Portugal’s VAT remains Europe’s second highest

Portugal continues to have one of the highest VAT (IVA) rates in the European Union, with its standard rate of 23% ranking second only to Hungary’s 27%, according to the European Commission’s 2026 Annual Report on Taxation.

The report highlights Portugal as one of the bloc’s highest-taxing countries when it comes to consumption, even as VAT’s overall contribution to EU tax revenues fell slightly last year.

Across the European Union, VAT accounted for 18.1% of total tax revenues in 2024, down 0.2 percentage points from 2023. Despite the slight decline, it remained one of the main sources of government income, equivalent to 7.1% of the EU’s gross domestic product (GDP) – the fourth-highest proportion recorded since comparable data began in 1995.

The Commission said VAT revenues peaked in 2022 as inflation pushed up prices and tax receipts. Since then, revenues have remained resilient, helped by the gradual withdrawal of temporary VAT cuts introduced by several governments during the cost-of-living crisis.

While VAT collections have stayed strong, the Commission noted that taxes on consumption are becoming less significant overall. In 2024, they accounted for 26.8% of total EU tax revenues, down from 28.3% a decade earlier. Hungary, Greece and France were the only member states not to record a decline.

Croatia remained the EU country most dependent on VAT, with the tax accounting for 34.7% of total government tax revenue, followed by Bulgaria (30.6%) and Latvia (27.3%). Belgium (14.2%), Italy (15.6%) and France (16.3%) were the least reliant.

Measured against GDP, Croatia again topped the list, with VAT generating the equivalent of 13.3% of economic output, compared with just 3.9% in Ireland.

The Commission said VAT revenues continue to depend on factors including private consumption, inflation, tax policy and the effectiveness of national tax authorities in tackling fraud and improving compliance.

In Portugal, the report highlights the participation of the Portuguese Tax Authority in a joint project with Belgium and Austria aimed at encouraging voluntary tax compliance and reducing the administrative costs of debt collection.

The Commission also noted that 20 member states introduced 51 VAT-related reforms during 2026, with reductions in VAT rates more than twice as common as increases. The changes mainly affected essential goods, restaurants, energy, housing and cultural activities. Portugal was among the countries that introduced measures to reduce VAT in the cultural sector.

Looking ahead, Brussels is preparing to roll out the VAT in the Digital Age (ViDA) package, approved in 2025. The reforms will introduce wider electronic invoicing and digital reporting requirements to simplify compliance for businesses while strengthening efforts to combat cross-border VAT fraud.

Despite continued strong receipts, the Commission expects the relative importance of consumption taxes to continue declining in the coming years as environmental tax revenues fall and taxes on labour and capital account for a larger share of government income.

Source: ECO

Inês Lopes

Newspaper editor at The Portugal Resident