The Law n.º 7/19 of April 24th has approved the Value Added Tax Code (hereafter “VAT Code”).
The VAT Code was approved within the scope of the tax reform in force in the country and has as its main goal the adoption of a tax without a downfall effect, appropriate to local conditions while being simple and modern enough to face the globalized economy.
The VAT Code shall enter into force on the following dates, where its provisions shall apply on a compulsory basis:
- For importation of goods: 1st of July of 2019;
- For taxpayers registered in the Tax Office of Large Taxpayers: 1st July of 2019;
- To the remaining taxpayers: by 1st of January of 2021. However, these taxpayers may choose to join the general regime (as better explained in our most recently published Newsletter, attached).
The following operations are subject to VAT:
- The transfer of assets for consideration, made within the national territory, by a taxable person acting as such;
- Provision of services for consideration, carried out within the national territory, by a taxable person acting as such;
- The importation of goods.
In general, the transfer of assets is qualified as an onerous transfer of tangible assets corresponding to the exercise of the right of ownership. Electricity, gas, heat, refrigeration and similar are considered as tangible goods.
Among others, it is also considered as transfer of assets (i) the delivery of goods within the execution of a lease contract with a transfer of ownership clause; (ii) the delivery of movable property within the execution of a sale and purchase contract in which the reservation of ownership is foreseen until the total or partial payment of the price; (iii) transfers of assets between principal and commissioner; (iv) the allocation of assets of the company to the own use of its owner, staff, or, in general, for purposes other than the company´s activity.
In general, provision of services is considered as any operation for consideration, that does not qualify as a transmission or importation of goods or money, with the exclusion of the onerous transmission of money.
It is also considered as a provision of services for consideration (i) the use of assets of the enterprise for the own use of its owner, staff or, in general, for purposes other than that of the company, and in exempt sectors of activity when there has been a total or partial tax deduction; (ii) those which have been done free of charge by the company itself for the particular needs of its owner, staff or, in general, for purposes other than that of the company.
The taxable persons subject to VAT are:
- any natural, legal person or entity which independently carries out economic activities, including production, trade or services provision, self-employed professionals, extractive activities, agriculture, aquaculture, apiculture, poultry, livestock, fishing and forestry;
- any natural, legal person and entities which import goods under the customs legislation;
- any natural, legal person or entities who incorrectly mention VAT on invoices or equivalent documents;
- any natural, legal person or entities, who is considered as a taxable persons and purchase services from non-resident entities without domicile, headquarters or permanent establishment within the national territory;
- the State, governmental entities and other public bodies, except where they act within the powers of authority and do not result in distortions of competition;
- political parties and coalitions, trade unions and legally incorporated religious institutions, in so far as they carry out taxable transactions.
Exemptions in internal operations
Are exempt from tax within internal operations, among others:
- The transmission of the goods listed in Annex I of the VAT Code;
- The transmission of medicinal products exclusively intended for therapeutic and prophylactic purposes;
- The transmission of books, including in digital format;
- Immovable property letting for housing purposes, except for the provision of accommodation services carried out within the hotel business or with similar;
- Transactions subject to Sisa Tax, even when exempted;
- The collective transport of passengers;
- Financial intermediation operations, except those that give rise to the payment of a specific and predetermined fee or consideration;
- Life insurance and reinsurance;
- Transmission of oil products.
Exemptions in importation and exportation
Are exempted from VAT, among others:
- Definitive imports of goods when its transmission in the national territory is exempt from tax;
- The importation of goods or equipment exclusively and directly destined to the execution of oil and mining operations in accordance with the respective sectors legislation;
- The transfer of goods dispatched or transported abroad by the seller or by a third party acting on behalf of the seller;
- Transmissions of supply goods placed on board vessels and aircrafts, subject to certain requirements;
- The transmission, conversion, repair, maintenance, freight and rental, including the financial leasing, of vessels and aircraft assigned to air and sea navigation companies principally engaged in international traffic;
- The transportation of persons coming or going abroad. Supply goods are the onboard supplies and are considered as such products intended exclusively for the consumption of crew and passengers, fuels, propellants, lubricants and other products intended for the operation of propulsion machinery and other technical apparatus installed on board; and accessory products intended for the preparation, treatment and preservation of the goods carried on board.
VAT rate and taxable amount
The VAT rate is of 14%. According to the general rule, the taxable amount of the transmission of goods and provisions of services is the value of the consideration obtained or to be obtained from the purchaser, the recipient or a third party. When the value of the consideration is less than or greater than the normal value, the normal value is applicable, being the Tax Authority allowed to correct it.
The taxable amount of the imported goods is the customs value plus the import duties, taxes or charges due on importation and incidental expenses such as packaging, transportation, insurance and other charges. The VAT Code also provides other several specific rules for determining the taxable amount, which should be verified on a case-by-case analysis.
Right of deduction and tax payment
The taxable persons responsible for the payment of VAT are obliged to pay the amount of tax until the last day of the month following that to which the transactions carried out are concerned. The VAT due on imports is paid to the competent customs services at the time of customs clearance. In order to calculate the amount of VAT due, taxable persons deduct to the tax levied on the taxable transactions they carried out:
- The tax invoiced to them in the acquisition of goods and services by other taxable persons;
- The tax paid for the importation of goods;
- The tax paid as a result of taxable transactions carried out by taxable persons established abroad, when they do not have a tax representative in the national territory and have not included the tax on the invoice or equivalent document.
- In addition to the obligation to assess and pay the VAT, taxable persons are obliged to:
- Submit the declaration of commencement, alteration or termination of activity;
- Issue an invoice or equivalent document for each transmission of goods or services;
- Provide the periodic declaration and its annexes on a monthly basis regarding the transactions carried out in the previous month, indicating the tax due or the existing credit and the calculation elements calculating;
- Have adequate accounting for the tax assessment and inspection;
- Provide the regularization annexes, as well as the other annexes of the VAT return.
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