Indirect tax snapshot
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Value Added Tax (VAT) is the main type of indirect taxation in Portugal and in other European Union (EU) countries.
It is a tax on consumption which is applied during the production and distribution process to most goods and services. It is also applied to goods, and certain services, entering the country. Although VAT is ultimately borne by the consumer by being included in the price paid, the responsibility for charging, collecting and paying it to the tax authority at each stage of the process rests with the business making the supply, ie the sale.
A business registered for the tax will charge VAT (output tax) on its sales, and incur VAT (input tax) on its purchases (including any VAT paid at importation). The difference between the output tax and the deductible input tax in each accounting period will be the amount of VAT payable by the business to the tax authority. Where the input tax exceeds the output tax, a refund can be claimed.
There are three rates of VAT that are applied to goods and services in Portugal; the standard rate, the intermediate rate and the reduced rate. In addition, some goods and services are exempted from the tax (with or without right to deduction of the input VAT).
In general, businesses that make exempt supplies are unable to claim all of the input tax that they incur, so the VAT paid to suppliers will be a ‘real’ cost.
Most goods imported into Portugal from outside the EU are subject to VAT. The tax will have to be paid by the importer at the time of importation. Where the importation is for business purposes and the importer is registered for VAT, it may be possible to reclaim the tax (subject to certain rules).
At the moment it is possible to apply to the reverse charge mechanism on imports, proven that criteria is met.
It is also important to note the interaction between VAT and Customs duty. Customs duty is levied across the EU at the place where goods are imported into the community. It is levied in order to bring the cost of goods produced outside the EU up to the same level as those produced within it. Once duty (and VAT) has been paid by the importer, the goods are in ‘free circulation’ and they can then be released for use in the home market. Unlike other indirect taxes, such as VAT, once duty has been paid it is not usually recoverable by the importer. It therefore represents a bottom line cost to the importing business if it cannot be passed on in higher prices.
It is therefore very important to ensure that the correct rate of duty is applied. VAT is charged on the value of the importation, including any custom duty.
No. A ‘person’ who either makes or intends to make taxable supplies of goods or services in the course or furtherance of a business must register for VAT as soon as it starts its operations.
For these purposes, a ‘person’ includes any legal entity (or individuals performing an economic activity for VAT purposes). Therefore, once a person is registered for VAT, all of his business activities will be covered by the registration – even if the nature of some of those activities is very different.
Apart from very specific situations, there is no VAT grouping in Portugal.
A penalty may be imposed by the tax authority if a business fails to register at the correct time or if this registration is performed with backdated effects.
There is no registration limit either for established or non- established businesses. All businesses will need to register for VAT as soon as they commence trading in Portugal, irrespective of the level of turnover.
Registration for VAT in Portugal may also be required where a non-established EU business is involved with distance selling. Distance selling occurs when a taxable supplier in one EU country supplies and delivers goods to a customer in another EU country who is not registered or liable to be registered for VAT. Such customers are known as non-taxable persons, and include private individuals and businesses and other organisations that are not registered for VAT (either because of their size, or the fact that they are exempt from having to register due to the nature of their activities). The common examples of distance sales are goods supplied by mail order and via the internet.
Each EU country has the option of applying a distance selling threshold of either €35,000 or €100,000 per calendar year, or the equivalent in its own currency. Portugal has adopted an annual threshold of €35,000.
Distance sales from another EU country to non-taxable persons in Portugal will be subject to VAT at the appropriate rate in the supplier’s country. However, once the value of those distance sales to Portugal exceeds the above mentioned threshold of €35,000:
• the supplier becomes liable to register for VAT in Portugal
• Portugal becomes the place of supply
• any further sales to customers in Portugal are subject to Portuguese VAT.
Suppliers can choose to make Portugal the place where the goods are supplied by registering for VAT voluntarily before the threshold is reached.
With effect 1 January, 2015, Article 58 of Directive 2006/112/ EC was amended. The rules determining the place of supply of electronically supplied services supplied to private consumers (B2C) changed from the Member State where the supplier belongs (ie where established) to the Member State of the consumer. The result of this is that local VAT is chargeable at the applicable rate in each of the Member States in which electronically supplied services are made (ie where the customer belongs). To ensure compliance with this, suppliers have the choice to either register for VAT in each Member State where their customers reside, or elect to register under the EU VAT MOSS simplification scheme in a single Member State (where they are established). Businesses with multiple establishments in the EU can choose which Member State to operate MOSS (the Member State of Identification). However, the MOSS cannot be used to report local sales to customers in a Member State in which suppliers of electronically supplied services have a fixed establishment. Non-EU suppliers without an establishment in a Member State are free to select a Member State of their choosing to operate MOSS and become their Member State of Identification.
It is mandatory to appoint a fiscal representative herein in case the person is established outside the EU.
