Introduction to the Exemption Regime under Article 53 of the CIVA

Article 53 of the Value Added Tax Code (CIVA) establishes a special exemption regime aimed at simplifying tax obligations and reducing administrative burdens for small economic operators. This regime is particularly relevant for self-employed individuals, small businesses, and ancillary activities who, due to their low turnover, would not have the capacity to manage the complexities of the normal VAT regime.

The philosophy underlying this exemption is that, for a limited turnover, the administrative cost of managing VAT (charging, deducting, submitting periodic returns) outweighs the tax benefits or revenue generated for the State. Thus, the taxpayer is exempted from charging VAT on their sales and services, but in return, loses the right to deduct input VAT on their purchases of goods and services. This is a trade-off that, for many small businesses, results in a net advantage.

The regime underwent a substantial reform with the entry into force of Decree-Law No. 35/2025, of 24 March, which transposed Council Directive (EU) 2020/285 of 21 December 2020 into national law. The changes, effective from 1 July 2025, modernised and adapted the regime to current economic realities and EU guidelines, making it more comprehensive and flexible. The rules and conditions described in this guide reflect the provisions applicable in 2026, already incorporating these important new features.

Eligibility and Requirements to Benefit from Article 53 in 2026

For a taxpayer to benefit from the exemption regime provided for in Article 53 of the CIVA, a set of specific conditions must be met. Assessing these requirements is fundamental, both at the start of activity and annually, to ensure the correct application of the regime.

Essential Criteria for Exemption

• Head office, permanent establishment or domicile in Portugal: The taxpayer must have their main activity or tax domicile in national territory. However, it is important to note that this rule has been made more flexible for non-residents established in the European Union, who can now benefit from the Portuguese exemption under certain conditions of the cross-border scheme (see specific section).
• Annual turnover ≤ €15,000: This is the crucial criterion. The relevant turnover is that recorded in national territory in the previous calendar year. For the purposes of starting an activity, the threshold is assessed by the estimated annualised turnover. This limit of €15,000 has been in force since 2025, having been updated by Law No. 24-D/2022, of 30 December, which amended Article 53 of the CIVA, raising it from the previous €14,500.
• No exports or related activities: The exemption regime is intended for operators with domestic operations. Services or sales outside national territory, which constitute exports or similar operations, exclude the taxpayer from this regime, in accordance with paragraph 2 of Article 53 of the CIVA.
• No specific activities: Certain activities, by their nature, are excluded from the exemption regime, regardless of turnover. Examples include import activities, intra-Community transactions of goods or services, and certain financial or real estate activities, in accordance with paragraph 3 of Article 53 of the CIVA.

Practical Example of Threshold Assessment

Consider a self-employed individual who started activity on 1 April 2025 and invoiced the following in the months of 2025:

• April: €1,500
• May: €1,200
• June: €1,800
• July: €1,300
• August: €1,700
• September: €1,400
• October: €1,600
• November: €1,100
• December: €1,900

The total turnover from 1 April to 31 December 2025 was €13,500. To assess whether they can remain in the exemption regime in 2026, this value needs to be annualised. The period of activity was 9 months (April to December). Annualisation is calculated as follows:

Annualised Turnover = (Total Turnover / Number of Months of Activity) x 12 months

Annualised Turnover = (€13,500 / 9) x 12 = €1,500 x 12 = €18,000

As the annualised turnover for 2025 (€18,000) exceeds the €15,000 threshold, this self-employed individual will not be able to benefit from the exemption regime under Article 53 in 2026, and must switch to the normal VAT regime from 1 January 2026, by submitting an amendment declaration in January 2026.

The Impact of Decree-Law No. 35/2025: The Major Changes

Decree-Law No. 35/2025, of 24 March, represents a milestone in VAT legislation in Portugal, by transposing Directive (EU) 2020/285. The changes introduced, effective from 1 July 2025, aim to modernise the exemption regime for small businesses, aligning it with European practices and promoting competitiveness.

Main Innovations and Reforms

The opening of the regime to those with organised accounting is, without a doubt, the most relevant change for small companies. A micro-Lda with residual invoicing can now benefit from VAT exemption, something that was unthinkable until 2025. This change significantly relieves the administrative and tax burden for many small businesses that, by legal imposition or management option, adopt organised accounting.

