VAT and other indirect taxes

Right to deduct

Expenses related to electricity used on electric or hybrid vehicles will be considered deductible for VAT purposes.

Irrecoverable and bad debts

The proposal foresees that unpaid debts aged more than 12 months since payment due date (currently 24 months) shall be considered as bad debts. Evidence of impairment and of collection efforts is required.

Requests for the recovery of VAT will have to be analysed by the Portuguese Tax Authorities within 4 months (currently 8 months). Lack of decision implies the denial of the request, except for invoices with an amount under EUR 150,000 (VAT included).

The identification of the invoice relating to each bad debt, as well as of the acquirer, the invoice amount and the VAT assessed, the collection efforts made by the creditor and the (partial or total) failure of such efforts, as well as any other relevant documentation which serves as proof of the transactions, will have to be duly documented and certified, as follows:

a)  by an independent chartered accountant or certified accountant, in case the VAT adjustment does not exceed EUR 10,000 per VAT return;

b) by a chartered accountant in the remainder cases.

The certification by an independent chartered accountant or certified accountant is required for each relevant document and period to which the VAT adjustment concerns and up to the submission of the request, otherwise the request is not considered as duly submitted.

For adjustments which do not require requests for VAT recovery (irrecoverable debts), certification is required up to the term of deadline for the submission of the VAT return, or up to its submission if made after the legal deadline.

Certification that the legal requirements for the VAT deduction are met in case of irrecoverable debts can now also be made by an independent certified accountant.

Reduced VAT rate

Item 2.10 of List I attached to the VAT Code is amended, in order to clarify that the reduced rate is applicable to purchases made by fire brigades held either by public or private entities.

Item 2.28 of List I attached to the VAT Code, related with domestic assistance to children, elderly, drug addicts, sick or disabled people, is also amended to include the provision of tele-assistance services and to clarify that this rate applies when the services are invoiced to the patient (end customer) and also to a public or private entity.

Treated residual waters shall be subject to VAT at the reduced rate, following the insertion in item 2.35 of List I attached to the VAT Code.

Bullfights are excluded from item 2.32 of List I attached to the VAT Code. On the other hand, this item now include tickets to zoos, botanical gardens and aquarium.

Item 2.34 Is added to List I attached to the VAT Code. This includes services related with tours, with or without a guide, to national, public or municipal interest buildings, and museums that comply with the Portuguese Museum Legal Framework. There will be an exclusion in case of profit making that are not exempt under no. 13 of article 9 of the VAR Code, which shall be subject to the reduced VAT rate.

Beneficiaries of partial or full refund of amounts equivalent to VAT

The National Institute for the Conservation of Nature and Forests (“Instituto Nacional da Conservação da Natureza e da Florestas. I.P”) as well as non-profitable entities part of the national science and technology network, shall become beneficiaries of partial or full refunds of the VAT incurred in the acquisition of certain goods or services.

Legislative authorisations

Services related with food and beverages

For the 4th consecutive year, the Government is granted authorisation to amend item 3.1 of List II attached to the VAT Code. The purpose of this amendment is to apply it to other services related with beverages previously excluded. The amendments foreseen shall consider the conclusions of the inter-ministerial group appointed with that purpose.

Devices for disabled people

The Government is granted authorisation to amend items 2.6, 2.8, 2.9 and 2.30 of List I attached to the VAT Code, concerning goods and services subject to the reduced rate.

The purpose and object of the amendments to introduce to the VAT Code under the legislative authorisation granted are as follows:

a)  Widening of the scope of item 2.9 of List I attached to the VAT Code, by reviewing the list approved by the Government, in order to include products, devices and support objects to be included in the list approved by the National Institute for the Rehabilitation, I.P. (“Instituto Nacional para a Reabilitação, I. P.”), which use is exclusively for permanently or temporary disabled people;

b)  Adjust items 2.6, 2.8 and 2.30 to the new wording of item 2.9.

VAT on electricity

The Government is granted authorisation to create electricity consumption brackets based on the power structured hired and existing in the market.

The purpose and object of the legislative authorisation granted are as follows:

a)  Amend List I and II attached to the VAT Code in order to create consumption brackets, allowing taxation at the reduced or intermediate rates of supplies of electricity related with a low consumption power hired;

b)  Narrow the scope of the rates mentioned previously in order to reduce costs associated with energy consumption, protecting final consumption and minimising adverse environmental impacts derived from excessive electricity consumptions.

This measure requires previous analysis by the VAT Committee.

Tax on vehicles (ISV)

A general increase on the engine capacity component of about 0.3% was introduced.

As a result of the repeal of the transitional regime applicable in 2019, which foreseen a reduction in percentage of the CO₂ emissions measured under the Worldwide Harmonised Light Vehicle Test Procedure (WLTP), new tables for the environmental component, for the vehicles for which the measure is done under the WLTP have been created.

Passenger cars and combined passenger/goods vehicles intended to be rented with driver included – cabdrivers, letters “A” and “T” – equipped with engines powered exclusively for the use of liquefied petroleum gas, no longer benefit from an exemption from ISV.