Businesses whose annual turnover is more than €650,000 must prepare and file monthly returns within one month and ten days of the end of each month.
Businesses whose annual turnover is less than €650,000 must prepare and file quarterly returns within one month and fifteen days of the end of each quarter.
Annual returns must be submitted by the 15th of July of the following calendar year (this return is a summary of the periodic VAT returns filled).
Returns which are filed late can be fined between €300 and €3,750. However, reductions are applicable under certain conditions.
Late payments are subject to interest at the rate of 4% per year of the tax and a penalty ranging between 30% and 100% of the tax due is normally applicable.
Businesses that are registered for VAT in Portugal and make supplies of goods or services to traders registered for the tax in other EU countries are required to complete and submit ESLs. The ESLs must show details of the recipients of the goods and services.
In addition, if the value of the intra-EU trade in goods dispatched or arriving from other EU is above an annual threshold, a supplementary declaration (referred to as an Intrastat declaration) has to be submitted for either or both. These declarations have to be submitted on a monthly basis. Lastly, Annual VAT returns also need to be filed on a yearly basis (exceptions apply, namely if nil VAT returns have been filed throughout the year).
Yes. A range of penalties can be imposed where businesses do not comply with the VAT rules.
Penalties and interest can be applied for errors and omissions made on tax returns, or where the tax is paid late. Penalties can also be applied where the business has failed to maintain adequate records, provide information (including additional declarations) or makes repeated mistakes.
Criminal proceedings may be brought in the case of serious damages caused to the Portuguese tax authorities.
Yes, it may be possible to reclaim the VAT incurred in certain circumstances. Two schemes exist, one for businesses established in the EU and another for businesses established elsewhere.
The EU cross border refund scheme is available in all EU member states, and enables a business established in an EU country to recover VAT incurred in another member state. To be eligible to make a claim, the claimant must be a taxable person established in an EU member state other than the one from which the claim is to be sought. In addition, the claimant:
• must not be registered, liable, or eligible to be registered in the member state from which he is claiming the refund
• must have no fixed establishment, seat of economic activity, place of business or other residence there
• during the refund period he must not have supplied any goods or services in the member state of refund, apart from certain limited exceptions.
The amount that is refundable is determined by the deduction rules that apply in the country making the refund. The claim is submitted electronically to the tax authority from whom the repayment is being sought.
The refund period must not cover more than one calendar year or less than three calendar months – unless it is covering the remainder of a calendar year. The claim has to be made by 30 September of the year following that in which the VAT was incurred.
Businesses established outside of the EU can, subject to certain conditions, also reclaim the VAT incurred on imports into Portugal or purchases of goods and services used in Portugal.
The scheme is available to any person carrying on a business established in a third country, ie outside the EU, provided that in the period of the claim:
• they were not registered or liable to be registered for VAT in Portugal
• they were not established in any EU country
• they made no supplies of goods and services in Portugal other than certain specified exceptions
• where they are established in a third country, having a comparable system of turnover taxes that country provides reciprocal arrangements for refunds to be made to taxable persons established in Portugal.
Invoices issued by VATable persons must be dated, sequentially numbered and contain the following data:
1. Name, address and tax number of both the supplier and the acquirer of the goods and/or services.
2. Quantity and description of the goods and/or services supplied (including the necessary information that enables the determination of the applicable VAT rate).
3. Taxable amount.
4. Applicable VAT rate and the amount of VAT charged.
5. Grounds for the non-application of VAT; if applicable.
6. The date in which the supply of goods and/or services took place (or the date in which any advanced payment was made, if such date is not the same as the date of issuance of the invoice).
Please note: if the operation(s) at stake, concerns goods and/ or services subject to different VAT rates, the data referred on bullets 2, 3 and 4 above shall be indicated separately, according to the respective applicable rate.
Disclosing the name and address of the acquirer of the goods and/or services, when it does not refer to a VATable person, is not mandatory on invoices whose amount is lower than €1,000, unless otherwise requested.
Disclosing the acquirer’s tax number, when it does not refer to a VATable person, is always mandatory when requested.
Where a business makes retail sales and makes a sale of goods or services for €100 or less including VAT, a simplified VAT invoice can be issued (with less strict requirements).
Electronic VAT invoices can be issued, received and stored in electronic format and there is no need to inform the Portuguese tax authorities upfront. Electronic invoices must contain the same information as paper invoices.
The method used to ensure the authenticity of origin, the integrity of the content and legibility of the invoices is a business choice and can be achieved by any business controls which create a reliable audit trail between an invoice and a supply of goods or services.
It is mandatory to submit the SAF-T (PT) file until the 20th day of the following month, containing the details of the issued invoices (and other relevant information). This obligation applies to all taxable persons, except to entities which are merely registered herein for VAT purposes.
For further information on indirect tax in Portugal please contact:
Pedro Ferreira Santos