New VAT Rules for Businesses in Portugal: What Sole Traders and Companies Need to Know to avoid penalties

Introduction

This article outlines the latest changes in the VAT regime in Portugal, specifically impacting Portuguese tax residents and non-resident businesses, including sole traders (Empresário em Nome Individual) and companies operating in Portugal.

What Has Changed and Why

As of July 1, 2025, the Portuguese government has implemented updated VAT regulations through Decree-Law No. 35/2025 and Ofício-Circulado No. 25062 (March 26, 2025). These changes affect how Value-Added Tax (VAT) is applied and calculated for both resident and non-resident businesses.

Under the previous regime, many businesses operated under the VAT exemption scheme in Article 53 of the CIVA.

The new rules shift the focus of the VAT exemption regime toward all businesses based in Portugal, rather than just individual sole traders (Empresário em Nome Individual).

✅ Key changes:

• Foreign entrepreneurs and non-resident companies are no longer eligible for the VAT exemption under Article 53 CIVA and must register for VAT in Portugal.
• The invoicing limit now applies only to revenue from Portuguese clients.
• If the annual invoicing to Portuguese clients exceeds €15,000, businesses must switch to the normal VAT regime within 2 weeks of exceeding the threshold.

 These updates aim to increase VAT compliance in Portugal, prevent misuse of exemption status, and ensure alignment with EU tax regulations.

When the VAT Regime Change Must Be Made

The deadline to change your VAT status is July 21, 2025. After this, all businesses must continuously monitor their invoice amounts to ensure they remain compliant with Portuguese VAT legislation and after initial verification must submit the declaration to change within 2 weeks when the conditions are met.

Penalties for Non-Compliance

Failure to comply with the updated VAT obligations in Portugal may result in:

• Administrative fines starting at €350 for not submitting a VAT declaration.
• In serious cases, fines may reach up to three times the value of unpaid VAT.

Remaining compliant with Portuguese tax law for small businesses is crucial to avoid penalties and maintain good legal standing both in general and for immigration cases.

How to Stay Compliant with VAT in Portugal

The easiest way to stay compliant is by using Kilobanan Tax Bot, an automated invoicing and VAT compliance application for sole proprietors and small businesses in Portugal.

With Kilobanan:

• You can issue certified invoices that meet Portuguese tax authority (AT) requirements.
• The system monitors your revenue and automatically detects when to switch from VAT exemption to the regular VAT regime.
• It sends alerts, applies the correct Portuguese VAT rates, and submits your VAT declarations in line with the most recent legal updates.

👉 Book an Initial Consultation

Need help? Schedule an accounting consultation with one of our licensed experts. We’ll guide you through your obligations and set you up for full fiscal compliance in Portugal.

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