What Is IVA in Portugal and How Does This Tax Work?
Understand Portugal's IVA (Value Added Tax). Learn how this consumption tax operates and impacts purchases and services.
Imposto sobre o Valor Acrescentado (IVA) serves as Portugal’s Value Added Tax, a consumption tax applied to most goods and services. This tax functions as a significant revenue source for the Portuguese government, supporting public services and economic initiatives.
Understanding IVA
IVA is a consumption tax applied to goods and services sold for consumption within Portugal. Businesses add IVA to the price of items or services they provide. When a consumer makes a purchase, the price already includes the IVA. The business then collects and remits this tax to the Portuguese tax authorities.
While the tax is levied at each stage, businesses can deduct the IVA they paid on their own purchases (input IVA) from the IVA they collected on their sales (output IVA). The consumer ultimately pays the full IVA amount embedded in the final price, making it an indirect tax.
Portuguese IVA Rates
Portugal implements a tiered IVA system with different rates applying to various categories of goods and services. The standard rate, which applies to most goods and services not falling under special categories, is 23% in mainland Portugal. Examples of items typically subject to this rate include clothing, electronics, and many restaurant services not classified under reduced rates.
Two reduced rates are in place to make essential goods and services more accessible. The intermediate rate is 13% in mainland Portugal, applying to items such as certain foodstuffs, including some restaurant and catering services (excluding alcoholic beverages), mineral water, and admission to specific cultural events. A super-reduced rate of 6% is applied to basic necessities. This rate covers essential food products, certain books, newspapers, pharmaceutical products, medical equipment for individuals with disabilities, passenger transport, and hotel accommodation.
It is important to note that the Autonomous Regions of Madeira and the Azores operate with different IVA rates to support their specific economic conditions. In Madeira, the standard rate is 22%, the intermediate rate is 12%, and the super-reduced rate is 5%. For the Azores, the standard rate is 16%, the intermediate rate is 9%, and the super-reduced rate is 4%. These regional variations reflect local economic policies and geographic considerations.
When IVA Doesn’t Apply
Certain services and sectors in Portugal are exempt from IVA, meaning no tax is charged on their provision. This includes a range of public and social services deemed essential. Examples of such exemptions typically encompass specific healthcare services provided by medical professionals, educational services, and certain financial and insurance services. Some rental activities are also exempt from IVA.
Small businesses in Portugal may also benefit from an IVA exemption based on their annual turnover. If a business’s turnover remains below a certain threshold, it may not be required to charge IVA on its sales. For 2025, this threshold is expected to be €15,000. This exemption aims to reduce the administrative burden on smaller enterprises, though businesses utilizing this benefit generally cannot engage in import or export activities.
Furthermore, exports of goods and services from Portugal are generally zero-rated for IVA. This means that while IVA is not charged on the export, businesses can still reclaim any IVA paid on inputs related to those exports. This policy supports international trade by ensuring that goods and services produced in Portugal are not burdened with domestic tax when sold abroad.