Indirect Taxes

Value Added Tax (VAT)

European Commission – Applicable exemptions

Expenditure related to the defence effort

The transposition of Council Directive (EU) 2019/2235 of 16 December 2019 amending Directive 2006/112/EC on the common system of value added tax and Directive 2008/118/EC concerning the general arrangements for excise duty as regards defence efforts within the Union framework, shall result in an exemption of certain supplies of goods and services utilised in the defence effort carried out for the implementation of a European Union activity.

Covid-19 - Applicable exemptions

The transposition of Council Directive 2021/1159 of 13 July 2021 amending Directive 2006/112/EC as regards temporary exemptions on importations and on certain supplies, in response to the COVID-19 pandemic, shall result in exemptions on importations and on certain supplies, in response to the COVID-19 pandemic.

There is an extension until 31 December 2022 of the exemption from VAT applicable to supplies of medical devices for in vitro diagnosis of COVID-19 disease, COVID-19 vaccines and services related with those products, as foreseen in Law 4-C/2021 of 17 February.

Free of charge transfers

Donations

Free of charge supplies of goods and services are not subject to VAT when made by entities benefiting from donations covered by the Tax Benefits Code. This applies provided that the donation is made for the direct benefit of the donor entities, and the corresponding amount does not exceed 25% of the amount of the donation (currently capped at 10% of said amount).

Rates applicable in the Autonomous Regions

The VAT Code will no longer expressly refer to the rates applicable in the Autonomous Regions. Such reference shall be in the applicable regional legislation.

Reduced rates

The reduced VAT rate shall apply to products similar to cheese made of cereal, fruit, vegetables or horticultural products; the repair of domestic appliances as well as the delivery and installation of thermal and photovoltaic solar panels.

In addition, List I attached to the VAT Code now includes menstrual hygiene products.

These amendments shall apply from 1 July onward. The reduced rate applicable to the delivery and installation of thermal and photovoltaic solar panels shall apply until 30 June 2025.

Refund of VAT

Higher degree institutions, as well as non profitable organisations of the national science and technological system participating in the National Potential Technological and Scientific Inquiry (“Inquérito ao Potential Científico e Tecnológico Nacional” or “IPTCN”) are allowed a full or partial refund of an amount equivalent to the VAT incurred in the acquisition of instruments, equipments, reagents, consumables and licences related with the respective R&D activities. This rule applies provided that the VAT incurred in said expenses is deductible as per Article 21 of the VAT Code.

Legislative authorizations

Utensils designed for people with disabilities

The legislative authorization granted to the Government under the 2021 State Budget Law is maintained. The Government is authorized to apply the reduced VAT rate to the transfer, rental and maintenance of utensils and any appliances or objects specifically designed for people with disabilities.

Electricity production for self-consumption – Sale of surpluses

The Government is granted authorisation, once approved by the European Council, to derogate the subjective incidence rule on the sale of surplus electricity produced in self-consumption production units with installed power of 1 MW or lower. The acquirer will have the obligation to self assess the tax.

Reduced VAT rate on beverages supplied in restaurants

Like in 2021, the 2022 State Budget Law proposal does not include any legislative authorization regarding the reduction of the VAT rate on beverages supplied in restaurants.

“The delivery and installation of thermal and photovoltaic solar panels is subject to the reduced VAT rate from July 2022 onward.”

Circulation Tax (IUC)

General increase of about 1% of the Circulation Tax (“Imposto Único de Circulação” or “IUC”).

Tax on Vehicles (ISV)

There is a general increase of about 1% of the tax rates, both on the environmental and engine components.

Excise Duties

Excise Duties – General Exemptions

The issuance of an electronic administrative document is now waived, if:

The removal of products from a tax warehouse for aircraft supplies is carried out under a customs export declaration; and
The customs office of export is the point of exit.

Tax on oil and energy products (ISP)

An ISP exemption is introduced for self-consumption electricity produced using renewable energy sources capped at 1 MW of installed capacity.

Following previous State Budgets, there is an increase of the tax rates applicable to a number of products (fuel, gas, diesel, etc.) used in the production of electricity, combined heat and power and town gas, both for ISP and carbon rate purposes. Additional increases are also foreseen for the following years.

Notwithstanding, in 2022 the Government is authorised to suspend said increase in respect of energy products under NC Code 2711 such as natural and propane gas.

The aggravated ISP applicable to gasoline and diesel is revoked.

“Exemption from tax on oil and energy products on self-consumption electricity produced using renewable energy sources, capped at 1 MW of installed capacity.”