the Community and the effective use or exploitation of the means of transport occurs in the national territory.

Separately, the use and enjoyment rules apply for telecommunications, broadcasting and electronic services (TBE services) in Portugal when these services are supplied to a customer established outside the EU but the actual use and enjoyment takes place in Portugal.

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Portuguese Bad Debt Relief

Bad debt regime applies on sales where an invoice has been issued with VAT, reported in the VAT return and the VAT amount has been paid to the tax authorities but the whole price has not been collected from the customer.

This is often due to the client´s bankruptcy, insolvency or simple missed payments to suppliers. In these cases, most countries allow to recover the VAT initially paid to the authorities, however, the conditions change from one country to another.

Portugal allows for bad debt relief by adjusting the out VAT paid in the periodic VAT return. In order to be able to deduct the bad debt, also known as créditos de cobrança duvidosa in the local language:

• The credit is overdue for more than 12 months and there are proofs about the payment being due.
• The credit is overdue for more than 6 months when the debtor is a private individual or a VAT exempt taxable person without the right to deduct VAT, provided that the VAT credit per invoice is not higher than EUR 750.
• Also, the bad debt relief is allowed before those timelines in case of execution procedures or insolvency.

The bad debt relief regime is regulated in Article 78 CIVA.

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