How to choose the right VAT rate and know which exemption reason is printed

What is it for?

The VAT rate of each line decides the VAT of the invoice and, when it is a 0 % rate, the exemption reason printed on the document and in the SAF-T. fiscaldoo sets the rate on its own: it comes from the product, the customer record can swap it (customer in another country) and the VAT list item of the product category suggests the reduced or intermediate rate. The Azores and Madeira have their own rates. This article shows where each one is seen and what to check before issuing.

Choosing the rate creates no journal entries. The journal entries are created when the invoice is issued (see “Expected result”).

When to use it?

• When you create a product of a kind that can have a reduced or intermediate rate (for example bread, meat, fish).
• Before issuing an invoice to a customer in another European Union country.
• Before invoicing a customer in the Azores or Madeira, or when the company has its head office in an autonomous region.
• When a sale is exempt and you need to know which exemption reason is printed on the invoice.
• Do not choose the 0% EU rate for a Portuguese customer: fiscaldoo refuses the invoice (see “Common problems”).

Where to find it?

• The rate of each line: Taxes column of the draft invoice, in Billing › Invoice › Customer invoices.
• The product rate: Taxes on sales field of the product, in Billing › Customers and items › Products.
• The VAT list item: in the product category, in Inventory › Configure › Products › Categories (administrator). On a narrower screen, Configure is hidden in the + button at the end of the menu bar.
• The company's regional options: company record, PT Localization tab (administrator).

Before you start

• Profiles: Administrative for the product and the invoice; administrator for the category and the company record (the Administrative profile does not have the Inventory app).
• The customer has the right country and tax number (NIF). For a customer in another European Union country, the NIF is Valid in VIES before you make the invoice: How to create a customer with the right tax data.
• The company's Fiscal region is correct (How to configure the company's VAT).

How to use it

1. Category list item (administrator). Open Inventory › Configure › Products › Categories and the product category, for example Padaria. In the IVA PELA NATUREZA DO BEM (PORTUGAL) (VAT by nature of the goods) group, in VAT list item, type part of the item name, for example Pão, and choose it. The VAT rate type becomes Reduced. Click the save icon. The category record also has Reduced VAT rate (OSS), Reverse charge type, Affects exempt operations (actual use) and Reverse charge nature (DP IVA 06-A). They are for the one-stop shop (OSS), reverse charge and VAT deduction: in a category of ordinary sales, leave them empty, unless the certified accountant says otherwise. Reverse charge on purchases is covered in How to record a supplier bill.
2. Product (Billing). Open the product in Billing › Customers and items › Products and choose the Category, for example Bakery. If the product tax is not the one of the list item, a warning appears: “The nature of this product points to the reduced VAT rate, but its sales tax is 23%. This is only a warning: check the list item or the special case and, if the tax is right, keep it.”
3. Click Apply the suggested taxes. While the yellow warning is visible, the button sits below the warning; without the warning, it sits next to VAT special case. In Taxes on sales and in Purchase Taxes, 23% becomes 6%, and the warning disappears. The purchase tax is the one filled in by default on supplier bills for this product and counts in deductible VAT: if the supplier invoices at another rate, correct it by hand. Save the product.
4. Invoice (Billing). On the draft invoice, check the Taxes column of each line. It comes from the product and changes on its own with the customer: for a customer in another European Union country with a NIF Valid in VIES, 0% EU (goods) or 0% EU S (services) is filled in, and for a customer outside the European Union, 0% EX. The full table is in How to create a customer with the right tax data, and the taxes and their reasons in How to create a product with the right VAT and type. A customer in the Azores or Madeira has its own section, further down.
5. If the customer is in another European Union country and the NIF is not Valid in VIES, the line keeps the Portuguese rate (in the demo, 6%) and the invoice shows a yellow warning on top. That is the right rate while the NIF is not valid. If the sale is exempt, validate the NIF first and only then confirm: the steps are in How to create a customer with the right tax data, sections “Validar o NIF no VIES: os quatro estados” (Validate the NIF in VIES: the four states) and “Rascunho feito antes da validação” (Draft made before validation). Do not set the exemption by hand: see “Important notes”.
6. On an exempt sale, keep the 0 % rate the case calls for. The exemption reason comes with the rate and is not chosen on the invoice: 0% EU carries M16, and the PDF prints the reason text, “Isento artigo 14.º do RITI” (exempt under art. 14 of the RITI), below the VAT table. The other reasons, for example M07 (exemption under art. 9 of the VAT Code (CIVA)) and M05 (export, art. 14 of the CIVA), are in the table of How to create a product with the right VAT and type, section “Escolher outra taxa de IVA” (Choose another VAT rate). If the line has no reason, see The line has no VAT rate, or the 0 % tax cannot be saved without an exemption reason.
7. Click Confirm to issue the invoice.

