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Foreign clients: 5 rules to invoice without charging too much or too little VAT
Step Inside Accounting · Practical guide
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1. First check whether the client is a company – and, in the EU, validate it in VIES
VAT rules for services depend mainly on one question: is the client a company or a private individual? Before the first invoice, ask for the company name, address and VAT number.
If the client is in another EU country, validate the VAT number in VIES, the European verification system, and keep the dated proof. If the number is not valid, for VAT purposes the client is treated as a private individual – and the rule changes (see rule 4).
2. Company in another EU country: no Portuguese VAT, the client self-assesses
For most services provided to companies, VAT is due in the client’s country. You do not charge Portuguese VAT: the client accounts for the VAT in their own country, under the reverse charge mechanism. If you charge VAT in Portugal, on the invoice:
- enter the client’s name, address and VAT number, with the country prefix (for example, DE123456789);
- in the VAT regime field, choose the reverse charge option (autoliquidação), so that the invoice carries that wording;
- do not enter IRS withholding;
- declare these services in the recapitulative statement (declaração recapitulativa), on the Portal das Finanças, by the 20th of the month after the end of each quarter (or each month, if you are under the monthly regime).
If you are exempt under the €15,000 limit, the invoice always carries the wording “IVA – Regime de Isenção” and you do not file the recapitulative statement. You still need the client’s validated VAT number: it is what proves the service is not taxed in Portugal.
For these services to EU companies, the deadline to issue the invoice is longer than usual: by the 15th of the month after the one in which the service was completed.
3. Company outside the EU: also no Portuguese VAT, for most services
The rule is the same for companies in the United Kingdom, the United States or Brazil: for most services, VAT is not due in Portugal. On the invoice, enter the company’s details and choose the option for a transaction not subject to VAT in Portugal. There is no recapitulative statement – that is only for EU clients. Keep proof that the client is a company: the contract, the company registration or the tax number in its country.
Some services are taxed in Portugal even if the client is a foreign company, inside or outside the EU, because they are considered to be provided where they take place. The most common:
- services connected with property in Portugal – for example, real estate commissions, architecture projects or works on a property here;
- admission to events, conferences or shows held in Portugal;
- passenger transport and restaurant services in Portugal.
4. Private clients abroad: the rule changes
When the client is a private individual, the general rule is reversed: the service is considered to be provided in Portugal, even if the client lives in another country. If you charge VAT, the invoice carries Portuguese VAT. If you are exempt, you keep the exemption, but that amount counts towards the €15,000 limit.
There are important exceptions:
- private individuals outside the EU, for services such as consultancy, advertising, engineering, legal and accounting services or data processing: there is no Portuguese VAT;
- electronically supplied services to private individuals in the EU (automated online courses, downloads, subscriptions): above €10,000 a year in these sales to other EU countries, the VAT of the client’s country applies, declared through the EU one-stop shop (OSS).
5. No withholding tax – and only what is located in Portugal counts towards the €15,000
Foreign clients with no head office or permanent establishment in Portugal do not withhold IRS: in the withholding field, choose the no-withholding option. You receive the full amount, but the IRS on that income is paid in full at the annual settlement, so set aside part of each payment. For IRS and Social Security, this income counts like any other.
For the €15,000 VAT exemption limit, only transactions located in Portugal count: services to clients resident or based here and services considered to be provided here, such as real estate commissions on Portuguese properties or, as a rule, services to private individuals (rule 4). Services to foreign companies that are not taxed in Portugal are left out. You can invoice €40,000 to foreign companies and €10,000 to clients in Portugal and remain exempt, because only the €10,000 counts.
Example
Sofia is a programmer, charges VAT and works in mainland Portugal. In one quarter, she invoices three clients:
- German company (VAT number validated in VIES): €4,000, no VAT (reverse charge) and no withholding – she receives €4,000
- US company: €3,000, no VAT and no withholding – she receives €3,000
- Portuguese company with organised accounting: €2,000 + €460 VAT (23%) − €460 withholding (23%) – she receives €2,000
€9,000 reaches her account. But not all of that money is hers: €460 is the VAT on the Portuguese invoice, which she has to pay to the State. What Sofia actually keeps is €8,540 (€9,000 − €460), before the IRS settlement.
- The €460 of VAT is paid in the quarterly VAT return; the German invoice also goes into the recapitulative statement.
- The €460 withheld by the Portuguese client is IRS paid in advance. Nobody withheld anything on the €7,000 from foreign clients: Sofia has to set money aside for that IRS herself.
- If Sofia were under the exemption regime, only the €2,000 from the Portuguese client would count towards the €15,000 limit.
Team tip
For each foreign client, keep proof that it is a company in a folder: the VIES validation on the date of the first invoice (and again from time to time) or, outside the EU, the contract and the company registration. That is what justifies an invoice without VAT if the Tax Authority asks – and it is the first thing we ask you for when a new client comes along.
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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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