Management of the Regime: Joining, Remaining, and Exiting

Correct management of the framework under the exemption regime of Article 53 is crucial to avoid tax contingencies. It involves understanding how to join, monitor turnover, and act accordingly when limits are exceeded.

How to Join the Exemption Regime

• Start of activity: At the time of starting activity, the taxpayer must declare a projected annualised turnover that does not exceed €15,000. The framework under Article 53 is automatic if the other requirements are met. This declaration is made by completing Annex C of the Declaration of Commencement of Activity, which must be submitted electronically on the Tax Portal.
• Transition from the normal regime: If a taxpayer who is in the normal VAT regime verifies that, in the previous calendar year, their turnover in national territory did not exceed €15,000 and meets the other requirements, they can request to switch to the exemption regime. This transition is carried out by submitting an amendment declaration, to be submitted during the month of January of the calendar year in which they intend to benefit from the exemption, in accordance with paragraph 1 of Article 54 of the CIVA.

It is fundamental that the decision to join or switch to the exemption regime is carefully considered. Although it simplifies obligations, the loss of the right to deduct VAT can be disadvantageous in certain situations, such as periods of high investment or when most customers are businesses that deduct VAT. A cost-benefit analysis should be carried out with the support of a certified accountant.

Exceeding the Turnover Limit: Scenarios and Consequences

Constant monitoring of turnover is vital for taxpayers covered by Article 53. Decree-Law No. 35/2025 introduced more rigorous mechanisms and distinct scenarios for exiting the regime, depending on the amount exceeded.

The "most expensive mistake" for those in the exemption regime is, without a doubt, continuing to invoice without VAT after having exceeded the €18,750 threshold. In these cases, the Tax and Customs Authority (AT) may demand the uncharged tax, plus compensatory interest and fines, which can be quite high. With increasing digitisation and near real-time invoice communication (via SAF-T), the AT has the capacity to detect these excesses quickly. Constant monitoring of accumulated turnover is, therefore, an essential practice.

Practical Example of Exiting the Regime

A consultant, covered by Article 53, invoiced €14,000 in 2025. In 2026, their accumulated turnover was as follows:

• Up to 30 September: €14,500
• On 15 October, issues an invoice for €1,000. The accumulated total becomes €15,500.
• On 28 November, issues an invoice for €3,500. The accumulated total becomes €19,000.

Analysis of the situation:

1. With the invoice of 15 October, the accumulated turnover (€15,500) exceeded the €15,000 limit, but remained below €18,750. At this point, the consultant would remain in the exemption regime until the end of 2026, switching to the normal regime on 1 January 2027.
2. However, with the invoice of 28 November, the accumulated turnover (€19,000) exceeded the €18,750 threshold. In this case, the consultant must charge VAT on the invoice of 28 November (and on all subsequent ones). The cessation of the exemption regime is immediate.

The consultant will have to submit an amendment declaration within 15 working days from 28 November, communicating their transition to the normal VAT regime.

Tax Obligations and Invoicing under the Exemption Regime

Although the exemption regime simplifies some obligations, it does not exempt compliance with other tax and invoicing responsibilities.

Invoicing and Mandatory Mentions

• Issuance of invoice without VAT: The taxpayer must issue invoices using invoicing software certified by the AT or through the Tax Portal, without charging VAT on goods sold or services rendered, in accordance with Article 29 of the CIVA.
• Mention "IVA — regime de isenção" (VAT — exemption regime): It is imperative that all invoices issued contain the mention "IVA — regime de isenção" and, preferably, a reference to Article 53 of the CIVA. This mention is crucial to inform the acquirer that the operation is exempt from VAT and to comply with paragraph 3 of Article 57 of the CIVA. The omission of this mention may lead to the AT disregarding the exemption and demanding the tax.
• Communication of invoices: Invoices must be communicated to the Tax Authority within the general deadlines established for all taxpayers, i.e., by the 12th day of the month following the issue, by sending the SAF-T (PT) file or by manual entry on the Tax Portal.

