VAT for Digital Services Sold From Portugal

Bureaucracy Without Pain

Have you ever felt that Portuguese bureaucracy is like fado—beautifully complex, occasionally melancholic, but oddly satisfying when the last note lands? As a licenced CPA in Lisbon who spends more time untangling VAT returns than listening to fado, I assure you that the “beautifully complex” part can be simplified—especially when it comes to digital services.

In this guide I’ll walk you through:

• What the EU considers a “digital service” (spoiler: it’s more than Netflix clones)
• How the rules flip when you sell to a non-EU customer
• Whether you should hop on the OSS/IOSS portals (hint: probably yes)
• Practical bookkeeping tricks that keep Portuguese inspectors smiling

Grab an espresso or a galão, and let’s make VAT painless.

1. What Exactly Qualifies as a “Digital Service”?

When clients first call my office, they usually open with: “I sell a subscription and stream tutorials—does that make me a digital nomad or a telecommunications provider?” Let’s clarify.

1.1 The EU’s working definition

A digital service, per Article 7 of EU Implementing Regulation 282/2011, is a service delivered over the internet or an electronic network where the supply is essentially automatic, involves minimal human intervention, and is impossible without information technology. Mouthful, I know. Boiled down:

• You build or host software (SaaS, PaaS, IaaS).
• You sell downloadable games, e-books, stock photos, or design templates.
• You run online platforms that allow users to access cloud-hosted content for a fee.
• You stream on-demand video or music.

1.2 Gray zones (a CPA’s pet peeve)

Some offerings flirt with the edge:

• Live online coaching via Zoom is not a digital service if significant human interaction drives the value.
• Custom software development is typically treated as a general service, not a digital one.
• Marketplace fees: If you’re merely creating a space for sellers and buyers, your fee is usually a digital service; but check the contractual chain—controllers vs. intermediaries matter.

“If a human schedules, edits or otherwise touches each deliverable, lean toward general service. If it feels like it could run at 3 a.m. while you sleep, chances are it’s digital.”
—My rule of thumb after 12 years of talking to tax inspectors.

1.3 Why the classification matters

Digital services trigger what I lovingly call “the EU location shuffle.” VAT is owed where your customer sits, not where you code, beach, or sip Vinho Verde. So if you mis-classify, expect mismatched rates and potential penalties.

2. Non-EU Customer Rules

American subscribers binge-watching your Portuguese-produced course? Australian gamers downloading your indie hit? Different kettle of bacalhau.

2.1 VAT outside the EU—zero-rate, but prove it

For B2C sales to customers outside the EU, Portugal allows you to charge 0 % VAT—if you can prove the customer’s location. Evidence can be:

1. Billing address outside EU
2. Bank card issued in third country
3. IP address trace outside EU

Best practice: collect at least two non-contradictory evidence points and keep them for ten years. Yes, ten. Portugal’s Tax and Customs Authority (Autoridade Tributária e Aduaneira, or AT) never forgets.

2.2 The B2B twist—reverse charge

If your client is a non-EU business providing you with a valid tax ID, you put “reverse charge—article 196, Council Directive 2006/112/EC” on the invoice and charge 0 % VAT. They self-assess in their jurisdiction. Done.

2.3 Watch the US state tax lurking in the shadows

Zero-rating VAT doesn’t mean you’re immune from other sales taxes. Some U.S. states require “remote sellers” to register once their revenue thresholds are reached—even if you sit comfortably in Porto. If your growth curve is steeper than Porto’s hills, discuss nexus rules with a U.S. advisor.

3. OSS & IOSS: Your Bureaucracy-Slashing Allies

Remember standing in line at Finanças only to be told you need a different queue? OSS (One-Stop Shop) is the digital escape hatch.

3.1 The trio: OSS, non-Union OSS, and IOSS

• Union OSS – For EU businesses selling services (digital or otherwise) to EU consumers.
• Non-Union OSS – For non-EU businesses with EU customers.
• IOSS – For distance sales of low-value goods (€150 or less); I mention it because many SaaS founders later branch out into merch.

3.2 How OSS helps Portuguese businesses

Without OSS, if you sell a €19/mo subscription to clients across 10 EU countries, you’d register for VAT in each. OSS bundles all B2C EU sales into a single quarterly return filed in Portugal’s e-Fatura portal. Behind the scenes, Portugal forwards each country its share.

