VAT Group Regime

At group level, the regime is available to groups of VAT taxable persons that are closely linked financially, economically and organisationally.

Financial linkage requires the dominant entity to hold, directly or indirectly, at least 75 per cent of the share capital of the controlled entities and more than 50 per cent of the voting rights. This holding must have been in place for more than one year, unless the entities are newly incorporated, in which case it must have been in place since incorporation.

Economic and organisational links are demonstrated through the pursuit of similar, complementary, or interdependent business objectives and through a unified management structure or subordination to a common business strategy. The inherent subjectivity of these criteria may give rise to uncertainty and litigation, underscoring the need for future further clarification.

At the entity level, each participant must maintain its head office or a permanent establishment in Portugal—mere VAT registrations are insufficient—operate under the standard VAT regime with monthly periodicity, and carry out transactions that grant the right to deduct input VAT. Exempt taxable persons are expressly excluded, highlighting the critical importance of correct VAT status, particularly where entities conduct exempt transactions under an option for taxation.

No entity may belong to more than one VAT group simultaneously, and the dominant entity cannot itself be controlled by another domestic entity.

The regime is elective, requiring a formal option by the dominant entity that necessarily encompasses all qualifying entities.

Once exercised, the option is binding for a minimum of three years, after which the dominant entity may renounce the regime. Given the novelty of the regime in the Portuguese tax landscape, this three-year commitment period may limit flexibility and, consequently, the attractiveness of the regime, especially in scenarios involving swift corporate reorganisations or market-driven adjustments.

The regime will automatically terminate for any entity that ceases to maintain a financial, economic or organisational links cease to exist, or if an entity does not carry out taxable transactions for more than one year, or enters insolvency, special revitalisation or extra-judicial recovery proceedings. The exclusion of an entity does not compromise the group’s existence, except in the case of the dominant entity.

Under the proposed framework, each group member continues to file its own periodic VAT return and independently calculates its payable or recoverable VAT. The dominant entity then submits a consolidated group return reflecting the algebraic sum of all individual balances.

If the consolidated balance results in VAT payable, the group entities are jointly and severally liable for payment. If a credit arises, it can be carried forward to subsequent periods or a refund may be requested under the general provisions of the VAT Code.

Pre-existing VAT credit held by an entity at the time of entry may be offset only against that entity’s own assessed VAT; any excess does not benefit the rest of the group.

The main advantage of the regime lies in the automatic netting of debit and credit positions among group members, which can materially reduce monthly VAT payments as well as the need for refund requests, thereby improving the group’s cash flow.

Centralised tax settlement further simplifies internal processes, enhances financial predictability, and proves particularly advantageous for groups in which entities generally occupy opposing VAT positions—such as exporters versus domestic suppliers—or for those with significant intra-group transactions and no deduction restrictions, where a single transaction generates VAT payable for one entity and recoverable VAT for another.

However, certain features may involve costs or constraints, such as the minimum three-year commitment, which may hinder rapid corporate reorganisations or market-driven adjustments. 

Maintaining the application of VAT to intra-group transactions reduces the attractiveness of the regime, especially for entities with deduction limitations and significant intra-group flows, as there is no neutralisation of VAT.

The proposal now proceeds to parliamentary debate and vote and may still be amended during the specialised committee stage.

Corporate groups are advised to proactively assess the potential impact of implementing this regime, considering eligibility requirements, advantages and limitations, and the need to adapt internal processes. Close monitoring of legislative developments will be essential to ensure accurate compliance and to capitalise on the opportunities arising from the final approval of the VAT group regime.