Legal Alert | Implementation of new VAT rules

On 24 March 2025, Decree-Laws nos. 33/2025, 34/2025, and 35/2025, were published, amending the VAT Code, the Special Regime for Second-hand Goods, Works of Art, Collectors’ Items and Antiques, the Cash Accounting Scheme, the VAT Regime for Intra-Community Transactions, and complementary legislation, and the Personal Income Tax Code (PIT).

I. Decree-Law no. 33/2025: Partial Transposition of Article 1 of Directive (EU) 2022/542 – Amendments to the VAT Code and the Special Regime for Second-hand Goods, Works of Art, Collectors’ Items and Antiques

Decree-Law no. 33/2025, of March 24, partially transposed Article 1 of Directive (EU) 2022/542 of the Council, April 5, 2022.

Accordingly, this Decree-Law amended Articles 6 and 18 of the VAT Code, introducing a modification to the location rules applicable to the provision of services of cultural, artistic, sporting, scientific, educational, entertainment and similar services when participation in such events occurs virtually or through live streaming activities.

According to the new rules, when such services are provided to VAT-taxable persons, taxation will take place in the location where the recipient has their business establishment, fixed establishment, or domicile to which the services are supplied.

In the case of services provided to non-VAT taxable persons, these services will be taxed at the place where the recipient is established, has their domicile, or habitual residence. However, if the services are provided to a person established or domiciled in another Member State, Portugal may tax those services, provided their effective use or enjoyment takes place within Portuguese territory. For taxation purposes in Portugal, the effective use or enjoyment of the services is considered to occur within the national territory when the recipient's physical presence is required for the provision of the services.

This Decree-Law also amended the special VAT scheme for second-hand goods, works of art, collectors’ items, and antiques, established in the annex to Decree-Law no. 199/96 of October 18. Under the new rules, it is no longer possible to opt for the margin scheme when the works of art, collectors’ items, or antiques that the reseller intends to include in this scheme have been acquired or imported at a reduced VAT rate.

The Decree-Law also includes a transitional provision for resellers of works of art. Those who have opted for the special VAT scheme for second-hand goods, works of art, collectors’ items, and antiques may continue to deduct the VAT paid on the acquisition of such goods at the reduced rate until the entry into force of the Decree-Law (March 29, 2025). The deductible tax calculated in such manner is subject to deduction until the end of the following period, corresponding to the month of April 2025 or the following quarter of 2025, depending on whether the VAT is reported monthly or quarterly. 

II. Decree-Law no. 34/2025: Extension of the Scope of the VAT Cash Accounting Scheme 

Decree-Law no. 34/2025, of March 24, introduced changes to the VAT Cash Accounting Scheme, expanding its application to VAT-taxable persons whose annual turnover does not exceed EUR 2 000 000 (previously, the limit was set at EUR 500 000).  

As a result, the VAT Cash Accounting Scheme is now available to taxable persons who meet the following requirements:

• Annual turnover in the previous calendar year equal to or less than EUR 2 000 000;
• Do not engage exclusively in an activity listed under Article 9 of the VAT Code; 
• Do not benefit from a VAT exemption or fall under the scheme for small retailers. 

This change enables a greater number of economic operators to benefit from the scheme, thus fulfilling its primary objective: to enhance companies’ financial positions by mitigating the cash flow impact of paying VAT to the State prior to receiving payment. This Decree-Law will come into effect on 1 July 2025.

III. Decree-Law no. 35/2025: Amendments to the VAT Exemption Scheme for Small Companies 

Decree-Law no. 35/2025, dated March 24, partially transposes into Portuguese law Article 1 of the  Directive (EU) 2020/285 of February 18, 2020 and Article 2 of the Directive (EU) 2022/542 of the Council, April 5, 2022, introducing amendments to the VAT Code, the VAT Regime for Intra-Community Transactions, and complementary legislation, as well as to the PIT, within the scope of the VAT exemption scheme applicable to small companies. 

