Portugal’s VAT Exemption Rules have become more attractive for small businesses across the EU, and Madeira-based investors should take note of this. With the entry into force of Decree-Law no. 35/2025, the VAT exemption regime for small enterprises has been revamped, expanding its scope and opportunities. These changes carry strategic significance for companies already operating or looking to establish operations in the Madeira International Business Centre (MIBC).
What’s New in the VAT Exemption Regime?
The revised regime under Article 53 of the Portuguese VAT Code (CIVA) marks a shift in both eligibility and operational scope:
1. Broader Eligibility – Beyond National Borders
Previously limited to domestic businesses without organised accounts, the regime is now open to:
- Any VAT-registered person, whether or not they maintain organised accounts;
- Entities established in other EU Member States, provided their annual turnover across the EU does not exceed €100,000, and they notify the Portuguese authorities accordingly.
This means that EU-based micro-entrepreneurs may now access VAT exemptions in Portugal—without needing a full Portuguese establishment—provided they secure a special “EX” VAT number.
2. Increased Turnover Thresholds
- Portuguese entities can remain exempt from VAT if their annual turnover does not exceed €15,000 domestically.
- EU entities can claim exemption for up to €100,000 in turnover across the EU, so long as their local activity in Portugal remains within limits.
This is a significant expansion for small traders and service providers looking to test or gradually expand into the Portuguese market.
3. Simplified Obligations but No Deduction Rights
Eligible businesses:
- Must issue invoices that include the phrase “IVA — regime de isenção”;
- They are excluded from input VAT deductions and cannot request VAT refunds.
This trade-off simplifies operations but means that VAT paid on purchases becomes a final cost, something businesses must factor into their pricing.
What This Means for Investors in Madeira
Madeira’s appeal for business structuring has long rested on the MIBC’s robust tax benefits, including a 5% corporate tax rate for eligible entities and generous withholding tax exemptions. With the VAT exemption regime now more flexible, small EU-based operators can:
- Pilot activities in Portugal via Madeira without the administrative burden of full VAT compliance;
- Provide low-margin services where the inability to deduct VAT has minimal impact;
- Facilitate group structuring, especially for holding or service companies with modest turnover.
These reforms also make setting up a low-threshold commercial venture easier, including test-market e-commerce operations or consulting services.
Practical Considerations
- The new rules entered into force in April 2025.
- Declarations to switch into or out of the exemption regime must be carefully timed.
- Any business surpassing the €15,000 (PT) or €100,000 (EU) threshold during a calendar year will automatically exit the regime.
Businesses already established in Madeira may apply to benefit from the revised exemption rules until June 2025, with effect from July 1, 2025, provided they did not exceed thresholds in the first semester.
Why Portugal’s VAT Exemption Rules Matter
The revised VAT exemption regime positions Madeira as an even more accessible entry point into the EU market, particularly for entrepreneurs, digital nomads, and cross-border service providers. Combined with Madeira’s unique tax incentives, infrastructure, and regulatory stability, the island continues to offer one of Europe’s most compelling platforms for small and medium-sized enterprise growth.
If you’re considering leveraging these opportunities, Madeira Corporate Services can assist with:
- Strategic tax planning;
- Licensing and incorporation in the MIBC;
- VAT registration and exemption applications;
- Ongoing fiscal representation and compliance.
Reach out to our team to evaluate whether your business qualifies and how best to integrate the new VAT regime into your corporate strategy.
Disclaimer: This article is for informational purposes on Portugal’s VAT Exemption Rules only and does not constitute legal or tax advice. Always consult a qualified advisor before making strategic business decisions.
The founding of Madeira Corporate Services dates back to 1996. MCS started as a corporate service provider in the Madeira International Business Center and rapidly became a leading management company… Read more
