On March 24, 2025, Decree-Law No. 35/2025 was published, bringing significant changes to the special VAT exemption scheme for small businesses in Portugal. This legislation partially transposes EU Directives 2020/285 and 2022/542, aiming to harmonize VAT rules across the European Union and reduce compliance burdens for micro and small enterprises.
📌 Key Highlights for Freelancers and Small Businesses:
1. Cross-Border VAT Exemption Eligibility
For the first time, the VAT exemption scheme in Portugal becomes accessible to taxable persons established in other EU Member States, provided they:
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Meet the general conditions of the Portuguese exemption regime;
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Have a total annual turnover not exceeding €100,000 across the EU;
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Notify their home Member State and obtain an individual identification number ending in “EX”.
Likewise, Portuguese businesses with an EU-wide turnover below €100,000 may now benefit from VAT exemption in other EU Member States, as long as they remain below the local thresholds in each jurisdiction.
2. Expanded Access Within Portugal
The new rules allow broader access to Portugal’s domestic VAT exemption scheme (Article 53 of the VAT Code), extending eligibility to:
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Microenterprises with organized accounting;
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Businesses that import goods or provide services listed in Annex E of the VAT Code.
3. New Transition Rules from 1 July 2025
Businesses currently under the standard VAT regime may opt into the exemption regime if they meet the conditions. However, those already exempt must switch to the standard VAT regime if they exceed €18,750 in turnover during the first half of 2025.
4. Updated Turnover Thresholds and Timing
Previously, businesses exceeding €15,000 in turnover would transition to the standard VAT regime the following year. The new rules impose stricter timelines:
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The change must be reported within 15 business days from the year-end;
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VAT becomes due from January 1st of the following year.
Additionally, if turnover exceeds €18,750 (i.e., 125% of the €15,000 limit) at any point during the current year, the invoice that causes the threshold to be breached must already include VAT.
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