VAT Guide for Freelancers in Portugal

If you are a freelancer who provides products or services to customers in Portugal, you must register and pay for VAT in Portugal. This abides by the “destination principle” of the European Union VAT system. The standard Portuguese VAT rate is 23%, with reduced rates of 13% and 6% sometimes applicable based on the products you sell. It is administered by The Portuguese Tax and Customs Authority, which is also in charge of all updates and tax-related information in Portugal. The threshold in Portugal is EUR 12,500, which means you only need to register for VAT if and when your annual revenue exceeds this amount. 

If keeping up with all these VAT rules as a freelancer seems overwhelming, we’ve got you. This guide provides all the information you need to know about the Portuguese VAT system. Let's get started!

Portugal VAT Rates

What are the various VAT rates in Portugal? The Portuguese government has assigned four different VAT rates, and freelancers must charge their clients based on the type of services or goods they transact.

  • The Standard Rate - Unless the items or services you offer are in the reduced rate or zero-rate category, you should charge the standard VAT rate of 23%.
  • The Reduced Rate of 13% - The reduced rate applies to items such as restaurant food, wine, diesel for agriculture, entrance fees to some cultural events, some goods and services to be used during transportation, etc.
  • The Reduced Rate of 6% - The further reduced rate of 6% applies to some books, specific newspapers, specific medical and dental care programs, disabled persons’ medical equipment, fruit juices, some works of arts, collector’s items, etc.
  • Zero VAT Rate (0%) - Some services like international passenger transport are exempt from VAT and are charged a 0% rate; however, they are still eligible for returns. Hence, you should keep a record of the sales of these services and create a report based on your returns.

When should you register for VAT?

If your annual turnover meets or exceeds EUR 12,500, you are liable to charge VAT to your customers. In addition, you must ensure you satisfy the following conditions: 

  1. You sell or self-supply goods or services
  2. The goods or services you sell or self-supply are VAT liable 
  3. Your sales occur as a commercial activity
  4. You sell or self-supply in Portugal

Self-employed individuals whose annual turnover does not exceed EUR 25,000 are not required to declare the commencement of their activity. Instead, they can choose to issue a single invoice for their goods and services over a year, indicating the total turnover for that year. Once you satisfy these conditions, you must register for VAT to avoid penalties. 

If you are an expat freelancer conducting economic activities in Portugal, you must register for VAT. If you apply as a non-resident, you may complete the registration without setting up a local corporation. While there is no threshold for VAT registration in Portugal for expats, they are required to follow local reporting, payment and compliance protocols.

Click here for more information regarding additional scenarios for when you should register for VAT in Portugal. Additionally, Xolo can help you register as a freelancer in Portugal and handle all the necessary paperwork on your behalf. With Xolo Go, you can use a slice of our company as a legal framework to invoice your clients whether they're across town or across an ocean. 

How to register for VAT in Portugal

As a sole proprietor in Portugal, you must submit a declaration of commencement of activity before beginning the registration process. In addition, if your practice is liable to register for VAT, you must prepare the following documents for submission:

  • Information about your annual revenue, taxable financial transactions, and bank account information.
  • A power of attorney for the fiscal representative (if someone else is representing you)

If you are a permanent resident or citizen of Portugal, you do not need a fiscal representative. If you are based in an EU member state outside of Portugal, you can submit your declaration of commencement of activity via a Portuguese representative. However, if you are a non-EU expat freelancer with no residential address in Portugal, you require a fiscal representative for all VAT related purposes.

Registering Online:

You can register directly by following the steps on the Portuguese Tax and Customs Authority website. Note that the website is only offered in the Portuguese language.

Registering Offline:

You can submit the documents mentioned above in person to any Portuguese Tax and Customs Authority department. You can also submit your declaration of commencement of activity at the Citizens’ Bureau (Loja de Cidadão). Following the 'effective date of registration' (i.e. the day you register for VAT), you must pay VAT to the Portuguese Tax and Customs Authority quarterly.

Alternatively, you can also register using the Mini One-Stop Shop, an EU-wide tax system that allows you to consolidate all of your EU VAT in one single tax return. This scheme is optional but convenient and beneficial if you have customers in multiple countries within the EU, including Portugal. MOSS allows you to avoid registering in each Member State of consumption. To learn more, click here.

Lastly, you can hire an accountant (or agency) to handle your VAT returns and dealings with the Portuguese Tax Administration. Xolo provides services like Xolo Go and Xolo Leap, which help with precisely this and any other VAT concerns you may have.

Financial Obligations of VAT Registered Freelancers in Portugal

Registering for VAT is only the first step. From the day of your registration's effective date, you must:

  • Charge the correct VAT rate
  • Pay any VAT owed to Portuguese Tax and Customs Authority
  • File VAT returns
  • Maintain VAT records and a VAT account.

Furthermore, every VAT-registered individual is required to:

  • Keep track of all purchases, accounts and transactions for at least eight years.
  • Keep a running total of their VAT account.
  • Ensure that their VAT invoices are in electronic format, authentic, correctly signed and that the disclosure details are outlined in the Portuguese VAT codes.
  • Use only approved foreign currency exchange rates.

Please note that you cannot claim VAT on records of items that have already been received or sent and if you haven’t issued VAT invoices on the sale of those items.

Reporting VAT as a Freelancer in Portugal

Freelancers can issue a single invoice once a year reporting the sales of all their goods and services if their yearly turnover is below EUR 25,000. However, if your annual turnover is less than EUR 650,000, you have to report VAT quarterly. On the other hand, if your annual turnover is greater than EUR 650,000, VAT accounts should be maintained and reported monthly.

How to Maintain Financial Records

If you are based in Portugal but provide services to clients in other EU countries, it may be convenient for you to opt for the aforementioned VAT MOSS system. In this case, you must maintain your VAT records for around ten years. You can choose to store these records electronically, on paper, or in a software application in a precise, readable, complete, and simple form. 

Generally, as a freelancer, you must maintain a record of the following documents:

  • Printed copies of the invoices you send out,
  • Received invoices
  • Agreements on sell-billing.
  • The self-billing vendors' names, addresses, and VAT numbers.
  • Notes (debit/credit)
  • Records of imports and exports.
  • You must also preserve records of bank statements, check stubs, cash books, till rolls, and paying-in slips in addition to your VAT account.

Xolo can help you stay 100% VAT compliant and never miss out on any steps! We automatically generate, send, and store all your invoices digitally, so you won’t have to worry about misplacing them over the next decade.

How Xolo Can Help?

The tax registration process can be tricky at times, but we hope this guide has helped clear your doubts! If you’re still confused about the different schemes and numbers and paperwork, Xolo offers a range of solutions that handle all the hassle while you focus on your core competencies. 

Xolo Leap is the easiest and most effective way to create your own company through Estonian e-Residency! Reduce time spent on mundane business administration and focus on what you do best!

  • We offer different tiers of service depending on the solopreneur’s, or as we call them, Xolopreneur's, individual needs.
  • Once you get your business set up, you can run it from anywhere in the world! So whether you’re looking to gain access to the EU market or a digital nomad - this is the place for you! 

With Xolo Go, you can easily freelance and invoice your clients, even without a registered company or LLC. 

  • Signing up takes only 10 minutes, and once you do, taxation, corporate compliance, and all the tricky VAT calculations are all automatically taken care of in the background!
  • We charge a flat rate of 5% from every withdrawal to your personal bank account. No surprise fees, no contracts, and no BS.

Simply put, we do the hefty work for you so that you can enjoy the freedom of freelancing. So connect with us immediately, and we’ll help you get your one-person business up and running in Portugal in no time!