1 July 2026
Background
Decree-Law No. 97/2026, of 20 May, amended subparagraph (j) of paragraph 1 of Article 2 of the Portuguese VAT Code, extended the scope of the reverse charge mechanism to transactions relating to construction services.
Given the practical relevance of this amendment and its impact on the correct application of the tax, it is necessary to clarify the respective legal and tax framework, particularly concerning the delimitation of the concept of construction services, the requirements for applying the reverse charge mechanism, and the situations in which services of a different nature coexist.
In this context, Circular Letter No. 25,117, of June 24, 2026, was published to ensure the correct delimitation and determination of these matters, the systematization and clarification of interpretative doubts that have been raised, to promote a uniform application of the rule, and to reinforce legal certainty in the fulfillment of the VAT obligations.
Application of the Reverse Charge Mechanism
The reverse charge mechanism applies where the conditions set out in subparagraph (j) of paragraph 1 of Article 2 of the Portuguese VAT Code are met.
In such cases, the supplier of the construction services issues the invoice without charging VAT, and the customer, provided it is a VAT taxable person carrying out transactions that confer, in whole or in part, the right to deduct VAT, is responsible for self-assessing and accounting for the VAT due to the Portuguese Tax Authorities.
Covered Transactions
The Circular Letter clarifies the transactions covered by the reverse charge mechanism, as well as certain specific situations and exceptions where the regime does not apply. Correctly determining the nature of each transaction is essential to ensure the appropriate VAT treatment.
Practical Impact
In light of the above, we recommend that companies:
- review their invoicing procedures, construction contracts, internal supplier classifications, and mechanisms for validating received invoices, to ensure
- the correct application of the VAT regime and avoiding risks of incorrect settlement, under-assessment, or undue deduction.
***
The information above is not intended to be an exhaustive analysis of all changes to the current legal regime, but a selection of those that we consider to be the most relevant, and does not replace consultation with our Company and/or the legislation to which they refer.
For additional details please contact: Catarina Breia (cbreia@pt-nexia.com) from our Tax Department.