3.3 Registration cheat-sheet

1. Log in to the Portal das Finanças
2. Navigate to “Serviços Tributários ➜ IVA ➜ Regimes Especiais ➜ One-Stop Shop”
3. Fill the form (your CAE code, company details, bank info)
4. Wait 2–10 business days for AT confirmation—yes, it can be that quick
5. Rejoice; your VAT nightmares shrink

3.4 Common pitfalls I see in audits

• Failing to include digital platforms’ marketplace fees in the total VAT-able amount.
• Mixing B2B and B2C transactions in the OSS return. Reminder: OSS is only for B2C supplies.
• Using the wrong exchange rate—you must use the European Central Bank rate applicable on the transaction date, not your Stripe payout date.

4. Bookkeeping Tips From My Lisbon Desk

I promised bureaucracy without pain, so let’s tighten your accounting engine.

4.1 Automate evidence capture

If you’re on Stripe, Paddle, or Lemon Squeezy, tick the box that stores:

• Billing address
• IP geo-lookup
• Credit card BIN country

Export monthly and archive as PDFs. Auditors still love paper.

4.2 Chart of accounts trick

Create sub-accounts in your ledger:

• 2433.01 – EU VAT collected (by country)
• 2433.02 – Non-EU digital services (0 %)
• 2433.03 – Reverse-charged B2B

This separation means your accountant won’t phone you on Christmas Eve asking, “What is 19 % from Lithuania doing in the 23 % Portuguese bucket?”

4.3 Reconcile payment gateway fees

Payment processors often deduct their fee after VAT is applied. Record gross revenue, VAT, and fees separately. Otherwise, you’ll under-declare revenue and over-stress when AT comes knocking.

4.4 Year-end sanity checklist

• Compare total VAT collected in your ledger against quarterly OSS submissions. Differences >€10? Investigate.
• Archive six random invoices per quarter as “audit-ready” with dual evidence.
• Ensure exchange rates align with ECB archives—print PDFs just in case the website goes down in 2034.

5. Real-World Anecdotes (Names Changed, Nightmares Real)

Case 1: Sofia, the indie game dev

Sofia coded a hit puzzle game in Faro. She set Stripe to a default 23 % VAT regardless of customer. A German teenager reported her to German tax authorities for overcharging. Cue a €4,500 refund marathon. Don’t be Sofia—deploy location-based rates.

Case 2: Luís, the SaaS founder with unexpected success

Luís hit €10 m ARR selling AI resume tools. He assumed B2C subscriptions meant only Portuguese VAT. Two years later, AT politely reminded him about OSS. Penalties: €88,000. Revenue had grown faster than compliance—classic second-album syndrome.

Case 3: Marta, the nomadic teacher

Marta offers pre-recorded Portuguese lessons from Bali (nice). Because her company is incorporated in Portugal, OSS still applies to EU students. She manages evidence through PayPal plus Zoom’s registration details. Her secret? “Download everything monthly, then surf.”

6. Frequently Asked Questions

Do I need a Portuguese “Contabilista Certificado” to file OSS?
Legally, no. Practically, AT correspondence lands in Portuguese, not English. A certified accountant saves headaches.

Can I use OSS for physical merchandise sold with my SaaS subscription?
Only if each item’s value ≤€150 and shipped from outside the EU, via IOSS. Otherwise, standard distance-selling thresholds apply.

What if my customer is in the Canary Islands?
They are outside the EU VAT territory. Treat them like any non-EU consumer: collect evidence, zero-rate, but keep proof.

Do free trials count as taxable supplies?
VAT applies once you start billing. But if you collect payment details up front, store evidence immediately; audits examine when you determined location.

7. How This Fits Into Your Bigger Relocation Picture

Maybe you’re reading this from a coworking loft in Porto, or you’re still deciding whether Portugal beats Uruguay in your personal tax Olympics. If so, explore our comparative deep dive on Argentina vs. Uruguay tax residency for entrepreneurs for fresh angles.

And if your growth eventually leads you to open a support office in Asia, you’ll appreciate knowing whether staff prefer renting furnished vs. unfurnished apartments in Kuala Lumpur. Trust me—small operational decisions add up.

“VAT shouldn’t be the hurdle that stops your launch. Build great products; let smart systems—and occasionally a friendly CPA—handle the tax maths.”

8. Final Thoughts

Selling digital services from Portugal can feel like juggling pastel de nata while riding Tram 28—scenic yet wobbly. But armed with:

• A clear definition of what you’re selling
• Awareness of non-EU zero-rating rules
• The bureaucratic superpower that is OSS
• Solid bookkeeping processes

…you’ll glide through inspections and keep more focus on product, not paperwork.

Ready to see how Portugal’s tax regime fits into your global expansion? Create your free, data-driven relocation plan with BorderPilot and turn compliance into another box confidently ticked.