If you're self-employed and your income went over the VAT exemption limit in 2024, you’ll need to update your tax status in January 2025. This guide explains what steps to take and how to switch to the VAT system smoothly. If you need help, consider using tax services in Portugal to make the process easier.
What is the VAT Exemption Scheme?
The VAT exemption scheme applies to self-employed workers who earn less than €15,000 per year (in 2025). If you qualify, you don’t have to charge VAT on your invoices or submit VAT returns.
When Do You Need to Switch to the VAT Regime?
If your total earnings in 2024 exceeded €15,000, you must switch to the normal VAT regime in 2025 and start charging VAT.
What to Do in January 2025?
Notify the Tax Authority (AT)– You must inform the Tax Authority (AT) by the end of January 2025 through the Tax Portal to update your tax status.
Update Your Invoices– From January 2025, your invoices must include
The VAT amount at the applicable rate (usually 23% in Portugal).
Submit VAT Returns– You will need to submit monthly or quarterly VAT returns, depending on your turnover.
Deduct VAT on Business Expenses– You can now deduct VAT on eligible expenses like equipment, transport, and services related to your work.
1. Charging VAT to Customers
Your service prices may appear higher to customers because you must add VAT to your invoices. It's important to inform them about this change in advance.
2. Managing VAT Payments
Even though you collect VAT from customers, you must pay it to the Tax Authority on time. Good cash flow management is essential to ensure you have the funds when needed.
3. VAT Deduction Benefits
You can deduct VAT on business-related expenses like equipment, transportation, and services, which can help reduce the overall tax burden.
Tips for a Smooth Transition
✅ Keep Financial Records Organized Maintain clear records of income and expenses to easily calculate VAT payments and deductions.
✅ Get Professional Accounting Support An accountant can guide you through the transition, ensuring compliance and maximizing tax benefits.
✅ Review Your Pricing Strategy If you serve individuals or businesses that cannot deduct VAT, consider adjusting your prices to reduce the impact on your customers.
✅ Use Financial Management Software Invoicing and management tools can help track VAT, generate accurate invoices, and stay on top of your tax duties.
Need Help with the Transition?
Switching to the VAT regime is a big step for self-employed workers. While it comes with extra obligations, it also offers benefits like VAT deductions.
At Inlis Consulting, we provide expert tax services in Portugal to help freelancers and businesses manage their VAT obligations smoothly. Contact us today for personalized assistance!
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