Optional VAT reverse charge for non-resident suppliers (art. 194 of the VAT Directive)
The EU VAT system is essentially based on fractionised payments, VAT being collected at each stage of the production and distribution chain after offsetting the input VAT paid on purchases against output VAT received on sales. According to the main rule laid down by Article 193 of VAT Directive, the person liable for the payment of this VAT is the person supplying goods or services. The liable person is the person who is obligated to pay VAT to the Treasury
Member States in which the VAT is due may provide for that the person liable for the payment of VAT is the person acquiring the goods or services where the transaction is carried out by a supplier who is not established in the country in which VAT is due. Such reverse charge is defined by national regulation.
What are the rules in Portugal?
The generalized reverse charge mechanism has been introduced in Portugal (art. 2 (1) g) of the VAT code) and is applicable to all supplies of goods and services that are deemed to take place in Portugal and performed by a taxable person not established in Portugal provided the following cumulative conditions are met:
The supplier is :
- not established in Portugal or;
- VAT registered in Portugal without having appointed a VAT representative
The customer is :
- A taxable person established in Portugal or;
- A taxable person not established in Portugal but being VAT registered in Portugal and having appointed a fiscal representative.
Under this generalized reverse charge mechanism, the supplier does not have to charge Portuguese VAT but his customer will have to account for the VAT due. Hence, the regime of generalized reverse charge will not be applicable if the customer is:
- A private individual (not qualifying as a VAT taxable person);
- A foreign taxable person registered for Portuguese VAT without having appointed a fiscal representative (direct registration).
Portuguese VAT authorities have published FAQ in connection with this topic.
Let's take an example
A French company purchases goods from a Portuguese supplier and resells them to a German company having a Portuguese VAT number (direct registration). The goods remain in Portugal. The French company must be registered for VAT purposes in Portugal and charge PT VAT to its German client. VAT incurred on the purchase can be recovered through a Portuguese VAT return.
The model would be different if the German company was registered in Portugal with a VAT representative. The French company would then not be required to register for VAT purposes in Portugal and should issue an invoice without applying Portuguese VAT to its German client. VAT incurred on the purchase would be recovered through the electronic procedure laid down by Directive 2008/9.
The expert's eye
The non established supplier that has appointed a VAT representative in Portugal is required to communicate this fact to the acquirer, prior to the completion of the operations. If there is no such communication, the acquirer becomes liable for the payment of the VAT herein due, without application of possible penalties.