Value-added tax (Imposto sobre o Valor Acrescentado – IVA) is a consumption tax and is charged on goods and services supplied in the course of business. Credit is given for VAT paid by most registered businesses. For VAT purposes, the territory of Portugal includes the autonomous regions of Azores and Madeira with reduced rates applicable to supplies in these islands.
Three different rates of VAT apply to different goods and services as follows:
- Reduced rate of 6% (4% for the Azores and 5% for Madeira) applies to some essential goods and services, such as food, agricultural goods (if not exempt), electricity, transport of passengers, accommodation in hotel units, pharmaceutical, health products and some entertainment tickets.
- Intermediate rate of 13% (9% for the Azores and 12% for Madeira) applies to other foodstuff, wine, and certain equipment or machinery intended for agriculture.
- Standard rate of 23% (18% for the Azores and 22% for Madeira) applies to all other goods and services.
Certain transactions are exempt from VAT (for example, financial and insurance transactions, medical services, educational services, rental of housing). Since the trader or professional performing these activities does not charge VAT on them, they do not give the right to deduct input VAT. Other exempt transactions, however, (mainly those relating to international trade, such as exports) do confer the right to deduct input VAT.
A VAT reduced rate of 6% may also apply for urban rehabilitation covering construction-related services provided to properties located in urban rehabilitation areas.