VAT special case has four options, which only serve to warn (the rate is still your choice): Electronic service (art. 18.º n.º 7), Second-hand goods, art and antiques special scheme (art. 18.º n.º 10), Composite goods (art. 18.º n.º 4) and Finance lease service (art. 18.º n.º 5). On an ordinary product, leave it empty.

Expected result

The invoice becomes Posted with the rate you checked. In the demo, with a bread line at €100.00 (the Pão de forma from step 2 on the invoice to Bodega; on the invoice to Software Berlin, the Pão de forma 500 g (cx. 20), a product the demo already had, also at 6%):

Customer	Line rate	Journal entry (checked in the ledger)
Bodega Sol Ibérica SL (Spain, NIF Valid in VIES)	0% EU, filled in on its own, with the position Intra-comunitário (UE) and no warning	2111 (customers) D 100.00 · 711 (sales) C 100.00, no VAT line
Software Berlin GmbH (Germany, NIF not yet validated)	6% (Portuguese VAT), with the VIES warning	2111 (customers) D 106.00 · 711 (sales) C 100.00 · 2433 (VAT charged) C 6.00

The PDF of the invoice to Bodega shows IVA 0% on the line and, below the VAT table, “(1) Isento artigo 14.º do RITI”.

Important notes

Do not issue 0% EU with the NIF not yet validated in VIES

The intra-community exemption only applies with the customer's NIF valid in VIES (RITI, art. 14, paragraph 1, point a)). The AT only accepts it with that NIF valid (binding ruling 15604): without it, the sale is taxed in Portugal. That is why, with the option Intra-community exemption needs a valid VIES check, which is on by default (How to configure the company's VAT), fiscaldoo refuses to confirm an invoice with 0% EU or 0% EU S to a customer whose NIF is not Valid in VIES. The message is in “Common problems”. What happens in each VIES state, and with the option off, is in How to create a customer with the right tax data, sections “A isenção posta à mão: uma faixa por estado” (The exemption set by hand: one banner per state) and “A opção da empresa” (The company option).

Only on the certified accountant's decision is such an invoice issued, by the Certified accountant profile: see the section “A decisão do Contabilista certificado” (The Certified accountant's decision) of the same article. The invoice goes into field 7 of the periodic return and into the recapitulative statement like the others (Where each field of the DP IVA comes from). Pending validation by a certified accountant: conditions of the intra-community exemption (RITI, art. 14), when an invoice can be issued with the NIF not yet validated and what to do with an invoice already issued that way.

• The list item only suggests. The product rate never changes on its own: it changes when you click Apply the suggested taxes or choose another one in Taxes on sales. An older product in a category you have just given a list item keeps the rate it had until you open it and apply. Pending validation by a certified accountant: which item of lists I and II applies to each good.
• History of an EU sale with Portuguese VAT. On an invoice issued this way (in the demo, the invoice to Software Berlin in the table above), the history says: “The sale is to another Member State but no line uses the intra-community exempt tax (reason M16), so it does not go into field 7 of the VAT return or into the recapitulative statement. The exemption requires a VAT number valid in VIES: click “Validar VIES” on the customer and, if the VAT number is valid, click “Recalculate VAT” on the draft before issuing it.” With the NIF not yet validated, the Portuguese rate is the right one. On an invoice already issued, “Recalculate VAT” no longer applies: it is corrected with a credit note.
• Reverse charge on purchases (construction, scrap and other cases): handled on the supplier bill, in How to record a supplier bill. The sales rates 0% AUT … and their reasons are in the table of How to create a product with the right VAT and type.
• An invoice issued with the wrong rate cannot be changed: it is corrected with a credit note and a new invoice (How to issue a credit note).