Other Tax Obligations

• Exemption from periodic VAT return: One of the main advantages is the exemption from submitting the periodic VAT return, which significantly relieves administrative burden.
• IRS/IRC: Obligations relating to Personal Income Tax (IRS) or Corporate Income Tax (IRC) remain unchanged. The taxpayer must declare their income according to the applicable tax regime (simplified regime or organised accounting).
• Recapitulative Statement: If the taxpayer carries out intra-Community services which, by their nature, do not exclude them from the exemption regime (which is rare, as many intra-Community operations automatically exclude), they will have to submit the Recapitulative Statement, in accordance with paragraph 1 of Article 29 of the RITI.
• Record of operations: Despite the exemption from the periodic return, it is mandatory to keep a record of operations carried out, which allows verification of compliance with the requirements of the regime, in accordance with paragraph 4 of Article 57 of the CIVA.

The EU Cross-Border Regime: Exemption up to €100,000

One of the most significant innovations of Decree-Law No. 35/2025 is the introduction of the cross-border regime for small businesses, in line with Directive (EU) 2020/285. This regime allows taxpayers established in an EU Member State to benefit from exemption in other Member States, under certain conditions.

How the Cross-Border Scheme Works

Since 1 July 2025, a Portuguese company covered by the exemption regime of Article 53 can provide services or sell goods in other European Union Member States without charging VAT, provided it meets the following requirements:

• EU turnover limit: The total annual turnover in the European Union cannot exceed €100,000. This limit is cumulative for all operations carried out in all Member States.
• National threshold of the destination Member State: The taxpayer must respect the specific exemption threshold for small businesses of each Member State where they carry out operations. These thresholds vary considerably between EU countries.
• Prior notification to the AT: Prior notification to the Portuguese Tax Authority is required before starting operations in other Member States under this regime.
• Identification number with "EX" suffix: After notification and approval, a tax identification number with the "EX" suffix is assigned, formalising the framework under the cross-border scheme.
• Quarterly communication: The taxpayer is obliged to communicate quarterly the turnovers achieved in other Member States, for the purpose of monitoring limits.

The reverse is also true: non-resident economic operators established in other EU Member States can benefit from the Portuguese exemption (Article 53 of the CIVA) if they meet the same conditions, namely the global limit of €100,000 in the EU and the national threshold of €15,000 in Portugal.

This regime facilitates the expansion of small businesses within the European single market, eliminating bureaucratic and tax barriers that previously made it prohibitive for small companies to operate in several countries.

When Article 53 Will NOT Be Advantageous: Opportunity Analysis

Despite the simplification advantages, the exemption regime of Article 53 is not always the most beneficial option. In certain situations, waiving the exemption and joining the normal VAT regime may be financially more advantageous.

Scenarios where Waiving the Exemption is Advisable

• Initial or significant investment phase: Taxpayers who make substantial investments in equipment, works, vehicles, or who need to acquire considerable stock, bear a high volume of VAT on their purchases. Under the exemption regime, this VAT is not deductible, representing a direct cost that can reach 23% of the value of goods/services. Under the normal regime, this VAT would be recovered, totally or partially, through deduction.
• Mostly business customers (B2B): If most of the taxpayer's customers are other businesses who, in turn, deduct VAT, the exemption does not provide any competitive advantage in the final price. For a B2B customer, VAT is a neutral tax (they deduct what they pay and charge what they receive). In reality, the exemption may even be disadvantageous for the customer, who cannot deduct VAT from an exempt invoice, which may lead them to prefer suppliers under the normal regime.
• Predictable and rapid growth: If the taxpayer anticipates that their turnover will grow rapidly and exceed the limits of Article 53 (especially the €18,750 limit) in the middle of the year, temporary adherence to the exemption regime may be more of an administrative burden than a benefit. Immediate cessation of the regime implies changes in invoicing and accounting, which can be complex and lead to errors. In these cases, starting directly in the normal regime may be a more stable option.
• Activities with structurally recoverable VAT (refunds): Certain economic activities, due to their cost and revenue structure, habitually generate VAT credits (deductible VAT greater than charged VAT). This can happen, for example, in activities with sales subject to reduced VAT rates but with purchases subject to the normal rate. In these cases, the normal regime allows for VAT refund requests, which is impossible under the exemption regime.
• Exports and active intra-Community operations: Although the practice of exports of goods or certain intra-Community services that determine the charging of VAT in the country of destination automatically excludes from the regime, there are cases where opting for the normal regime may be advantageous for competitiveness and cash flow management.

