A new VAT regime took effect on October 1, 2013, in accordance with Decree Law no. 71/2013, dated May 30. The aim: to improve the cash flow of Portuguese companies, which have suffered from a particularly …
PORTUGAL: New VAT Regime – VAT Cash Accounting System
A new VAT regime took effect on October 1, 2013, in accordance with Decree Law no. 71/2013, dated May 30. The aim: to improve the cash flow of Portuguese companies, which have suffered from a particularly adverse environment in the last three years. The results so far have not been too encouraging. It seems that businesses didn’t fully understand the benefits of the new system or they didn’t find those benefits appealing enough. According to the authorities, as of a week before September 30, 2013, only about 70 companies had chosen the new VAT regime, which is optional and could potentially cover 85% of Portuguese companies. Companies may have realized that there’s no such thing as a free lunch.
Companies and operations covered by the law
The new system applies to taxable persons with annual revenue up to EUR 500,000 that do not qualify for tax exemption, and to supplies of goods and services whose beneficiaries are other taxable persons. Only companies registered for VAT purposes for more than 12 months, with their tax affairs in order and their reporting obligations duly met, can opt for this VAT regime.
Deadlines for opting in and duration of the application of the regime
With the exception of the transitory rule deadline, businesses are to make use of the option provided by this new law by October 31 of each year. The option comes into effect on January 1 of the following year. It is mandatory to remain in this regime for a minimum of 2 years unless the taxable person ceases to meet the requirements. It should also be noted that, if businesses no longer meet the requirements to stay in the cash accounting system or if they choose to return to the standard VAT regime, they are also to stay there for a minimum of two consecutive years.
Rules on the chargeability and deductibility of VAT
VAT for operations covered by this regulation is due at the moment of payment, in full or in part. The VAT included in unpaid invoices (in full or in part) becomes due in the twelfth month after the date of the invoice in the tax period corresponding to the deadline. Taxable persons in the VAT cash accounting system may deduct VAT from input transactions only if they have an invoice or receipt as evidence of payment. Nevertheless, the VAT included in unpaid invoices (in full or in part) is deductible in the twelfth month after the invoice is issued.
Requirements for invoices and receipts
Under the VAT cash accounting system invoices must be issued in a special series and must bear the words “IVA–regime de caixa” (VAT–cash accounting system). At the time of payment, in full or in part, advances included, a receipt must be issued for the amounts received. This applies not only to the taxable persons in the cash accounting system but to all taxable persons who carry out a transaction with businesses categorized under the VAT cash accounting system. The date of the receipt must be in line with the date of payment. The receipts must be issued as an original and a copy and should be communicated to the tax authorities under the conditions stipulated for invoices (submission of the SAFT(T) file by the 25th of the following month).
Benefits versus costs
The VAT cash accounting system’s subdued reception has surprised authorities. While its implementation can have immediate benefits for a company’s cash flow, they come at a cost. If one recalls the enormous financial, economic and administrative burden that many other changes caused Portuguese companies in recent years, it is understandable that they might think twice before incurring additional costs when a limited return is at stake. Finally, we must wait a few more months before drawing any conclusions regarding the real impact of this special program on Portuguese companies.
PORTUGAL: New rules regarding the using of invoicing software
Since the 1st of January of 2014 the law governing the use of invoicing software – Ordinance no. 363/2010, dated June, 23 – underwent new changes, in accordance with Ordinance no. 340/2013, dated November, 22. For invoice issuers subject to tax on natural persons or to tax on legal persons the use of certified software became mandatory, with only the two following exceptions (the previous legislation foresaw more exceptions):
- Taxable persons whose turnover, during the previous taxation period, has been equal to or less than 100.000€.
- Documents issued through appliances for the automatic dispensing of sale of products or the rendering of services where it is usual to issue a slip, an admission or a travel ticket, a ticket or another pre-printed document issued to the bearer proving the payment.
Furthermore, according to the circular letter no. 50.001/2013 of the Portuguese Tax office, the document number should be printed according to the format Type of Document + Series + Number. In the case of invoices the format would be, for example, “FT 1/123”. Also, the date should be printed using the format “YYYY/MM/DD”.
PORTUGAL: New rules regarding VAT in the Annual Budget for 2014
The VAT exemption provided for in no. 7 of Article 9º of the Portuguese VAT Code now covers the services rendered outside the provider’s premises.
This exemption refers to the rendering of services and the closely related supply of goods made by nurseries, kindergartens, after-school facilities, facilities for children and young people without a normal family environment, old people’s homes, etc or other social facilities belonging to Private Social Solidarity Institutions, in the course of their business.
The VAT exemption provided for in no. 13 of Article 9º of the Portuguese VAT Code will also be applicable to the visits of libraries and archives.
The VAT exemption provided for in no. 16 of Article 9º of the Portuguese VAT Code has been changed in order to cover the rights related to copyright. The definition of related rights is stated in Article 176º of the Copyright and Related Rights Code.
As previously mentioned the VAT rates applied in the Autonomous Region of the Azores increased from 4% to 5% (reduced rate), 9% to 10% (intermediate rate) and 16% to 18% (standard rate).
The release from the obligation of issuing an invoice will also be applicable to the rendering of financial, insurance and reinsurance services, which are VAT exempt and whose beneficiary is a taxable person established in another EU country (no. 3 of Article 29º of the VAT Code).
The right to recover the VAT referring to:
- Doubtful debts overdue by more than 6 months, whose amount is not higher than 750€, VAT included, and the debtor is an individual or a taxable person who engages solely in exempt transactions, which do not afford the right to make deductions.
- Irrecoverable debt.
is subjected to a limitation period of 2 years. This limitation only applies to credits overdue as from the 1st of January 2013 (Article 78º-B of the VAT Code).
Adjustments of VAT of overdue credits, whose debtor is a taxable person, are now subject to the later being notified.
The items included in the List I (reduced VAT rate) annexed to the Portuguese VAT Code have been amended as follows:
- Item 1.6.4 will also include dehydrated fruits.
- In Item 4 the previous expression “rendering of forestry services” is replaced by “rendering of services within the agricultural production activities”
- Item 5 – no longer appears the exclusion of the activities not related to land development or if the activity is clearly of an ancillary nature, namely hydroponic production and the production in pots, trays or other independent supporting means. Therefore, these agricultural activities are now subject to the reduced VAT rate.
It is established (interpretative rule) that the deduction of the VAT incurred on the purchases of goods or services made to taxable persons under the VAT Cash Accounting system, must be made in the period declaration or in that of a tax period after the one when the invoice was received.
Waiver of the VAT exemption in real property transactions – it is possible to access this regime in case of real estate whose taxable value, after renewal or upgrading works, increases by 30% (previously, 50%).
The period of time during which a property can remain unoccupied, without this imposing the corresponding VAT adjustments in favour of the state, increases from 3 to 5 years. The measure is meant to support the housing market.
Last but not least, through Decree-law no. 26-A/2014, dated February, 2 and Ordinance no. 44-A/2014, dated February 20, the Portuguese Tax Authorities have implemented the “Lucky Invoice” draw. The eligible invoices are the ones issued to private persons that mention the latter’s’ tax number. Nevertheless, the purchases must be made in their private capacity for personal consumption. Every week a car will be raffled and in June and December a special draw will take place.
The Portuguese Tax Authorities do not lack creativity when it comes to fighting fraud!
Fatima Gouveia and Johannes Ruckert