Portugal consider revising domestic reverse charging

Domestic reverse charge in the European Union is foreseen in Article 194 of the VAT Directive 2006/112/EC. As a directive, it introduces the possibility for all Member States to apply domestic reverse charge when the supplier of a local transaction is not established in the country where the sale takes place. And as it said so, it happens quite frequently in EU territories.

The directive offers flexibility: every country or jurisdiction can apply it in a slightly different manner. Some countries apply reverse charge only if the supplier is not VAT registered and not established, whereas others apply it even when the supplier is VAT registered locally and some jurisdictions would only apply reverse charge when the customer is established locally.

In Portugal, until recently, the market practice was fairly simple: the domestic reverse charge only applied when the supplier was not registered for VAT purposes. Thanks to changes in procedures and new invoicing rules, reverse charge is now also applied to sales of goods by non-established suppliers with VAT registration.

Local authorities are currently evaluating the conditions of the client for the reverse charge to apply. Therefore, it needs further clarification but so far here are the two conditions for applying reverse charges:
1. The client should be registered for VAT purposes (which derives from the wording of the Portuguese VAT Code) or
2. The client is established and VAT registered in Portugal (which seems to result from the preamble of the decree-law which introduced the reverse charge rule into national law).

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