VAT in Portugal: what is VAT and how is VAT charged in Portugal?
People from all over the world, including digital nomads, have come to Portugal for a variety of reasons: housing, work, entrepreneurship, retirement, etc.
When immigrating to Portugal, in addition to the migration issue, the individual, whether a digital nomad or not, will need to pay attention to paying taxes in the country. The main tax that needs attention is the "IRS" (Imposto sobre os Rendimentos das Pessoas Singulares).
I've written several articles about IRS, this being the most recent.
Thus, those who intend to live in Portugal, whether temporarily or permanently, or even intend to have a business in Portugal, will need to pay attention to VAT.
Before we get into VAT, it's important to talk about tax residency.
What is Tax Residency?
Tax residence is nothing more than the place where an individual carries out their vital economic activities. This place can be their fixed residence or their habitual residence.
Digital nomads do not have a fixed residence, but they do have a habitual residence. Therefore, the assertion that, because they have no fixed abode, they don't have to declare their taxes anywhere is false.
It doesn't matter if the digital nomad travels every 3 months, every month or every week, everyone in the world will have a tax residence somewhere.
If you declare taxes for two countries at the same time, you will have double tax residence, i.e. you will be subject to declaring and paying taxes for two countries at the same time.
What is VAT?
VAT (Value Added Tax) is a consumption tax levied by the member countries of the European Union. This tax is levied on both products and services.
VAT is regulated by the European Union through Directive 2006/112/EC, and in Portugal it is regulated by Decree-Law no. 102/2008. VAT rates in Portugal vary between 6% and 23% depending on the type of activity carried out.
The list of activities with their respective rates is detailed in Decree-Law 102/2008 itself and in its annexes, as shown in the table below:
23% | 13% | 6% |
General rate. | Activities listed in list II of the Code. | Activities listed in list I of the Code. |
Examples of some of the activities on List I:
a) Bread;
b) Beef and pork;
c) Technical assistance;
d) Accommodation in hotel-type establishments.
Examples of some activities in List II:
a) Musical instruments;
b) Ready-to-eat meals, ready-to-eat and take-away or home delivery;
c) Common wines.
All activities that are not on one of these two lists will fall under the general rate of 23%.
Given this scenario, it is essential to carry out tax planning in order to avoid any problems with the tax authorities.
If you are interested in hiring professional legal services related to tax planning, we are a law firm specializing in the subject. To do so, please contact us via WhatsApp or e-mail: thyanipuppio@gmail.com
A Warning about Dual Tax Residency
As mentioned above, individuals who have dual tax residency need to declare their taxes for two countries at the same time.
However, what few people know is that when you are a tax resident in a particular country, the principle of universal income declaration prevails. In other words, taxpayers must declare all their income, regardless of its origin.
Generally, individuals have the habit of declaring income from their country of origin only in their country of origin, and income from Portugal only in Portugal. However, by failing to comply with the duty to declare assets universally, the taxpayer commits a crime: tax evasion.
Portugal exchanges information on tax matters with various countries around the world. This exchange of information is carried out using artificial intelligence, which searches and cross-checks the data of its taxpayers in order to detect fraud.
In addition to the risk of being held criminally liable for tax evasion and, as a result, having your passport invalidated, the amounts evaded can be collected by the tax authorities, with interest and monetary correction.
Those whose passports are invalidated will not be able to leave the country and will have their visas automatically invalidated, since Portugal requires immigrants to have a valid passport in order to apply for and remain on visas. In other words: no passport, no visa.
Remember: tax evasion is not just a crime in Portugal.
If you are interested in hiring professional legal services to avoid double tax residency, tax evasion and double taxation, we are a law firm specializing in the subject and we can help you, just get in touch via email: thyanipuppio@gmail.com, or via WhatsApp.
