New rules for invoice rectification and VAT regularization

On July 28, 2026, the Portuguese Tax and Customs Authority published Circular 25120/2026 (“Circular”), which standardizes and updates the procedures governing invoice rectification and value-added tax (“VAT”) regularization. The Circular revokes the guidance previously provided in Circular 33129/1993.

The Circular comes in response to technological developments, the digitization of invoicing and recent legislative changes. Specifically, it incorporates the changes introduced by Decree-Law 97/2026 of May 20, which established new housing incentive measures. For more information, see our Practical guide: Tax relief measures for housing.

In this post, we outline the Circular’s main practical implications.

This distinction is crucial and remains a frequent source of errors.

A credit note may be issued only when the taxable amount or the VAT due changes. This may occur, for example, when goods are returned, a price is reduced or an error affecting the VAT amount is corrected.

If the error is merely formal, a credit note is not permitted. Examples include an incorrect tax identification number, an incorrect address, or an inaccurate description of the goods or services provided. In these cases, the invoice must be canceled in the invoicing system, and a corrected invoice must be issued. The new invoice must refer to the original transaction date and does not trigger VAT regularization or require a substitute (amended) periodic VAT return to be filed.

The same applies where the invoice relates to a transaction that never existed. Here, too, the correct procedure is to cancel the invoice, not to issue a credit note.

The Circular clarifies and modernizes the accepted forms of evidence. To deduct VAT previously overcharged, the supplier must demonstrate that the buyer became aware of the rectification or was reimbursed.

The Circular expressly recognizes the following types of evidence:

Digital evidence of receipt: Confirmation of receipt by email, such as a written reply confirming receipt of the credit note; automatic records of access to customer portals, including logs showing the date, time, user identification, and document reference; and electronic confirmations integrated into invoicing platforms.

Proof of reimbursement: Bank transfers, card reimbursements, or reimbursement notes, provided the description clearly establishes a direct link to the credit note and the corresponding VAT regularization.

A key point is that tacit contractual presumptions, such as acceptance resulting from the unopposed expiration of a deadline, are not accepted. The evidence must be substantive, individualized and unequivocal.

Proof that the consumer became aware of the rectification or was reimbursed remains necessary. However, in this context, demonstrating actual reimbursement may be the most practical option.

Accordingly, proof of a transfer to the consumer’s bank account, or of a credit posted to that account, is sufficient if it is unequivocally linked to the credit note. A deduction from, or discount on, a subsequent purchase by the same consumer is treated as equivalent to reimbursement.

If the error affects the invoice amount, such as where the transaction value was entered incorrectly, the taxpayer must issue a credit note. The regularization must then be reported in field 40 of the periodic VAT return, with Table 1-A of the pertinent annex completed. The period for regularization is two years from the date the tax became due.

By contrast, if the error is merely an accounting error, such as a duplicate entry or an incorrect system parameter, no rectifying document is required. It is sufficient to correct the accounting records internally and regularize the tax return within the same two-year period.

In that case, regularization is mandatory and must be made in favor of the state. The taxpayer must issue a debit note and include the regularization in the tax return for the period in which the error occurred or in the following period, without penalties.

After that period, the regularization must be made through a substitute return, and compensatory interest and fines will apply.

Unlike regularizations in favor of the taxpayer, this procedure does not depend on proof that the buyer became aware of the regularization.

Errors of law, such as the incorrect application of the reverse-charge mechanism, an exemption, or a VAT rate, are subject to a different regime from mere factual inaccuracies.

If VAT was overcharged or charged unduly: The supplier must issue a credit note for the full amount of VAT to be rectified. The supplier recovers that amount in the VAT return for the period in which the credit note is issued, using field 40 and the new line, “Regularizations arising from an error of law,” in Table 3 of the annex. The buyer, in turn, must rectify any undue deductions and, where applicable, account for the VAT by filing a substitute return.

If VAT was not charged when due, or too little VAT was charged: The supplier must issue a debit note and file substitute periodic VAT returns for the original tax period or periods.

Under article 98.2 of the VAT Code, the period for regularizations in favor of the taxpayer arising from errors of law is four years. As regards the buyer’s right to deduct VAT, the period runs from receipt of the rectifying documents, rather than from the date of the original invoice, in line with the caselaw of the Court of Justice of the European Union.

