The first quarter of 2025 has seen significant developments in Portuguese VAT legislation, with several new measures being introduced to clarify, simplify, and modernize the VAT framework.
These changes affect a broad range of taxpayers, including non-profit organizations, suppliers of online or streaming events, small and medium-sized enterprises, and businesses engaged in cross-border trade within the EU.
Clarification of Non-Profit Organization Exemptions
On 12 February 2025, Circular Letter no. 25059 was published, providing new guidance on the VAT exemption applicable to non-profit organizations under Article 10 of the Portuguese VAT Code. To qualify as a non-profit organization for VAT purposes, entities must meet four cumulative conditions:
No distribution of profits and no management interest
Any surplus generated must be reinvested in the organization's statutory activities and cannot be distributed to members, even upon dissolution. Management bodies must not have any direct or indirect financial interest in the organization's results. Symbolic remuneration to offset participation costs is permitted and does not disqualify the organization.
Comprehensive bookkeeping
Organizations must maintain accounts covering all activities, available for inspection by the Portuguese Tax Authority. These records must demonstrate the absence of profit distribution and management interest, and must reflect all income, including subsidies, donations, and sponsorships, as well as expenditure and investments.
Pricing policy
Non-profit organizations must charge prices approved by public authorities or, where not applicable, prices lower than those charged by commercial companies for similar goods or services. The presence of subsidies or donations may indicate that prices are below market value.
No direct competition with commercial companies
Non-profit organizations must not compete directly with taxable commercial businesses. The assessment of this condition must consider the nature of the activities, economic context, and the organization's statutory purpose. Competition among non-profits is not relevant for this criterion.
1. Changes to place of supply rules for streaming events
Decree-Law 33/2025, published on 24 March 2025, introduced amendments to the place of supply for services provided to final consumers (B2C) involving virtual access or streaming of artistic, scientific, sporting, recreational, educational, and similar events, including fairs and exhibitions.
These services are now considered supplied at the place where the recipient is established or domiciled, reinforcing the principle of taxation at the place of consumption. The use of the One Stop Shop (OSS) is expected to prevent any increase in administrative burden for businesses.
Circular Letter 25064 of 27 March 2025 also includes a summary table of the new place of supply rules.
2. Modifications to the profit margin scheme for second-hand goods, works of art, collectors' items and antiques
Decree-Law 33/2025 also revised the profit margin scheme for second-hand goods, works of art, collectors' items, and antiques.
The scheme remains optional but now has a narrower scope. It applies only to transfers of works of art by taxable resellers where the acquisition was either under the margin scheme or not subject to VAT.
The scheme no longer applies to works of art imported by the reseller or acquired directly from the author, their heirs, or other non-reseller taxable persons.
The applicable VAT rate under the margin scheme is confirmed as the standard rate of 23% (mainland Portugal).
Circular Letter no. 25063 of 27 March 2025 was also published, containing further clarifications on the changes to the regime.
3. Expansion of the VAT cash accounting scheme
Decree-Law 34/2025, also dated 24 March 2025, expanded the scope of the VAT cash accounting scheme. The annual turnover threshold for eligibility has been increased from EUR 500,000 to EUR 2,000,000.
Under this scheme, VAT is only payable to the State when payment is received from customers, rather than when invoices are issued.
This change, effective from 1 July 2025, is intended to provide cash flow relief to more businesses, particularly SMEs and the respective clarifications are detailed in Circular Letter no. 25061 of 25 March 2025.
4. Introduction of a new cross-border VAT exemption scheme for small businesses
Decree-Law 35/2025, published on 24 March 2025, implemented the new EU VAT SME scheme, allowing small businesses established in other EU Member States to benefit from VAT exemption in Portugal, and vice versa. Key features include:
- For Portuguese businesses in other Member States: Exemption is available if annual turnover in the Member State of establishment does not exceed the local threshold, total EU turnover does not exceed EUR 100,000, and the business notifies the Portuguese Tax Authority in advance of their intention to benefit from the exemption in that Member State and obtains an "EX" identification number.
- For EU Businesses in Portugal: Exemption applies if annual turnover in Portugal does not exceed EUR 15,000, total EU turnover does not exceed EUR 100,000, and the businesses notify the Member State where they have their registered office in advance that they intent to benefit from the exemption in Portugal and obtain an "EX" identification number from their Member State.
The scheme aims to reduce administrative burdens and promote cross-border trade for small businesses within the EU. The Tax Authority clarified the operation of the new regime, for its domestic aspect through Circular Letter 25062/2025, of 26 March, and in its cross-border aspect, through Circular Letter 25065, of 8 April 2025.
5. Amendment to the domestic VAT exemption scheme
The scope of the domestic VAT exemption scheme (Article 53 of the VAT Code) has been broadened. It now covers taxable persons with their registered office or domicile in Portugal who do not engage in export transactions and whose annual turnover in Portugal does not exceed EUR 15,000.
The revised rule allows certain taxable persons, previously excluded (such as those with bookkeeping, importers, or those supplying goods/services listed in Annex E of the VAT Code), to benefit from the exemption.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
