Introduction
The digital age has led to a growing need to combat VAT fraud, minimize the VAT gap and modernize the EU's VAT system in response to the demands of today’s digital economy. In response to this need, the European Commission (EC) has announced proposals for VAT in the Digital Age (ViDA). The widely anticipated ViDA package comprises three key pillars:
- A shift towards real-time digital reporting based on e-invoicing for cross-border businesses operating in the EU;
- An update of the current VAT rules for passenger transport and short-term accommodation platforms; and
- The implementation of a single VAT registration across the EU.
Following the announcement of the ViDA package, Member States are now faced with the significant challenge of implementing far-reaching changes to their current domestic legislation and adjusting their processes and systems within a demanding timeframe.
Digital reporting requirements in Portugal
In the ongoing battle against tax fraud and loss of VAT revenue, Portugal has long sought to implement measures to reduce the local VAT gap, making its VAT system less vulnerable to fraud. These measures have been introduced over the years, consistent with, or even more stringent than, actions taken by other EU Member States.
One vital aspect of this effort has been the development of solutions that enable more accurate reporting of invoices and other relevant tax documents (e.g., transport documents, credit notes, receipts, etc.) details to the Portuguese Tax Authority.
Under the current Portuguese legislation, both resident and non-resident companies with a local VAT registration are required to communicate invoice and other relevant tax documents details to the Portuguese Tax Authority, regardless of their value. The communication process can be accomplished in one of the following three ways:
- electronic transmission of data using a standard structured file based on the Standard Audit File for Tax (SAF-T file). Companies can export the SAF-T file and upload it to the Portuguese Tax Authority's website;
- transmission in real time through webservice; or
- direct insertion of the data in the Portuguese Tax Authority’s website (option available for micro-sized business).
It is important to note that failure to comply with this obligation can result in significant penalties. As such, it is crucial for companies with a local VAT registration to ensure that they are reporting their invoices and other tax relevant documents using one of the three methods provided by the Portuguese Tax Authority.
Given the practical complexity of transmitting in real-time via webservice and directly inserting invoice data into the Portuguese Tax Authority's website and considering that most certified invoicing software include the capacity to export the SAF-T file, most companies opt for the
SAF-T file option. In Portugal, businesses must submit the SAF-T file on a monthly basis (regardless of VAT return deadlines) for all months in which invoices and other tax relevant documents have been issued. Irrespective of market segments (B2C, B2B or B2G) or geographic origin and destination (domestic, intra-EU or extra-EU transactions), the Portuguese SAF-T system covers all transactions carried out by taxable persons. If taxable persons do not issue invoices or other tax relevant documents in a given month, the absence of transactions must be reported.
As a pioneer in implementing digital reporting, Portugal became the world's first country to implement the OECD's SAF-T file in 2009. Initially only submitted upon Portuguese Tax Authority’s request linked to a tax audit, the obligation to send the SAF-T on a periodic basis has been introduced in 2013. Since then, several adjustments to the data structure of the SAF-T file have been made, with the latest amendment being introduced by Ordinance no. 302/2016, of 2 December.
Starting in 2025, companies will also be required to submit an annual SAF-T file on accounting data which will then be used for the pre-filling of the IES (Simplified Business Information) return.
In addition to the obligation to submit transactional information digitally to the Portuguese Tax Authority, and in line with the European Union´s efforts to harmonize e-invoicing adoption in public procurement, Portugal has enforced mandatory e-invoicing in B2G context beginning in 2021. ESPAP (Entidade de Serviços Partilhados da Administração Pública), the shared services entity of the Portuguese public administration, is the entity responsible for the implementation and management of B2G e-invoicing in Portugal.
Currently, outside the B2G context e-invoicing is merely optional and dependent on the acceptance of the recipient, and there is still no forecast for the transition to mandatory B2B and B2C e-invoicing.
Although lagging behind other EU countries, namely Italy and more recently France, which are moving ahead of European legislation on digital invoicing, Portugal has, however, made some relevant progress in this area.
Digital invoicing between taxable persons is expected to become a reality in the near future and the obligation to issue e-invoices in the context of B2B transactions is already well-accepted by the majority of large and medium-sized Portuguese companies. These companies have already started adapting their systems and anticipating mandatory e-invoicing between taxable persons at the same time as influencing the market to adopt new practices by requesting e-invoices from their suppliers.
As advantages of early adopting e-invoicing, these companies highlight the gains that come from an automated invoicing process, which guarantees legal certainty when invoicing and the opportunity for substantial savings in operational costs for paper, printing, postage, storage, and the reduction of human error.
While the advantages of adopting e-invoicing are substantial at an aggregate level, they are concentrated among large and medium-sized enterprises. Micro and small businesses, on the other hand, may not experience as significant savings to justify the investment in automation. However, this may soon become a non-issue as large companies start to adopt mandatory e-invoicing. Once this occurs, smaller business will likely be required or pushed to use the same format, regardless of any legal obligations. Ultimately, as leading companies embrace
e-invoicing practices and spread the benefits, wide-scale adoption will eventually become the norm.
Following the EC’s proposal for an EU-standard digital reporting requirement, Portugal must now shift towards the introduction of mandatory near real-time digital reporting based on
e-invoicing to replace the existing SAFT-T reporting system. With many companies in Portugal submitting the information monthly based on SAF-T, relevant investments for IT adaptation will be required of Portuguese businesses to enable the agile implementation of systems that allow for the transmission of transactional data shortly after issuance of e-invoice.
