In Portugal VAT is due on the sale of most goods and services done by registered traders.

The rates of VAT in continental Portugal are 23%, 13% and 6% depending on the type of good or service being provided.

In the autonomous region of Madeira the rates are 22%,12% and 5% respectively while in the Azores the rates are 16%, 9% and 4%.

VAT Declarations are due on a quarterly or monthly basis depending on the sales volume of the tax payer. If the tax payer’s sales volume exceeds € 650,000 they will be obliged to file their VAT declaration on a monthly basis.

In the case of tax payers in the quaterly system their VAT declaration is due one month and 15 days following the quarter end while those registered in the monthly system must file their declaration one month and 10 days from the month end.

Any payment due must be made on the same deadlines.

Self employed contractors whose income in a calendar year is less than €10,000 are exempt from VAT.

Although VAT is chargeable on most sales and services provided there are also a number of services and goods which are exempt.

The main categories of exempt activities are the following:

• Medical, dental and sanitary services.
• Insurance and reinsurance.
• Financial operations.
• Sale or leasing of land of buildings.
• Education and professional training.

In most cases where a national domiciled tax payer invoices a non resident entity the service or good (providing the good leaves Portugal) is exempt from VAT. The exemption only applies to an European Community customer if the customer is registered for VAT in their home country.

There are however some important exceptions to this basic rule.

All properly documented expenses related to the tax payers business activities are deductible in calculating the amount of VAT to be paid with the exception of the following types of expenses:

• Expenses incurred in the purchase, leasing, repairs of passenger vehicles unless the tax payer’s main activity is the sale or rental of such vehicles.
• Travelling and entertainment costs incurred by the tax payer.
• Petrol fuel.
• 50% of the VAT incurred in the cost of Diesel fuel is not deductible if it is used by a passenger car.