Portugal has implemented significant changes to the VAT exemption regime for small businesses through Decree-Law No. 35/2025 and the accompanying guidance issued by the Portuguese Tax Authority under Circular Letter No. 25062/2025.
These changes affect freelancers, consultants, digital nomads, self-employed professionals, and small business owners operating in Portugal, particularly those benefiting from the VAT exemption under Article 53 of the Portuguese VAT Code (Código do IVA).
This article explains the new rules, who qualifies, and the practical implications for taxpayers in Portugal.
What Is the Article 53 VAT Exemption Regime?
The Article 53 VAT exemption regime allows qualifying small businesses and self-employed individuals to issue invoices without charging Portuguese VAT.
This means:
- No VAT is added to invoices.
- No VAT returns are generally required.
- VAT incurred on business expenses cannot be recovered.
The regime is designed to simplify compliance for businesses with relatively low turnover.
What Changed in 2025?
The most significant change is the increase in the turnover threshold and the introduction of a new European Union framework allowing cross-border VAT exemptions in certain circumstances.
From 1 January 2025, businesses may remain under the exemption regime if their annual turnover does not exceed:
€15,000 in Portugal
This represents an increase from previous thresholds and expands access to the simplified VAT regime.
The turnover calculation generally includes taxable supplies made during the calendar year.
Who Can Benefit?
The regime may apply to:
- Freelancers
- Consultants
- IT professionals
- Designers
- Marketing specialists
- Online service providers
- Small local businesses
- Independent contractors
However, eligibility depends on several factors beyond turnover alone.
Certain activities and transactions may prevent access to the exemption regime.
New Cross-Border EU VAT Exemption Rules
One of the most important developments introduced by the 2025 reform is the possibility for qualifying businesses to benefit from VAT exemption across multiple EU Member States.
Under specific conditions, a Portuguese business may be able to use a small-business VAT exemption when supplying services or goods to customers in other EU countries.
To qualify, businesses must generally:
- Remain below the Portuguese turnover threshold.
- Remain below the applicable EU-wide limits.
- Comply with registration and reporting obligations established by the tax authorities.
This change aims to reduce administrative burdens for small businesses operating internationally.
Important Considerations for Freelancers Working with Foreign Clients
Many freelancers in Portugal provide services to clients located outside Portugal.
Examples include:
- US companies
- UK companies
- EU businesses
- International startups
- Remote employers
The VAT treatment of these services does not automatically depend on Article 53 status.
Different VAT place-of-supply rules may apply depending on:
- Whether the client is a business or an individual.
- The client’s country of residence.
- The nature of the service provided.
For this reason, freelancers should not assume that Article 53 exemption eliminates all VAT-related obligations.
A professional review is often advisable when dealing with international clients.
Can You Recover VAT on Expenses?
No.
Businesses operating under the Article 53 exemption regime cannot normally deduct or recover VAT incurred on:
- Computer equipment
- Office expenses
- Software subscriptions
- Professional services
- Vehicle-related costs
- Telecommunications expenses
Before choosing or remaining under the exemption regime, taxpayers should evaluate whether the VAT savings outweigh the loss of input VAT recovery.
When Is It Necessary to Leave the Exemption Regime?
A business may be required to transition to the normal VAT regime if:
- The turnover threshold is exceeded.
- Eligibility conditions cease to be met.
- Certain transactions trigger mandatory VAT registration.
- The taxpayer voluntarily opts into the normal VAT regime.
Once registered under the normal regime, VAT obligations become substantially more complex.
These may include:
- Periodic VAT returns.
- Recapitulative statements.
- Invoice compliance requirements.
- VAT accounting obligations.
Common Mistakes We See
At GoalSeek, some of the most frequent VAT issues involve:
Incorrect Freelancer Registration
Many taxpayers select inappropriate VAT options when opening their activity with the Portuguese Tax Authority.
Assuming Foreign Clients Eliminate VAT Obligations
International work often creates VAT obligations even when Portuguese VAT is not charged.
Exceeding the Threshold Without Monitoring Revenue
Businesses sometimes discover months later that they have exceeded the exemption limit.
Ignoring EU Reporting Requirements
Cross-border activities may create obligations even when no VAT is charged.
How GoalSeek Can Help
Navigating Portuguese VAT rules can be challenging, particularly for expatriates, freelancers, and internationally mobile professionals.
Our team assists with:
- Freelancer registration in Portugal
- VAT regime selection
- Article 53 eligibility reviews
- International VAT compliance
- OSS and EU VAT obligations
- Quarterly VAT filings
- Tax planning for remote workers and consultants
Whether you are starting a freelance activity or reviewing your current VAT position, obtaining professional advice can help prevent costly compliance errors.
Final Thoughts
The 2025 VAT reform represents one of the most important updates to Portugal’s small-business tax framework in recent years.
While the higher turnover threshold offers welcome simplification for many freelancers and entrepreneurs, the introduction of new EU-wide rules means that international activities require closer attention than ever before.
Businesses should periodically review their VAT status to ensure continued compliance and avoid unexpected tax liabilities.
If you are unsure whether the new rules apply to your situation, professional guidance can help you make informed decisions and remain fully compliant with Portuguese tax legislation.
Disclaimer: This article is for general informational purposes only and does not constitute tax, legal, or accounting advice. Tax legislation may change, and individual circumstances vary. Professional advice should be obtained before making decisions based on the information contained in this article.
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