Waiving the exemption is a legally provided option in Article 54 of the CIVA, which allows the taxpayer to opt for the normal VAT regime, even if they meet the conditions for exemption. This option must be communicated through an amendment declaration and binds the taxpayer for a minimum period of 5 years, in accordance with paragraph 2 of Article 54 of the CIVA. The decision to waive must be carefully evaluated with a certified accountant, who can simulate the financial impacts of both regimes.

Numerical Example of Opportunity Analysis

A graphic designer, covered by Article 53, intends to purchase a new computer and professional software, with a total investment of €5,000 + VAT (23%). The input VAT would be €1,150. Their customers are mostly businesses.

Scenario 1: Maintain Article 53

• Investment cost: €5,000 (base price) + €1,150 (non-deductible VAT) = €6,150.
• Advantage: Exemption from periodic VAT return.

Scenario 2: Waive Exemption and switch to Normal Regime

• Investment cost: €5,000 (base price). The VAT of €1,150 is deductible.
• Disadvantage: Must now charge VAT on invoices and submit periodic returns.

If the graphic designer invoices €10,000 annually and their customers are businesses that deduct VAT, the final price of their service will not be more competitive by being exempt. By waiving the exemption, they would recover the €1,150 of VAT from the investment, which represents significant savings. Even considering the additional accounting costs for the normal regime, the recovery of investment VAT can largely compensate, especially if there are plans for further investments or if customers value VAT deduction on invoices.

Common Mistakes to Avoid in the Exemption Regime under Article 53

Despite its apparent simplicity, the exemption regime under Article 53 is frequently a source of errors that can result in fines and problems with the Tax Authority. Prevention is the best strategy.

1. Failure to monitor turnover: The most serious error is not tracking accumulated turnover throughout the year. Many taxpayers only realise they have exceeded the limits at the end of the year, or worse, when the AT contacts them. This failure can lead to immediate cessation of the regime and the need to charge VAT retroactively, with interest and fines.
2. Omitting the mention "IVA — regime de isenção" (VAT — exemption regime) on invoices: The absence of this mention is a tax infraction, in accordance with paragraph 3 of Article 57 of the CIVA, and can lead to the refusal of the exemption or the application of fines. It is a formal requirement that must always be met.
3. Failure to submit the amendment declaration within due deadlines: Whether to switch to the exemption regime (in January), or to exit the regime (in January or within 15 working days after exceeding €18,750), failure to submit the amendment declaration within the legal deadline constitutes an infraction subject to a fine, under Article 116 of the General Regime of Tax Infractions (RGIT).
4. Improper deduction of VAT: Some taxpayers, due to lack of knowledge, try to deduct input VAT on their purchases, even when they are under the exemption regime. As they do not charge VAT, they are not entitled to deduction. Improper deduction can lead to the correction of the periodic return (if applicable), the demand for the tax, and fines.
5. Confusing the €15,000 threshold with the €18,750 threshold: It is crucial to understand that the €15,000 limit is for remaining in the regime in the following year, while the €18,750 limit (€15,000 + 25%) determines immediate exit. Confusion between these two values can have significant financial and tax consequences.
6. Carrying out exports or intra-Community operations without re-evaluating the regime: Carrying out exports of goods or certain intra-Community services that determine the charging of VAT in the country of destination automatically excludes from the exemption regime, in accordance with paragraph 2 of Article 53 of the CIVA. Many taxpayers start these operations without re-evaluating their framework, which leads to their exclusion from the regime and the need to regularise VAT.
7. Failure to notify the AT of the option for the cross-border scheme: For those who intend to operate in other EU countries under the cross-border exemption, failure to provide prior notification to the AT and the lack of the "EX" number can lead to the disregard of the exemption and the demand for VAT in the destination countries.

Frequently Asked Questions about the Exemption under Article 53

What is the VAT exemption threshold under Article 53 in 2026?

The annual turnover threshold in national territory to benefit from the exemption under Article 53 of the CIVA in 2026 is €15,000. This value is assessed based on the turnover of the previous calendar year (2025). For the start of activity, the estimated annualised turnover is considered.

Can those with organised accounting be under Article 53?

