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VAT Exemption – Article 53

The State Budget for 2023 provides for changes to Article 53 of the CIVA, among which is the increase in the turnover limit, which will be EUR 13,500, as from 1 January 2023.

VAT Exemption Limit – What does it consist of?

Article 53 of the CIVA (VAT Code) provides for VAT exemption for taxpayers who do not exceed the turnover limit of €13,500 (limit updated for 2023) during the previous calendar year. However, it is important to bear in mind that in order to benefit from this exemption, the taxpayer cannot be registered under the organised accounting regime, nor practice import or export operations, nor carry out activities included in Annex E of the CIVA. These activities essentially comprise the waste, waste and scrap sectors.

As a consequence of this exemption, a taxable person that does not reach the turnover mentioned above will not have to charge VAT to consumers. On the other hand, he will also not be able to deduct VAT on the expenses incurred with the activity. Therefore, it is recommended to evaluate all the implications as a way to find out if it is in fact advantageous to opt for VAT exemption, or if it pays to be under the normal or quarterly VAT regime.

Do you no longer meet the conditions for exemption?

If you have exceeded the turnover limit value, or fail to comply with any of the other requirements, you are obliged to communicate this fact to the Tax Authority by sending a Declaration of Change of Activity.

This communication must be made by the end of January of the year following the year in which a turnover exceeding the limits of exemption present in Article 53 and Article 54 was achieved. In the event that you fail to comply with any of the remaining conditions, you must make the communication within 15 days of the occurrence.

Please note that it is possible to opt out of the exemption regime on a voluntary basis and join the available VAT regimes, under the condition that you remain covered by it for a minimum period of 5 years.

What happens after the end of the VAT exemption?

After leaving the VAT exemption regime, whether by choice or because you no longer meet the conditions mentioned above, you will fall under one of the two VAT regimes available: monthly or quarterly.

Consequently, you will be obliged to file a VAT Periodic Declaration. The periodicity of delivery varies depending on the regime you fall under.

Important notes

The framework of the VAT exemption scheme waives the obligation to submit the VAT Periodic Declaration. However, please note that if you make payments to foreign entities without a permanent establishment in Portugal, you will have to submit the same.

For example, let’s assume that a certain taxpayer has an open activity in the field of Local Lodging, under the exemption regime under Article 53 of the CIVA. If this taxpayer uses a platform such as Booking or Airbnb to obtain bookings, he will be paying monthly commissions to these platforms for their services.

In this case, the taxpayer will have to complete and submit a periodic VAT declaration, where he declares the amounts paid to these entities.

If you wish to obtain additional information, please contact us.