Customers and companies in the Azores and Madeira

The autonomous regions have their own rates, set by the regional assemblies (CIVA, art. 18, paragraph 3):

Region	Reduced	Intermediate	Standard	Name on screen
Mainland	6 %	13 %	23 %	6%, 13%, 23%
Azores	4 %	9 %	16 %	4% AZ, 9% AZ, 16% AZ
Madeira	4 % (since 1/10/2024)	12 %	22 %	4% MA, 12% MA, 22% MA

The mainland rates are in the CIVA (art. 18, paragraph 1). The regional ones come from Regional Legislative Decree no. 15-A/2021/A (Azores, since 1/7/2021) and Regional Legislative Decree no. 6/2024/M (Madeira reduced rate). The AT table that brings them together is the one in Circular Letter (Ofício Circulado) no. 25045/2024. The tax list also has 5% MA, the Madeira reduced rate until 30/09/2024: do not use it on an invoice today.

Customer with an address in the Azores or Madeira. By default, the invoice comes with the Portugal position and the mainland rate: in the demo, the Pão de forma for a customer in Funchal came in at 6%. To apply the regional rate, choose the position on a new invoice, in Other Info › Fiscal Position (Portugal — Azores or Portugal — Madeira), before adding the lines. In the demo, the same product then came in at 4% MA (Madeira) and 4% AZ (Azores). Always check the Taxes column before confirming. The certified accountant decides whether the sale takes the regional rate. Pending validation by a certified accountant: which rate applies to a sale of goods by a mainland company to a customer in the Azores or Madeira, and when the operation is considered to take place in the region.

The two options of the company record (administrator). They are in the PT Localization tab, in the group POSIÇÕES FISCAIS REGIONAIS (AÇORES/MADEIRA) (regional fiscal positions), and are off by default:

• Apply regional fiscal position by partner's region (goods): when on, the regional position is filled in on its own from the customer's postcode. In the demo, with it on, the invoice to the customer in Funchal came with Portugal — Madeira and 4% MA. The on-screen help asks you to confirm with the certified accountant before turning it on. Choosing the position by hand always works, with the option on or off.
• Use regional taxes by default (company's own region): for a company whose Fiscal region is the Azores or Madeira. According to the on-screen help, when you turn it on the company's default rate becomes the region's standard rate, and the lines of existing documents do not change. Turning it off does not restore the previous rate, which you correct by hand. The help also asks for the certified accountant's confirmation.

Common problems

“Invalid Operation”: the NIF has not been validated in VIES yet

• Message: “The invoice (not numbered yet) has the intra-community exemption (0 % EU) for the customer "Software Berlin GmbH", but the VAT number has not been validated in VIES yet. …”. With the VIES service unavailable, with a NIF that VIES reported as invalid, with a NIF without the country code or with a customer without a Country, the message changes: they are all in The customer's tax number is invalid or missing.
• Cause: the line has 0% EU or 0% EU S and the customer's NIF is not Valid in VIES (see “Important notes”).
• What to do: click Close and follow “What to do” in The customer's tax number is invalid or missing.

“Invalid Operation”: the customer is not established in another Member State

• Message: “The invoice (not numbered yet) uses an intra-community exemption rate, but the customer "Papelaria Exemplo, Lda" is not established in another EU Member State (country: Portugal). The exemption (RITI art. 14) only applies to a customer from another Member State with a valid VAT number. How to fix it: choose the right rate (for a Portuguese customer, the standard or reduced VAT rate) or correct the customer's country.”
• Cause: you chose an intra-community rate on a line of an invoice to a Portuguese customer (or one outside the European Union); in the demo, 0% EU S, which is the one the line's tax list shows. Before confirming, the draft already shows a red banner: “This invoice has the intra-community exemption (0 % EU), but the customer is not established in another EU Member State (it is from Portugal or a country outside the EU), so it cannot be confirmed, not even with a reason from the Fiscal Officer. …”
• What to do: click Close, change the line rate (for example 6% or 23%) and click Confirm. If the customer's country is wrong, correct it on the customer record.

The line for an EU customer comes with Portuguese VAT

• Cause: the customer's NIF is not validated in VIES (the warning on top of the invoice says so).
• What to do: validate the NIF on the customer record. The steps, and what to do with a draft made before validation, are in How to create a customer with the right tax data, sections “Validar o NIF no VIES: os quatro estados” and “Rascunho feito antes da validação”. With the NIF not yet validated, do not set the exemption by hand: talk to the certified accountant.