In line with changes introduced in income tax aimed at increasing tax revenues, the approval of Law No. 10/2025, of 29 December, and Decree No. 52/2025, of 29 December, also reformulates the mechanisms previously in place regarding transactions with non-resident entities and VAT refunds, respectively.
These changes will have a significant impact on company activities, particularly for businesses operating with non-resident entities or those that have been using adjustment notes for VAT payment.
Impact on Companies
In general, the changes to the Value Added Tax (VAT) legislation will require companies to adjust their internal processes to ensure compliance with the new documentation requirements and tax payment rules. It is therefore essential for businesses to stay informed and adapt their compliance practices to maintain efficiency and avoid unwanted financial impacts.
Changes to the VAT Refund Regulation:
Approved by Decree No. 52/2025, of 29 December, the key change is the repeal of the Special VAT Regime, which was based on payment through adjustment notes. It is replaced by a special refund regime, which must be requested and is valid for 12 months, renewable. In summary, this regime introduces the concept of tacit approval of refund requests if no approval or rejection decision is made within 90 days from the submission date.
The tacit approval period will be reduced to 60 days starting 1 January 2028. However, in a scenario of political and fiscal instability, this provision may be revised in the future.
The scope of this regime essentially maintains that of the previous adjustment regime, extending application to entities whose turnover derives at least 60% from concessionaires, SPVs, designated operators, among others. Under the new legislation, the normal refund period has increased to 150 days (previously 30 days).
These changes will significantly impact companies, especially those operating with non-resident entities or using adjustment notes for VAT payment.
Other Operational Aspects:
The decree establishes that the effective date is 30 days after publication, which in this case is 29 January 2026. Companies will need to carefully consider how to reconcile the effective date with operations occurring before that date.
Transactions with Non-Resident Entities:
A withholding mechanism will be introduced for the taxation of digital goods and services supplied to non-resident entities, as defined in Law No. 10/2025, of 29 December. This aspect is expected to be further regulated to clarify operational procedures.
Additionally, the VAT Code amendment eliminates the neutral (immediate) effect of self-assessment, requiring that VAT on transactions with non-residents be paid via single-transaction declaration forms.
For entities normally in a payment position, the effect is neutral. For those normally in credit, there will be an immediate financial outflow. Although the tax may be deductible, recovery will be via refund, with the normal refund period extended to 150 days (excluding potential payment delays), clearly impacting cash flow.
How EY Can Help
The above changes are not exhaustive. Other modifications to the VAT Refund Regulation and the Law amending the VAT Code should also be analyzed, as they may revoke specific VAT provisions. We encourage you to contact one of our professionals to assess how these changes may impact your operations. Furthermore, the implementing regulations are expected to be approved in the coming days, and EY will continue to monitor developments.
Source: Diário Económico
