VAT group regime in Portugal

This regime enables entities that are closely linked in financial, economic, and organisational terms to be treated as a single taxable company for the purposes of VAT assessment and payment. It does so by allowing them to consolidate VAT balances payable (debit) or recoverable (credit) across the group entities.

Participation in a VAT group is optional, with the new rules applying to tax periods beginning on or after 1 July 2026.

Conditions for application

A VAT group is deemed to exist when one entity, designated as the dominant entity and its dependent entities are closely linked financially, economically and organisationally. This is provided the following conditions are met:

1. Financial link: the dominant entity must directly or indirectly hold at least 75% of the share capital of its dependants, provided that this holding gives it more than 50% of the voting rights.
2. Economic link: the entities forming the group must pursue similar, complementary, or interdependent economic objectives.
3. Organisational link: the entities forming the group must share a common management structure or be subject to the same business strategy.

The dominant entity exercises the option to apply the VAT group regime by notifying the Portuguese Tax Authority (‘PTA’), provided that all the entities in the group:

1. Have their head office or a permanent establishment in Portugal.
2. Conduct operations that give rise to the right to deduct VAT, either wholly or in part.
3. Are subject to the standard monthly VAT regime at the date the option is exercised.
4. The dependant entity or entities must have been held by the dominant entity with the required minimum level of shareholding for more than one year, as of the date on which the regime begins to apply. This minimum holding period does not apply to entities that have been incorporated by the dominant entity or a dependant entity in the last year, provided the required level of shareholding has been held since their incorporation.

An entity cannot belong to more than one VAT group at the same time, nor can the dominant entity be controlled by another entity established in Portugal that meets the requirements to be a dominant entity. However, if control changes after the group is formed, the VAT group may continue if the new dominant opts to maintain it.

The option to form a VAT group, as well as any subsequent changes to its constitution, takes effect from the tax period in which the declaration of commencement of activity or declaration of changes is submitted, as applicable.

Operation of the regime

Each entity within the VAT group, including the dominant entity, must determine its VAT position individually. This is done by submitting its periodic VAT return by the 10th day of the second month following the month to which the transactions relate.
The group’s VAT position is determined through the group return made available by the PTA. This must be confirmed by the dominant entity by the 20th day of the second month following the month to which the transactions relate.

If the dominant entity does not confirm the group return within the legal deadline, it becomes final. Failure by any VAT group entity to submit its periodic return does not remove the obligation to submit the group return. The template for this will be approved by ministerial order.

The dominant is responsible for fulfilling the group’s tax obligations and for paying the VAT due by the group, without prejudice to the dependant entities being jointly and severally liable for such payment.

If the group return results in a credit for the group, this is carried forward to subsequent periods, unless a refund is requested. If the group return is not confirmed by the dominant entity and it shows a VAT credit, this credit is deemed to be carried forward to subsequent periods.

Any VAT credits held by each entity on the date it joins the group can only be used to compute the group’s VAT up to the limit of the VAT assessed by the entity to which the credit relates.

Duration and termination

The VAT group regime is optional and, once opted for, must be followed for a minimum period of three years.

After this three-year period ends, the dominant entity may terminate the VAT group regime by filing a declaration of changes during January of any subsequent year, with effect from the tax period beginning in that month.

The VAT group regime also terminates automatically if the financial, economic, and organisational eligibility requirement cease to be met.

An entity forming part of the VAT group is excluded from its scope if the legal requirements relating to that entity cease to be met; if it has not carried out taxable transactions for more than one year; or it has been subject to insolvency proceedings or a special revitalisation process in which an order is issued for the proceedings to continue, or to an out-of-court corporate recovery procedure following the filing of the negotiation protocol. Excluding an entity from the group does not determine the termination of the scheme, except where the excluded entity is the dominant entity.

If a credit in favour of the group remains at the time the grouping ends, the dominant entity can request a refund under the general rules.

Our comments

The main advantage of the VAT group arrangements is the automatic set-off of credit and debit balances across the various entities in the group, which optimises cash management at group level. Another key advantage is the reduction or even elimination of refund claims and the related constraints, particularly the initiation of tax inspection procedures, within a corporate group context.

Nevertheless, there are significant limitations, such as:

1. The requirement to remain in the regime for a minimum period of 3 years.
2. The restriction that a VAT credit held by an entity at the time it joins the group may only be offset against VAT assessed by that same entity, without affecting the VAT assessed by other group entities.
3. Unlike the practice in some other EU Member States, intra-group transactions remain subject to VAT. This means the absence of intra-group neutralisation may reduce the attractiveness of the regime, especially for entities with partial input VAT restriction and significant intra-group flows.

Given the cash management benefits that this regime may offer, companies are advised to assess their eligibility, specifically whether they satisfy the legal requirements and whether accumulated VAT credits exist at each entity.