Decree-Law no. 35_2025, of March 24th
This Decree-Law partially transposes into national law Article 1 of Council Directive (EU) 2020/285 of 18 February 2020 amending Directive 2006/112/EC on the common system of value added tax as regards the special scheme for small enterprises and Regulation (EU) No 904/2010 as regards administrative cooperation and exchange of information for the purposes of monitoring the correct application of the special scheme for small enterprises, and Article 2 of Council Directive (EU) 2022/542 of 5 April 2022 amending Directives 2006/112/EC and (EU) 2020/285 as regards the rates of value added tax.Article 2 of Council Directive (EU) 2022/542 of April 5, 2022, amending Directives 2006/112/EC and (EU) 2020/285 as regards value added tax rates, amending the Value Added Tax Code (VAT Code), the VAT Regime on Intra-Community Transactions and complementary legislation relating to this tax, and also the Personal Income Tax Code (IRS Code), within the scope of the VAT exemption scheme applicable to small businesses.
These legislative acts of European law aim to create a common legal framework in the European Union for the application of the exemption regime for small businesses and the introduction of a set of simplification measures aimed at them, with the aim of mitigating the compliance costs faced by small businesses, reducing their administrative burden and contributing to the creation of a tax environment conducive to their growth and the development of cross-border trade.
With regard to the scope of application of the special exemption scheme in Portugal, some of the current restrictions on access to this scheme have been eliminated, allowing micro-companies with organized accounts to benefit from it, as well as taxable persons who import and transfer goods or provide services mentioned in Annex E of the VAT Code.
In addition, under the current European legal framework, the special exemption scheme only covers companies established in the Member State where the tax is due. In this circumstance, any national small business that carries out transactions subject to taxation in other Member States, which are not subject to the reverse charge mechanism, is obliged to register for VAT purposes in each of those Member States or, where possible, to use the one-stop shop, in order to comply with the obligations to declare and pay the VAT due on those transactions.
Even when the transactions carried out in another Member State represent a small overall value, the national business cannot benefit from the small business exemption scheme in force there, and is at a competitive disadvantage with businesses established there. With the changes introduced, small businesses in the European Union with an annual turnover in the European Union not exceeding €100,000.00 can now benefit from the exemption scheme in Member States where they are not established, under the same conditions as those laid down for operators in those States. Thus, the national exemption scheme will now apply to taxable persons with registered offices or domiciles in other Member States who, in addition to meeting the conditions laid down internally for the application of the exemption scheme, have an annual turnover in the European Union not exceeding €100,000.00, and have given prior notification to the Member State of their registered office or domicile and obtained an individual identification number with the suffix "EX" for the application of the exemption scheme. Likewise, taxable persons with their registered office or place of residence in Portugal, who are covered by the exemption or normal tax regime, when their annual turnover in the European Union does not exceed €100,000.00, will now be able to benefit from the exemption regime in other Member States for transactions carried out there, provided that their turnover in those states is below the respective exemption threshold.
In order to allow the correct operation of the system and the control by the Member States of the application of the exemption in its cross-border aspect, the reporting obligations that must be fulfilled by taxable persons wishing to benefit from exemption in Member States where they are not established are defined in a harmonized manner.
In order to simplify access to the exemption regime in other Member States for small businesses with their head office or domicile in Portugal and reduce their compliance costs, companies wishing to benefit from the exemption in other Member States must first notify the Tax and Customs Authority, which, for the purposes of applying the exemption, will assign them an individual identification number with the suffix "EX", which they will use for transactions carried out in the exempted Member States, while remaining registered for VAT purposes exclusively in Portugal.
Furthermore, at the time of the prior notification to obtain the individual identification number, taxable persons, in addition to indicating the Member State or Member States in which they intend to benefit from the exemption, must provide information on the turnover achieved in national territory and in each of the other Member States, in the previous calendar year and in the current calendar year. Exempt taxable persons established in national territory who make use of the exemption in a Member State in which they are not established must also submit electronically to the Tax and Customs Authority a quarterly declaration with the value of the transactions carried out in the calendar quarter in national territory and in each of the other Member States. In addition, the tax authorities of the Member States verify compliance with the rules of the exemption system by taxable persons established in other Member States, including compliance with the administrative cooperation thresholds, namely through automated access to the data collected from taxable persons at the time of prior notification and in the quarterly declaration.
For the purposes of applying the exemption scheme, harmonized definitions of what is considered an established taxable person, annual turnover in the Member State and annual turnover in the European Union are introduced, to avoid divergences in the way they are calculated and to ensure fair treatment between small businesses.
Likewise, in order to ensure uniform application of the rules for access to the regime in the European Union, annual turnover is no longer required for the purposes of the exemption regime, eliminating one of the most complex aspects of the previous regime for taxable persons.
The application of the exemption scheme ceases for taxable persons established and not established in national territory when the exemption threshold applicable in national territory has been exceeded in the previous calendar year, when that threshold is exceeded by more than 25% in the current calendar year and when any of the other conditions laid down for the application of the scheme cease to apply, and tax is due from that moment on. In the case of taxable persons not established in national territory, the application of the exemption scheme also ceases when, in the previous calendar year, the taxable person has achieved an annual turnover in the European Union of more than €100,000.00, or in the current calendar year that threshold is exceeded, and tax is due from that moment. Companies with their registered office or domicile in Portugal which are covered by the exemption scheme and which exceed the turnover threshold in the European Union as a result of their activities in other Member States, even if they can no longer benefit from the exemption scheme in those Member States, may nevertheless continue to benefit from the exemption scheme in Portugal if their turnover in Portugal is below the threshold set here. Taxable persons covered by the small business exemption scheme, whether or not they are established on national territory, do not pay VAT on the supply of goods and services they carry out and do not deduct the VAT they pay to carry out the exempt activity. Taxable persons with their registered office or domicile in Portugal, under the normal tax regime, who benefit from the small business exemption regime in other Member States, on transactions carried out there, may not deduct the VAT borne in Portugal to carry out the exempt activities in those other Member States.
It is also clarified that the exemptions on intra-Community transfers of goods do not apply to transfers of goods made by taxable persons covered by the small business exemption scheme, and this amendment is given an interpretative nature, as it is the interpretation of the rules on intra-Community trade that has been accepted, in accordance with a provision that has been in force in European Union law since 1993.
In addition to the revision and extension of the scope of the exemption scheme, various simplification measures have been introduced for taxable persons covered by this scheme. Taxable persons established in other Member States who are covered by the exemption scheme on national territory will comply with the prior notification and quarterly declaration obligations associated with the scheme in their Member State of establishment, and will be exempt from complying with all VAT obligations on national territory. Taxable persons established in Portugal and covered by the exemption scheme, in addition to the other obligations they were already exempt from, are now exempt from submitting a recapitulative statement when they supply services to taxable persons in other Member States and can only issue simplified invoices. In addition, VAT taxpayers under the exemption regime who are natural persons, when they do not have or are not required to have organized accounts, and exercise the option of issuing invoices exclusively through the invoicing applications made available by the Tax and Customs Authority, are exempt from the obligation to keep record books for VAT and IRS purposes. Service providers covered by the exemption regime will also be allowed to replace the transport document with the respective purchase invoices for the goods they transport.