Portugal has yet to issue a proposal for real-time digital reporting that is in line with the EC's ViDA proposal. However, the country's active engagement in modernizing its digital infrastructure is a positive indicator of a concerted effort to staying in step with the EU digital agenda.
VAT rules for the platform economy and Single VAT registration
Besides the EU-standard for a digital reporting requirement, the ViDA package entails two other key components: the platform economy and the single VAT registration.
In recent years, Portugal has taken important initiatives to align its treatment of the platform economy and VAT reporting and registration obligations with the goals outlined in the EU’s
e-commerce VAT package implemented in 2021.
Portugal's actions towards levelling the playing field between online platforms and traditional economy include among others:
- Transposition of EU Directives 2017/2455 and 2019/1995 of the Council: Law 47/2020, of 24 August, establishing new rules applicable to VAT on e-commerce transactions (e-commerce VAT package); and
- Publication of administrative guidelines: the Portuguese Tax Authority published, on 25 June 2021, Circular Letters no. 30238, no. 30239, and no. 30240. These guidelines provide comprehensive guidance on the main changes to VAT rules applicable to distance sales of goods within the EU, the VAT treatment of imports of small consignments, the role of electronic interfaces in VAT assessment and remittance, to the extension of the One-Stop-Shop’s scope for the fulfilment of VAT declaration and payment obligations, and the creation of a One-Stop-Shop scheme for distance sales of imported goods.
In line with the EU’s driver to minimize the numbers of situations where a business is obliged to VAT register in more than one Member State, early in 2002 Portugal adopted a wide mandatory reverse charge mechanism under article 194 of the VAT Directive.
Under the Portuguese reverse charge rule, when a non-established supplier provides goods or services to a taxable person based in Portugal and has not appointed a tax representative in Portugal or registered for VAT in Portugal, the responsibility for assessing the VAT on the transaction falls on the purchaser. The purchaser is required to calculate and self-assess the VAT arising from these transactions. This means that taxable persons in Portugal are responsible for paying VAT to the Portuguese Tax Authority as if they were both the supplier and the recipient of the goods or services.
To provide clarity for non-resident businesses engaging in taxable transactions in Portugal, the Portuguese Tax Authority issued administrative guidance No. 30235. The guidance establishes that:
- non-resident businesses registering for VAT in Portugal only need to do so if they are required to assess the VAT on output transactions, other than those that are subject to the reverse charge mechanism. Conversely, taxable persons need not be VAT registered in Portugal if they only perform taxable transactions subject to the reverse charge mechanism. In cases where the conditions for the application of the reverse charge mechanism are met, its use is always mandatory.
- non-resident businesses solely engaging in transactions under the reverse charge mechanism should not register for VAT in Portugal and can recover input VAT through the refund scheme for taxable persons established outside the Member State of refund outlined in the 8th Directive (or the 13th Directive for non-EU taxable persons).
Although steps have been taken to align the Portuguese treatment of the platform economy with the objectives of the e-commerce VAT package and implement mechanisms to facilitate VAT reporting and registration obligations, there has been no specific action taken to establish a level playing field between online and traditional short-term accommodation and passenger transport services. Moreover, numerous situations still exist where businesses need to maintain a VAT registration in Portugal. For instance, non-resident businesses involved in intra-EU supplies/acquisitions in/from Portugal must register for VAT in Portugal, and non-resident suppliers that do not meet the requirements for the mandatory reverse charge mechanism must also register for VAT in Portugal for domestic B2B supplies of goods.
Conclusion
As technology continues to advance, it is essential that the Portuguese VAT system adapts to these changes and leverages them to enhance VAT compliance, reduce tax fraud, and prevent revenue loss. Portugal has demonstrated significant progress in implementing digital reporting and gradually transitioning to e-invoicing practices. The impact of these measures has been highly visible in Portugal, with the VAT gap decreasing since its introduction. According to the EC’s 2023 report on the VAT Gap in the EU in 2021, Portugal's performance regarding VAT compliance was found to be much better than average, with the country achieving an impressive 3.6% gap in relation to Virtual Total Tax Liability (theoretical maximum revenue) compared to the EU’s average gap of 5.3%. These figures are also remarkable when analyzed on an absolute and per capita basis. The per capita VAT gap in Europe for 2021 was estimated to be €148, while in Portugal, the per capita VAT gap for the same period was around €69.
Nonetheless, there is significant potential for transformation in the VAT rules. Furthermore, as evidenced by the successful transposition of the e-commerce VAT package, Portugal should efficiently integrate the proposed changes in the ViDA package into its internal legal system. In doing so, Portugal can further improve its VAT system, reduce administrative burdens for taxpayers, and create a more efficient and effective tax system that aligns with contemporary technological advancements.
To make a successful transition in such a short period of time and successfully navigate the new standards outlined in the ViDA package, it is imperative that national authorities, companies, tax advisers and digital services providers work closely together.
Our experience shows that many businesses have welcomed the opportunities that digitalization and the new VAT rules can bring to their activity and are seeking training to understand the regulatory changes and how they impact their business operations.
At VdA, we help our clients by providing guidance on how to comply with the VAT regulations and adapt their IT-landscape to meet evolving requirements. This support ensures that our clients optimize their operations, minimize disruptions, remain compliant, and reap the benefits of the digitalization and VAT modernization.
