I) Regarding exemption from VAT
Article 2(1)(a) of the VAT Code stipulates that, in addition, “(...) natural or legal persons who, independently and on a regular basis, carry out activities of production, trade or provision of services, including mining, agriculture and the free professions, (...)” are subject to VAT.
This means that these people are obliged to demand VAT from the purchaser or beneficiary of the services, under the terms of Article 8 of the VAT Code, in order to hand it over to the State at a later date, after the respective deductions have been made, with this burden falling, as a rule, in practical terms and indirectly, on the “final consumer”, through the passing on of the tax (see Article 37 of the VAT Code).
In turn, as an exception to this rule on the chargeability of VAT, there is the system laid down in Article 53 of the VAT Code.
Thus,
In accordance with the provisions of article 53(1) of the C.I.V.A., as amended by Law no. 2/2020, of March 31, “1 - Taxpayers who do not have or are not required to have organized accounts for IRS or IRC purposes, who do not carry out import, export or related activities, or who carry out activities consisting of the transfer of goods or the provision of services mentioned in Annex E to this Code, do not have a turnover of more than 12,500 (euros) in the previous calendar year, are exempt from tax.”
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II) Regarding the exemption from withholding income tax.
This is a common situation for small individual entrepreneurs, who fall into category B, as provided for in article 3 of the C.I.R.S..
In turn, this value also serves as a criterion for determining the exemption from the obligation (where applicable) to withhold income tax.
In fact, according to the provisions of no. 1 of article 101-B of the C.I.R.S., “Income from category B, with the exception of commissions for intermediation in the conclusion of any contracts, and from category F, when the respective holder expects to earn, in each of the categories, an annual amount lower than that set out in no. 1 of article 53 of the VAT Code, are exempt from withholding tax (...).”
Being classified in category B, and providing services to entities that have or should have organized accounting, they will be confronted with the fact that these entities will withhold tax as follows:
a) 16.5%, in the case of category B income referred to in article 3(1)(c) or the increase in assets referred to in article 9(1)(b) and (c);
b) 25%, in the case of income from professional activities specifically provided for in the table referred to in article 151;
c) 11.5%, in the case of category B income referred to in paragraph 1 b) and paragraphs 2 g) and i) of article 3, not included in the previous paragraph;
d) 20%, in the case of category B income earned from high value-added activities of a scientific, artistic or technical nature, defined in an ordinance issued by the member of the Government responsible for the area of finance, by non-habitual residents in Portuguese territory.
- cfr. no. 1 of art. 101 of the C.I.R.S..
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III) Regarding the changes with the State Budget Law (Law no. 24-D/2022, of December 30)
With regard to the change to the rules set out in the State Budget Law for 2023 (Law no. 24-D/2022, of December 30, 2022), article 235 of the aforementioned Law states that the aforementioned article 53 of the C.I.V.A. will now read as follows:
“1-Taxpayers who do not have or are not required to have organized accounts for IRS or IRC purposes, who do not carry out import, export or related activities, or who carry out activities consisting of the transfer of goods or the provision of services mentioned in Annex E to this Code, who have not achieved a turnover of more than €15,000 in the previous calendar year, shall be exempt from the tax.”
Article 282 of the aforementioned Law, under the heading “Production of Effects and Duration”, states in its paragraph 3 that “3 - The amount referred to in paragraphs 1 and 2 of article 53 and paragraph 3(a) of article 59d of the VAT Code shall be €13,500 in 2023 and €14,500 in 2024.”
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IV) In conclusion
Accordingly, the amount to be considered for the purposes of both the VAT exemption under the terms set out in supra I) and the exemption from withholding tax under the terms set out in supra II) will be - naturally with reference to turnover in the previous year - €13,500.00 in 2023, €14,500.00 in 2024 and €15,000.00 in 2025.
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V) Consequences of exceeding the aforementioned amounts
If the amounts earned under the terms mentioned above exceed the respective amounts, the taxable person must, in addition,
a) notify the change of VAT regime during January of the followin
b) start charging VAT on invoices issued subsequently and
c) submit the respective quarterly VAT returns
- cfr. no. 2 of art. 58, no. 1 of art. 29 and no. 1 of art. 41, all of the VAT Code.
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