Portugal: Update on the reverse charge mechanism for non-resident taxpayers

Circular Letter no. 30235 of 27 April 2021 clarifies the VAT rights and obligations applicable to non-resident taxable persons who carry out supplies of goods or services in Portugal.

Reverse charge rules

According to the Portuguese Tax Authority (“PTA"), where the conditions for the application of the reverse charge mechanism are met, the person in charge of assessing the VAT is the purchaser of the goods or services and therefore the supplier should not assess VAT.

The PTA further clarifies that the application of the reverse charge mechanism is mandatory for taxable transactions carried out in the national territory by non-resident suppliers, dissipating many of the existing doubts regarding a possible optional nature of this rule.

Registration for VAT purposes

The PTA clarifies that the obligation to register for VAT purposes in Portugal only applies to non-resident taxable persons carrying out taxable transactions in national territory to which the reverse charge mechanism does not apply.

The PTA considers that taxable persons carrying out VAT-able transactions within the national territory whose customers are taxable persons and to which the reverse charge mechanism applies, should not register for VAT purposes. Additionally, taxable persons should not carry out taxable transactions to which the reverse charge mechanism applies under a Portuguese VAT number.

Appointment of a tax representative

The PTA confirms that the appointment of a tax representative is only mandatory for non-resident taxable persons who are required to register for VAT purposes and do not have their head office, permanent establishment or domicile in another EU Member State. The appointment of a tax representative is optional for non-resident taxable persons who have their head office, permanent establishment or domicile in another EU Member State.

Invoicing

Invoices issued with regard to taxable transactions carried out in the national territory are subject to Portuguese invoicing rules. However, transactions carried out by a non-resident supplier, where the reverse charge mechanism applies, are subject to the invoicing rules of the country where the supplier has established its business.

Accordingly, VAT-registered taxable persons who assess VAT on taxable transactions carried out in national territory are subject to Portuguese invoicing rules.

Deduction of input VAT and refunds

Non-resident taxable persons who are VAT registered in Portugal may recover Portuguese input VAT through the VAT refund scheme for taxable persons not established in the Member State of refund, approved by Decree Law 186/2009, of 12 August. Taxable persons established outside the EU should appoint a tax representative solely for the purposes of the refund scheme.

Taxable persons who carry out taxable transactions in Portugal to which the reverse charge mechanism does not apply and, as such, are required to register for VAT purposes in Portugal, must deduct Portuguese input VAT through their periodic VAT returns.

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