Portugal – VAT groups

Portugal has officially approved legislation to introduce a VAT grouping regime, that is designed to improve cash flow for groups of closely linked companies. The new rules are expected to come into effect from July 1, 2026.

Overview of the New Regime
The new law, allows companies that are closely bound by financial, economic, and organizational links to be treated as a single taxable entity for VAT purposes. This consolidation mechanism addresses the previous challenge where different entities within the same group might have disparate VAT balances (some payable, some recoverable), resulting in cash-flow inefficiencies.

Key Features and Requirements
To qualify for the VAT group regime, companies must meet specific criteria:

– Financial Link: A controlling entity must directly or indirectly hold at least 75% of the capital of other group members and possess more than 50% of the voting rights.

– Economic Link: The group companies must carry out similar, complementary, or interdependent business activities.

– Organizational Link: The companies must share common management or pursue the same business strategy.

– Duration: Entities must commit to participating in the group for a minimum period of one year.

Operational Impact
While the new system simplifies the overall process, the operational model has specific characteristics:

– Individual Reporting: Each member of the group will continue to submit its own periodic VAT return.

– Consolidated Return: The Portuguese Tax and Customs Authority (Autoridade Tributária e Aduaneira – AT) will use these individual returns to prepare a single, consolidated group return, netting off the total VAT payable or recoverable for the entire group.

– Single VAT Number: The group operates under a single VAT number.

– Liability: The controlling entity is responsible for making the final net payment or requesting the refund. All group companies are jointly and severally liable for the group’s VAT obligations.

Benefits and Limitations
The introduction of VAT grouping brings Portugal in line with 19 other EU member states, offering significant administrative and cash-flow benefits for corporate groups. By consolidating positions, companies can avoid situations where some entities pay VAT while others wait for a refund on intra-group transactions.

However, unlike some countries where intra-group transactions are entirely disregarded for VAT purposes, Portuguese model of VAT group primarily focuses on consolidating balances. This means that input credit is still restricted where entities in the VAT group have partial input VAT deduction.

Companies should evaluate their eligibility and adapt their accounting systems to ensure compliance with the new requirements and deadlines.