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Clients outside the EU: 5 rules for invoicing without VAT (and when you can’t)
Step Inside Accounting · Practical guide
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1. Business client: as a rule, no Portuguese VAT
When you provide a service to a business established outside the EU, the service is not considered to take place in Portugal and the invoice goes out without Portuguese VAT (IVA). The client deals with any tax in their own country.
To do this, you have to be able to prove the client really is a business: keep their foreign tax number, the contract and, if possible, a company certificate or registration. Without that proof, the client may be treated as a private individual.
2. Private client: it depends on the service
With private individuals, the rule is reversed: in general, the service is taxed in Portugal, because that is where your company is. But some services provided to private individuals outside the EU also pay no Portuguese VAT:
- Consulting, accounting, legal and engineering services.
- Advertising.
- Data processing and supplying information.
- Electronically supplied services, such as software or online courses.
If your service is not on this list, an invoice to a private individual outside the EU generally carries Portuguese VAT.
3. The exceptions that always pay Portuguese VAT
Some services pay VAT in Portugal even when the client is a business outside the EU, because they are tied to a place:
- Services related to property in Portugal, such as building work, estate agency or managing an apartment.
- Admission to events, fairs or in-person training in Portugal.
- Restaurant services and passenger transport in Portugal.
4. The invoice has to explain why there is no VAT
An invoice without VAT must always say why. For services to businesses outside the EU, use a note such as “IVA – autoliquidação” (reverse charge) or “IVA – não localizado em Portugal” (not located in Portugal), with the client’s name, address and tax number.
When you sell goods outside the EU (exports), the invoice carries the exemption note and the company must keep proof that the goods left the EU, usually the customs export declaration.
5. No VAT does not mean no tax
An invoice without VAT is still company income and counts towards the profit, which pays corporate tax (IRC). And the company keeps the right to deduct the VAT on the expenses linked to these sales, as if it made them in Portugal.
Because there is VAT to deduct and little or no VAT to charge, these companies often end up with VAT to recover (see the article on VAT refunds).
Example
Your company does a €5,000 consulting job for an American company. The invoice goes out without VAT, with the right note. In the same quarter it bought a computer for €1,000 + €230 of VAT. As it has no VAT to pay over, it is left with €230 of VAT to recover, and the €5,000 counts towards the company’s profit.
Team tip
Before you invoice a new client outside the EU, tell us whether it is a business or a private individual and what service you will provide. The answer changes the invoice, and fixing it later takes more work than checking first.
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This article is for information only and does not replace professional advice. Figures and rules are those in force at the date of publication and may change.
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