VAT is a non-cumulative tax imposed at all stages of the economic circuit.
It is split between different players, with the final consumer bearing the full obligation to pay it when purchasing goods or services.
The majority of those involved in the economic circuit, including self-employed individuals, must charge VAT to their customers (output VAT) and can deduct VAT paid on business-related purchases (deductible VAT).
In general, this tax does not represent a cost for self-employed workers.
VAT in Portugal has three rates: a reduced rate of 6% (4% in the Azores and 5% in Madeira), an intermediate rate of 13% (9% in the Azores and 12% in Madeira), and a standard rate of 23% (16% in the Azores and 22% in Madeira).
The reduced and intermediate rates only apply to goods and services listed in List I and List II of the VAT Code (CIVA), respectively.
The standard rate applies to other goods and services, namely services provided by a self-employed person.
Freelancers may be exempt from VAT if their annual turnover is below €14,500, falling under the exemption regime of Article 53, or if they engage in specific activities listed in Article 9 of the VAT Code.
Applied to self-employed workers with an annual turnover exceeding €14,500.
Under this regime, freelancers must charge VAT to customers and pay it to the Tax Authorities (AT).
Input VAT on business-related purchases can be deducted from output VAT on issued invoices.
VAT obligations are reported and paid through the VAT quarterly statement (Declaração Periódica do IVA).
A legal document submitted by all VAT taxpayers, reporting transactions during a given period (monthly or quarterly).
This mandatory submission, provided for in Article 29 of the VAT Code (CIVA), aims to determine the tax paid, the tax paid on the acquisition of goods and/or services, and the respective deductible tax.
Even if invoices are VAT exempt or there is no reported business activity, their submission is mandatory.
Submitted when goods or services are bought and sold within the European Union.
Monthly or quarterly submission based on the freelancer's annual turnover.
There are two regimes for the VAT Statements’ submission: monthly and quarterly. The monthly declaration applies to self-employed workers with an annual turnover of more than €650,000 (>€50.000/month).
For the vast majority of self-employed workers, the declaration method is quarterly, which has specific deadlines for each quarter. In detail, it must be submitted by the 20th of the second month following the quarter in which the services were performed, and respective receipts were issued:
Declaração Periódica do IVA: May 20 (1st quarter), August 20 (2nd quarter), November 20 (3rd quarter), and February 20 (4th quarter).
Declaração Recapitulativa do IVA: April 20 (1st quarter), July 20 (2nd quarter), October 20 (3rd quarter), and January 20 (4th quarter).
Relocate Now assists with tax compliance by submitting the required VAT quarterly statements on behalf of freelancers, ensuring ongoing obligations are met, including on our freelance obligations package available at [link].
What would be the VAT rate applicable to a freelancer providing services?
The standard rate of 23% would be applicable to services provided by a self-employed person, in case they are under the normal VAT regime and invoicing Portuguese or EU clients with invalid VAT numbers.
Do I need to charge VAT on international transactions?
VAT rules for international transactions can be complex. Generally, VAT is not charged when issuing invoices regarding the provision of services to non-European Union clients, nor to European Union clients with valid VAT numbers (registered in VIES), but it would apply to EU clients with invalid VAT numbers. It's advisable to seek professional advice to navigate international VAT regulations.
What is the difference between output VAT and deductible VAT?
Output VAT is the VAT charged by individuals and businesses to their customers, while deductible VAT is the VAT paid on purchases related to business activities. Deductible VAT can be offset against output VAT, and the difference is remitted to the government.
Can I claim VAT refunds for business-related expenses?
Yes, under the normal VAT regime, self-employed workers can claim refunds for VAT paid on business-related purchases, except when engaging in specific activities listed in Article 9 of the VAT Code. The reimbursement request must be made upon the VAT quarterly statement submission, as long as the freelancer holds a credit for 12 consecutive months and a value of more than €250 or a credit of more than €3.000.
What are the consequences of not complying with VAT regulations?
Non-compliance with VAT regulations can result in severe penalties and fines. It's crucial to adhere to VAT obligations, including the timely submission of VAT Statements and accurate reporting.
Can I switch between the VAT exemption regime and the normal VAT regime?
Generally, once a freelancer exceeds the €14,500 annual turnover threshold, they are required to enter the normal VAT regime. However, specific circumstances may allow for exemptions, and it's advised to consult with tax professionals.
How are VAT payments made in Portugal?
VAT payments, if applicable, are made after submitting the Declaração Periódica do IVA. The difference between output and deductible VAT is calculates and the freelancer must remit the amount to the government. Payment can be made by direct debit, ATM or ATM reference (multibanco or referência multibanco), and you can pay at any ATM or online via home banking.
Are there any VAT incentives for specific industries in Portugal?
VAT incentives may vary, and some industries may benefit from reduced rates. It's recommended to check with tax authorities or seek professional advice to understand specific incentives for your industry.
How can I ensure I meet all VAT obligations as a freelancer?
Engaging a professional service like Relocate Now or other tax advisors can ensure compliance with VAT obligations. They can assist with submitting VAT Statements, presenting owed amounts, and keeping your tax situation in good standing.
Note: These FAQs provide general information and guidance. Specific cases may vary, and individuals are advised to seek personalized advice.