Yes, since 1 July 2025. With the entry into force of Decree-Law No. 35/2025, organised accounting is no longer a cause for exclusion from the exemption regime. Thus, sole proprietorships (ENI) and small companies that have organised accounting can benefit from Article 53, provided they meet the other requirements, such as the turnover limit.

What happens if I exceed €15,000 during the year?

It depends on the amount of the excess:

• If the turnover is between €15,000 and €18,750 (125% of the limit), the taxpayer switches to the normal VAT regime from 1 January of the following year, and must submit an amendment declaration in January.
• If the turnover exceeds €18,750, the cessation of the regime is immediate. The invoice that determines the exceeding of this limit and all subsequent ones must already charge VAT. The taxpayer must submit an amendment declaration within 15 working days from the date of the excess.

What mention is mandatory on invoices under the exemption regime?

It is mandatory to include the mention "IVA — regime de isenção" (VAT — exemption regime) on invoices, in accordance with paragraph 3 of Article 57 of the CIVA. It is also recommended to add a reference to Article 53 of the CIVA for clarity.

Can I deduct input VAT on purchases under the exemption regime?

No. The exemption under Article 53 of the CIVA implies that the taxpayer does not charge VAT on their sales and services, but in return, also cannot deduct input VAT on their purchases of goods and services. In situations of high investment or when most customers deduct VAT, it may be more advantageous to waive the exemption and opt for the normal regime.

How can I join the exemption regime if I am already under the normal regime?

If, in the previous calendar year, your turnover in national territory did not exceed €15,000 and you meet the other requirements, you can opt to switch to the exemption regime. To do so, you must submit an amendment declaration during the month of January of the calendar year in which you intend to benefit from the exemption.

Conclusion and Practical Recommendations

The exemption regime under Article 53 of the CIVA is a valuable tool for simplifying the tax obligations of small economic operators in Portugal. The recent changes introduced by Decree-Law No. 35/2025 have modernised and expanded its scope, making it more adapted to current realities, notably by allowing the adherence of taxpayers with organised accounting and by introducing the cross-border regime in the EU.

However, the apparent simplicity of this regime does not exempt careful tax management. Continuous monitoring of turnover, correct issuance of invoices with mandatory mentions, and compliance with deadlines for amendment declarations are critical aspects to avoid problems with the Tax Authority.

It is fundamental that each taxpayer periodically assesses whether the exemption regime is, in fact, the most advantageous option for their activity. Scenarios of significant investment, a predominantly business customer base, or prospects of rapid growth may justify waiving the exemption and opting for the normal VAT regime, despite implying more declarative obligations.

The decision between the exemption regime and the normal VAT regime is complex and should always be accompanied by a qualified professional. A Certified Accountant can carry out an in-depth analysis of your specific situation, simulate the financial impacts of each regime, and advise you on the best tax strategy for your business.

Do not leave your tax compliance to chance. Are you in doubt between the exemption under Article 53 and the normal VAT regime? Speak with Hugo Ribeiro, Certified Accountant OCC nº 64356 — with over 25 years of experience and supporting more than 200 clients in Lisbon and Parque das Nações, HVR Business Consulting is prepared to help you make the best decisions for your business. Schedule your consultation now and ensure efficient and secure tax management.

Sources and Legal References

• Value Added Tax Code (CIVA):
  • Article 29 (Obligations of taxpayers)
  • Article 53 (Tax Exemption)
  • Article 54 (Waiver of exemption)
  • Article 57 (Obligations of exempt taxpayers)
  • Article 58 (Commencement and cessation of activity)
  • Article 58-A (Special scheme for small enterprises in other Member States)
• Decree-Law No. 35/2025, of 24 March: Transposes Directive (EU) 2020/285 of the Council, of 21 December 2020, amending Directive 2006/112/EC, on the common system of value added tax, as regards the special scheme for small enterprises.
• Law No. 24-D/2022, of 30 December: State Budget for 2023, which amended Article 53 of the CIVA, raising the exemption threshold.
• General Regime of Tax Infractions (RGIT): Article 116 (Failure to submit or late submission of declarations).
• Intra-Community Transactions VAT Regime (RITI): Article 29, paragraph 1 (Recapitulative statement).
• Council Directive (EU) 2020/285, of 21 December 2020: Amended Directive 2006/112/EC as regards the special scheme for small enterprises.