The Circular details the regularization procedures associated with Decree-Law 97/2026, which introduced the reduced rate for construction works intended for housing.

Regularizations in favor of the state where the conditions are not met: If the buyer accounted for VAT under the reverse-charge mechanism at the reduced rate but subsequently fails to meet the conditions under item 2.42, the buyer must regularize the difference. This may occur, for example, if: the sale price exceeds the maximum qualifying price of €660,982; the monthly rent exceeds €2,300; or the 24-month period is not met.

The procedure varies depending on the circumstances. In some cases, a substitute return must be filed for the original period. In others, the regularization is made in the VAT return for the period in which the noncompliance occurs or in the following period.

Regularizations in favor of the taxpayer where the conditions are met subsequently: If the reduced rate was not initially applied but the applicable conditions are later confirmed, the taxpayer may recover the difference. This may occur, for example, where the final deed shows a price below the applicable threshold.

The taxpayer may recover the difference in field 40 under the line, “Regularizations covered by item 2.42 of list I,” provided the applicable conditions are verified within the four-year limitation period.

Yes. Exempt taxpayers under article 53 or article 9 who are required, as buyers, to account for VAT under the reverse-charge mechanism must file a periodic VAT return and pay the tax by the end of the following month.

As regards rectifications:

• Errors in favor of the state must be corrected by filing a substitute return for the pertinent tax period. Regularizations in favor of the taxpayer are made in field 40 of a subsequent periodic return. If a credit arises, it is carried forward to field 61 of future returns. Reimbursement may be requested under article 22 where the credit exceeds €250, or €3,000 where reimbursement is claimed in the tax return itself.
• Item 2.42. Where the buyer is exempt, a regularization in the buyer’s favor depends on a joint decision by the buyer and the supplier. The supplier must issue a credit note for the full VAT amount, and the buyer must account for VAT under the reverse-charge mechanism at the reduced rate.

When VAT was not charged, or was charged at an insufficient amount, in transactions with final consumers, the VAT is treated as included in the price actually charged. This applies where no contractual clause provides for VAT to be added to the price.

The calculation is made on an “inclusive” basis. In practice, the total amount received is divided by one plus the applicable rate. For example, where the amount charged is €1,000 and the VAT rate is 23%, the VAT included is €186.99 and the tax base is €813.01.

The taxpayer bears the resulting cost, which reduces its profit margin.

Yes. Until December 31, 2026, taxpayers whose invoicing software does not yet allow credit notes or debit notes to be issued solely in respect of the VAT amount, without changing the tax base, may exceptionally regularize by canceling the original invoice in full and issuing a replacement invoice.

The replacement invoice must expressly identify the invoice being corrected and preserve the original due date. After that date, regularization must always be carried out through a partial credit note or debit note.

In light of the new guidance, we recommend the following actions:

Review internal invoicing and rectification procedures: Ensure that finance and accounting teams understand the distinction between formal errors and errors affecting the taxable amount or the VAT due. Formal errors are corrected by canceling and reissuing the invoice. Errors affecting the taxable amount or VAT require a credit or debit note. The incorrect use of credit notes to cancel invoices is expressly discouraged.

Adapt invoicing systems: Until December 31, 2026, the transitional method of fully canceling and reissuing invoices remains available. However, from 2027 onward, invoicing software must allow credit notes and debit notes to be issued solely in respect of the VAT amount, without changing the tax base. Businesses should begin implementing these changes immediately.

Implement robust digital evidence procedures: Companies that use customer portals, electronic invoicing platforms or email to communicate rectifying documents should ensure that those channels generate traceable records, including access logs, read receipts and timestamps. Tacit presumptions of acceptance are not accepted as evidence.

Identify transactions covered by item 2.42: Companies in the real estate and construction sectors should identify transactions that may qualify for the reduced rate and monitor compliance with the applicable conditions, including sale-price limits, rent limits and the 24-month requirement. This will help avoid unexpected regularization in favor of the state while ensuring that opportunities to recover overpaid VAT are not missed.

Monitor applicable deadlines: The period for regularizations in favor of the taxpayer arising from formal errors is two years, whereas the period applicable to errors of law is four years. As these periods are calculated differently depending on the nature of the error, each correction should be carefully documented and dated.