Automatic VAT Returns in Portugal: Why Incorrect Invoice Classification Could Cost You Money

INLIS Consulting
1 day ago
2 min read

At INLIS Consulting, we’re seeing many new freelancers and small business owners unintentionally overpaying taxes simply because they didn’t know how important invoice classification really is.

With the introduction of the automatic periodic VAT return in Portugal, the Tax Authority (AT) aims to simplify the VAT declaration process for businesses and freelancers. But while this system promises convenience, it also comes with a hidden risk: you could lose your right to deduct VAT if your invoices are not correctly classified in the e-Fatura system.

What’s Changing With Automatic VAT?

Under the new system, taxpayers who meet certain criteria are automatically enrolled in a simplified VAT return process. The idea is to save time and reduce manual errors. However, only invoices that are correctly classified in e-Fatura are considered for VAT deduction.

Unclassified or manually added invoices are excluded, which could mean paying significantly more tax than necessary.

Who Does This Affect?

The automatic VAT return applies to taxpayers who:

Are residents in Portugal
Are not under the Cash VAT Regime
Use the e-Fatura system for invoice management
Have opted in or fall under the automatic submission criteria

What Happens If You Don’t Classify Your Invoices?

If your invoices are not classified, the VAT associated with them will:

Not appear in your VAT return
Not deductible, even if the expenses are legitimate
Lead to a direct financial loss, especially for those with regular business expenses

Real-Life Case Study:

Joana started her freelance activity and opted into the automatic VAT return system. She had €500 + VAT in legitimate business expenses, but didn’t classify any invoices in e-Fatura.

Result: She lost €115 in deductible VAT.

Tiago’s Solution

Tiago, in the same situation, hired an accountant through INLIS Consulting. Every invoice was correctly classified.

Result: He deducted €115 in VAT and reduced his tax bill.

What You Can Do

If you're managing your VAT returns on your own:

Log in to your e-Fatura portal regularly
Classify every invoice and credit note under the correct category
Avoid manual entry where possible — unsorted invoices are ignored by the AT

Or better yet...

Hire a professional accountant. With expert oversight, you’ll ensure all your expenses are captured, your VAT is deducted properly, and you remain compliant with evolving tax laws.

INLIS Consulting Can Help

At INLIS Consulting, we help freelancers, small businesses, and startups across Portugal stay on top of their tax obligations. From VAT filing to invoice classification, our team of certified accountants ensures nothing slips through the cracks, so you don’t pay more tax than necessary.

geral@inlis.pt📱 +351 968 464 942

🌐 www.inlis.pt

Final Thought

Automation is great — until it starts costing you money. Don’t let the ease of automatic filing turn into an expensive mistake. Stay informed, stay compliant, and get expert help when you need it.

🧾 Source: Portaria n.º 242/2025/1