The amendments introduced to the special VAT exemption regime in Portugal now allow micro-companies with organized accounting, as well as taxable persons who carry out imports and supplies of goods or services listed in Annex E of the VAT Code, to benefit from this regime. 

The new rules also allow small companies in the European Union with an annual turnover in the European Union not exceeding EUR 100 000 to benefit from the VAT exemption regime, even if they are not established in the Member State where the transactions take place, provided they meet the conditions set out for operators in those Member States. Until now, this regime applied only to companies established in the Member States where the tax was due. 

Thus, the following taxable persons can benefit from this regime:

• Taxable persons with their place of establishment or permanent address in Portugal who, while not carrying out export transactions or related activities, have not achieved an annual turnover in national territory of more than EUR 15 000 in the previous calendar year. 
• Taxable persons with place of establishment or permanent address in other Member States, provided that:

• Their annual turnover in the European Union does not exceed EUR 100 000;
• Notify the Member States where they are established of their intention to benefit from the exemption in Portugal;
• They obtain an individual identification number with the suffix “EX”.
  By fulfilling these conditions, they will be able to benefit from the exemption regime on other Member States for transactions carried out therein. 

This new regime introduces new reporting obligations, especially for taxable persons wishing to benefit from the exemption in other Member States. To this end, taxable persons must:

• Notify the Tax Authority (AT), which will assign them an individual identification number with the suffix “EX”, which will only be used for transactions in exempt Member States, remaining registered for VAT purposes exclusively in Portugal;
• Provide information on turnover in Portugal and in the other Member States in the calendar year prior to the one in which they wish to benefit from the exemption and in the current calendar year;
• Submit electronically to the AT a quarterly declaration with the value of the transactions carried out, both in Portugal and in the other Member States. 

The application of the regime ceases for taxable persons established in Portugal or in other Member States in the following situations: 

• When, in the previous calendar year, the annual turnover in Portugal exceeds the exemption threshold of EUR 15 000;
• When, in the current calendar year, this threshold is exceeded by more than 25%, i.e. it exceeds EUR 18 750;
• When any of the other conditions laid down for the application of the scheme to taxable persons with their place of establishment or permanent address in Portugal cease to apply.

Without prejudice to the above, application of the exemption scheme ceases for VAT-taxable persons not established in Portugal when, either in the previous calendar year or in the current calendar year, their annual turnover in the European Union exceeds EUR 100 000.

It should be noted that if a company with place of establishment or permanent address in Portugal is covered by the VAT exemption scheme and exceeds the turnover threshold in the European Union due to activities carried out in other Member States, it can continue to benefit from the exemption scheme in Portugal, provided that the turnover in national territory remains below the stipulated threshold. 

Taxable persons covered by this exemption scheme, whether established in Portugal or not, do not charge VAT on the transfer of goods and provision of services, nor can they deduct the VAT incurred in carrying out exempt activities. 

On the other hand, taxable persons with their place of establishment or permanent address in Portugal, under the normal tax regime, who benefit from the small companies exemption regime in other Member States, in transactions carried out on those countries, cannot deduct the VAT incurred in Portugal for carrying out exempt activities in those Member States.

In addition, the new regime also brings simplifications for VAT-taxable persons who are individuals. These persons may, if they do not have or are not required to have organized accounting, choose the option to issue invoices through the applications provided by the AT, and are exempt from the obligation to maintain a record book for VAT and PIT purposes. 

This Decree-Law also establishes important transitional provisions, including: 

• For taxable persons with their place of establishment or permanent address in other Member State, who are subject to the special exemption regime, they will no longer be able to benefit from the regime starting from 1 July 2025. For this purpose, they must submit a declaration of cessation of activity in the national territory;
• For taxable persons with their place of establishment or permanent address in Portugal, who are not exempt, and who wish to apply this regime, they must submit an amendment declaration to the declaration related to the start of activity during the month of June 2025, with effect from July 1, 2025. However, if in the first half of 2025 the taxable person exceeds a turnover of EUR 18 750, the application of the exemption regime will no longer be possible.  

Morais Leitão tax team is available for any further clarification on this matter.