VAT
IVA
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Value-Added Tax, a consumption tax on goods and services used across the EU. In Portugal it's called IVA and charged at 23% (standard rate) on the mainland.
VAT (value-added tax) is the consumption tax used across the European Union. If you're a solo entrepreneur in Portugal, you'll encounter it under its Portuguese name: IVA (Imposto sobre o Valor Acrescentado). Same tax, different label. Portuguese invoices, tax forms, and the Portal das Finanças all say IVA. EU regulations and cross-border paperwork say VAT.
Why VAT matters for freelancers
Unlike income tax, which is calculated once a year, VAT is something you deal with on every invoice. When you bill a client in Portugal, you add VAT to the amount. You're not keeping that money, you're collecting it on behalf of the state and remitting it through periodic declarations.
The standard rate on mainland Portugal is 23%. There are also intermediate (13%) and reduced (6%) rates for specific goods and services. The Azores and Madeira have their own lower rates.
The Article 53 exemption
Portugal offers a VAT exemption for solo entrepreneurs with annual revenue below approximately 15,000 EUR. If you qualify under Article 53 of the CIVA, you don't charge VAT on your invoices. The trade-off: you also can't deduct VAT on your business expenses.
Many new freelancers start with this exemption and transition to charging VAT once they cross the revenue threshold. Descodify handles both scenarios, it adjusts the VAT treatment on your invoices based on your tax profile.
Cross-border VAT
VAT gets more interesting when your clients are in other countries. The EU has specific rules to prevent double taxation:
- EU B2B services: the reverse charge shifts VAT responsibility to the buyer. You invoice at 0% and your client self-assesses VAT at their local rate. Always verify the client's VAT number on VIES first.
- Non-EU services: Portuguese VAT simply doesn't apply. The place-of-supply rules put the transaction outside scope. The invoice carries no VAT, but the legal basis is different from the reverse charge.
- EU B2C services: you generally charge Portuguese VAT, though exceptions exist for digital services sold to consumers in other EU countries.
Reporting
Most solo entrepreneurs on the simplified regime file VAT declarations quarterly through the Portal das Finanças. Each declaration reports the VAT you collected from clients minus the VAT you paid on deductible business expenses. The net amount is what you owe, or, if your expenses exceed your collections, what the state refunds you.
Frequently asked questions
What is VAT and how does it work in Portugal?
VAT (value-added tax) is a consumption tax applied at each stage of the supply chain. In Portugal it's called IVA (Imposto sobre o Valor Acrescentado). As a freelancer, you add VAT to your invoices, collect it from clients, and remit it to the tax authority. The standard rate on the mainland is 23%.
Do I always have to charge VAT as a solo entrepreneur in Portugal?
Not always. If your annual revenue is below approximately 15,000 EUR, you can be exempt under Article 53 of the CIVA, meaning you don't charge VAT at all. For EU B2B services, the reverse charge mechanism means the client handles VAT in their country. For non-EU services, VAT doesn't apply under place-of-supply rules.
How does VAT work when I invoice a client in another EU country?
For B2B services, the reverse charge applies: you invoice without VAT, and the client self-assesses VAT at their local rate. You verify their VAT number on VIES first. For B2C sales to EU consumers, different rules apply, you may need to charge VAT at the consumer's local rate depending on the type of service.
What's the difference between VAT and IVA?
They're the same tax. VAT (value-added tax) is the English term used across the EU. IVA (Imposto sobre o Valor Acrescentado) is the Portuguese term. You'll see IVA on Portuguese invoices, tax forms, and government portals. The rates and rules are identical, only the name changes.
Can I deduct VAT on business expenses?
Yes, if you're VAT-registered (i.e., not exempt under Article 53). You report the VAT you paid on deductible business expenses in your periodic IVA declaration, and it offsets the VAT you collected from clients. The difference is what you owe the tax authority, or what they owe you.
Related terms
Imposto sobre o Valor Acrescentado, Portugal's value-added tax, charged on most goods and services. The standard rate on the mainland is 23%.
Reverse ChargeAutoliquidação do IVAA VAT mechanism where the buyer, not the seller, accounts for VAT. Standard for cross-border B2B services within the EU.
Regime SimplificadoRegime Simplificado de Tributação · Simplified Tax RegimePortugal's simplified tax regime for solo entrepreneurs and small businesses, where taxable income is calculated using fixed coefficients applied to gross revenue.
FaturaInvoiceA formal invoice issued through certified software or the AT portal. For solo entrepreneurs on the simplified regime, income tax and Social Security remain cash-basis (tied to payment) regardless of when the invoice is issued.
VIESVAT Information Exchange SystemThe EU's free online tool for verifying VAT numbers. Confirms whether a business is VAT-registered and, in Portugal's case, reveals the name and address behind the number.
ImobilizadoLong-term assets (fixed assets)Portuguese accounting term for long-term business assets, tangible items used in the business for more than one fiscal year, such as computers, equipment, vehicles, and furniture. Distinguished from inventory (held for resale) and consumables (used up within the year).