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Upfront VAT payments


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COMPANIES AND service suppliers will be responsible for paying Value Added Tax upfront even if they haven’t been paid by their customers.

The controversial move, criticised by representatives of small companies and trade associations, is designed to stop companies failing to pay the taxman the 20 per cent IVA tax on goods and services which has been added to invoices.

The new measure, announced by the Minister of Finances last week, will come into force in January 2009.

The get-tough new rule which is mentioned in the State Budget 2009, Orçamento do Estado 2009, will fly against recent decisions taken by judges in the courts which ruled that the tax authorities could not fine companies for non-payment of IVA on bills which hadn’t been paid by customers.

In practise, a company or service provider, when it sells goods or purchases services, must demand from the client on the bill a determined amount of IVA – presently 20 per cent.

And it is this 20 per cent that the company or service provider must have ready to give to the state from the moment that the sale or business transaction is done.

But critics claim that this is unfair for micro-companies, small businesses and individual freelance service providers who often have to wait “months” for payment or even only get “part payment in instalments” from customers but have to issue an invoice and deduct IVA for the whole amount.


Some companies that have complained have gone to court to plead their case with the majority of judges going in their favour under article 114º of the General Regime of Taxable Infractions, Regime Geral as Infracções Tributárias, which punishes the non-payment of taxes but does not state that the tax must be handed over if the customer hasn’t paid.

Now under new rules, the government has the legal right to fine companies between 20 and 100 per cent of the value of the IVA unpaid.

Domigues Azevedo, President of the Câmara dos Técnicos Oficiais de Contas, said that the proposal “was an unfair way of squeezing taxes out of the small businessmen legally even though they hadn’t been paid.”

Chris Barton, Chief Executive Officer of the British-Portuguese Chamber of Commerce, said: “This is another example of government getting companies to do their tax collection role for them.”

“However, late payment and non-payment is the bane of business and in the long term this may act as an incentive for companies to apply even more pressure to chase payment and shorten the overall cash flow cycle.”

He added: “A more effective and fairer way of increasing IVA collection might be to insist that all transactions generate a legal factura and outlaw the practice of issuing receipts stating documento não serve como factura.  It should not have to be the onus of the customer to request a factura but the service provider should be openly demonstrating that he is declaring on 100 per cent of his revenues.”

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