Law 62/2025 of October 27, introducing the regime on VAT groups effective for tax periods starting on or after July 1, 2026, has been published. This regime allows for the consolidation of VAT balances calculated individually by companies in the same group, promoting cash management efficiency and administrative simplification.
According to the regime, a VAT group exists when a dominant entity and its controlled dependent entities are closely bound to each other in financial, economic, and organizational terms.
Conditions for applying the regime
· The dominant entity must directly or indirectly hold at least 75% of the capital for more than one year and this stake must provide more than 50% of the voting rights.
· All the entities must pursue similar, complementary, or interdependent economic objectives.
· There must be a management structure that is common to or subordinate to the same business strategy.
· The entities must have their head office or permanent establishment in Portugal.
· They must be subject to the normal monthly VAT regime.
· The entities must conduct transactions that entitle them to a full or partial tax deduction.
· No entity can be part of more than one VAT group.
Characteristics of the regime
Minimum binding period: The decision to opt for the VAT group regime must be communicated by the dominant entity and binds the group for a minimum three-year period.
Assessment of tax payable/recoverable and submission of the periodic VAT return: Each group entity must individually assess the amount of VAT to be paid or recovered, and comply with the obligation to submit the respective periodic return. Later, the dominant entity will present a consolidated group return, which will result from the sum of the balances calculated by each of the group members.
Payment/recovery of tax: The tax due must be paid centrally by the dominant entity, while the controlled entities remain jointly and severally liable. However, if there is a credit from the group’s consolidated balance, this can be carried forward to future periods or be the subject of a refund application, under the general terms of the Portuguese VAT Code.
Guarantee regime: The dominant entity is responsible for paying the tax the VAT group owes, and the controlled entities are jointly and severally liable with the dominant entity for the payment. Regarding tax or tax-related acts issued to entities included in the VAT group, the dominant entity and the controlled entities that the acts concern have legal standing to react.
Partial termination of the regime: The regime terminates automatically for any entity that does not conduct taxable transactions for a period of more than one year or goes into insolvency or special revitalization proceedings.
Benefits and limitations
· Automatic intragroup clearing of credit and debit balances
· Reduced need for refund applications and monthly payments, which simplifies internal tax management
· Cash optimization
· Administrative simplification
· The Portuguese regime does not exclude intragroup transactions from the scope of VAT, unlike more comprehensive models in force in other European countries. Therefore, transactions between group companies will continue to be subject to VAT, which could reduce the benefits of the regime, particularly for entities with limited rights to deduction.
When considering the application of this regime, we suggest a careful analysis of its eligibility requirements, its advantages and potential constraints, and the need for internal adjustments by each group. We also highlight that the group tax form to be submitted by the dominant entity will be defined by government ordinance.
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