VAT group regime in Portugal

Law No. 62/2025, published on 27 October 2025, introduces the VAT group regime in Portugal, allowing the VAT balances — payable and recoverable — of several entities that are financially, economically, and organizationally linked to be considered in a single assessment.

This regime is optional and will take effect from tax periods beginning on or after 1 July 2026.

What is a VAT group?

A VAT group exists when one entity, designated as the parent entity, exercises influence over other entities, referred to as subsidiaries, provided that a financial, economic, and organizational relationship exists among them. The binding criteria are as follows:

i. Financial: The parent entity must hold, directly or indirectly, a participation of at least 75% in the capital of the subsidiaries, ensuring control of more than half of their voting rights;

ii. Economic: The entities within the group must carry out activities with convergent, complementary, or interdependent economic objectives;

iii. Organizational: There must be a common management structure and effective coordination of management and business policies among the entities forming the group.

How is the option for the regime formalized?

The application of the VAT group regime must be requested by the parent entity through communication to the Portuguese Tax Authority (Autoridade Tributária – AT), provided that all entities to be included in the group simultaneously meet the following conditions:

• Have their registered office or permanent establishment in Portuguese territory;

• Carry out, in whole or in part, activities granting the right to VAT deduction;

• Are subject to the standard monthly VAT reporting regime at the time of the option;

• Have been held by the parent entity with at least the required minimum participation for more than one year from the beginning of the period in which the regime takes effect.

This one-year requirement does not apply to companies incorporated less than one year earlier by the parent entity or by one of its subsidiaries, provided that the minimum participation is ensured from the date of incorporation.

NOTE 1:
An entity may not belong to more than one VAT group at the same time, and the parent entity may not itself be controlled by another entity that also meets the criteria to act as a parent. However, if a subsequent change of control occurs, the regime may continue to apply if the new parent entity opts to join the group.

NOTE 2:
The formation of a VAT group, as well as any changes to its composition, takes effect from the tax period corresponding to the submission of the declaration of commencement of activity or declaration of changes, as applicable.

How does the regime operate?

All entities within the VAT group, including the parent entity, must continue to determine their individual VAT position, submitting their periodic return by the 10th day of the second month following the relevant period.

The group VAT is then aggregated through a group return provided by the Tax Authority. The parent entity must confirm the group return by the 20th day of the second month following the reference period. The final amount is determined by summing the VAT credits and debits of all entities in the group.

If the parent entity does not confirm the group return within the legal deadline, the group return becomes final. The failure of any group entity to submit its individual return does not prevent the submission of the group return.

All tax obligations of the group are assumed by the parent entity, which is responsible for payment of the tax due. The subsidiaries remain jointly and severally liable for compliance with this obligation.

If the group return shows a VAT credit, it may be carried forward to subsequent periods or requested for refund. If the return is not confirmed by the parent entity and a credit arises, it is automatically carried forward to the following periods.

VAT credits accumulated by each entity prior to joining the group may only be used to offset the group’s VAT up to the amount of VAT charged by that same entity.

Duration and termination of the regime

Participation in the VAT group regime is optional, but once elected, it is mandatory for a minimum period of three years.

After this minimum period, the parent entity may decide to terminate the regime by submitting a declaration of changes during January of a subsequent year. The termination takes effect from the tax period starting in that month.

The regime automatically ceases whenever the eligibility criteria are no longer met, namely the financial, economic, or organizational links among the entities.

An entity may be excluded from the group if it no longer meets the legal requirements, fails to carry out taxable transactions for more than one year, or becomes subject to insolvency, judicial recovery, or out-of-court restructuring proceedings, as applicable. The exclusion of an entity does not terminate the regime unless the entity excluded is the parent entity.

If a VAT credit exists in favor of the group at the time of termination, the parent entity may request a refund under the general applicable rules.

A final consideration

In summary, before opting for the VAT group regime, companies should carefully assess their eligibility, ensuring compliance with all legal requirements and considering the VAT credits accumulated by each entity to be included in the group.

The main advantage of this regime is the automatic offsetting of VAT debit and credit balances between group companies, leading to more efficient cash-flow management and reduced need for refund requests. Nevertheless, despite these benefits, the mandatory minimum three-year period, the limitation on the use of each entity’s pre-existing VAT credits, and the continued taxation of intra-group transactions make it essential for each company to thoroughly evaluate the practical implications before deciding to adopt the regime.

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