Portugal Makes Recoverable VAT an Eligible Cost on Sub-€5 Million EU Projects to Rescue a Lagging Portugal 2030

Portugal has quietly changed the accounting rules on its European money. A decree-law published in the official gazette on Thursday, 14 August, and in force since Friday, lets the value-added tax (Imposto sobre o Valor Acrescentado, IVA) on smaller publicly funded projects be billed to Brussels as an eligible cost — even when the promoter could, in principle, recover that tax elsewhere. It is a technical change with a blunt purpose: to push money out the door faster before an unforgiving EU deadline claws some of it back.

The measure, Decreto-Lei 165/2026, applies to projects financed by three of the European Union's structural instruments channelled through Portugal 2030 — the European Regional Development Fund (Fundo Europeu de Desenvolvimento Regional, FEDER), the Cohesion Fund (Fundo de Coesão) and the Just Transition Fund (Fundo para a Transição Justa). Under the new text, recoverable VAT counts as an eligible expense on operations whose total cost is below €5 million and which are not yet finished, according to the economic outlet ECO. The decree was signed by the prime minister and the Minister of Economy and Territorial Cohesion.

To see why this matters, it helps to know the default rule. As a general principle, EU co-financing does not reimburse VAT that a beneficiary can reclaim from the tax authority, on the logic that the fund should not pay for a cost the promoter will get back anyway. But the bloc's rules carve out an exception for smaller operations, letting member states treat VAT as eligible below a €5 million ceiling — precisely the flexibility Portugal is now invoking. In plain terms, a municipality or a small business running a sub-€5 million project can put the VAT on the European tab rather than carrying it themselves, and the state can count the whole invoice toward its spending targets.

Those targets are the real story. Portugal 2030 — the country's slice of the EU's 2021–2027 cohesion budget — has been one of the slowest-moving files in government. Execution stood at just 20% in June 2026, and roughly €6 billion has to be spent by the end of the year to satisfy the so-called N+3 rule, which gives a country three years to actually disburse each annual tranche or return the unspent balance to Brussels. Folding recoverable VAT into eligible costs is, in effect, a way to make each euro of project spending count for more against that wall, and to lift the headline absorption rate without waiting on new construction.

It is a familiar manoeuvre for a government that has spent much of 2026 racing deadlines on European money. The same pressure has driven the final sprint on the separate €22 billion Recovery and Resilience Plan (Plano de Recuperação e Resiliência, PRR), and it sits alongside earlier moves to loosen public-procurement rules so that projects can be contracted and built more quickly. Portugal 2030, by contrast, has consistently lagged: at the end of May it had executed about €4.35 billion for a headline rate of roughly 19%, near the bottom of the class among member states.

For foreign residents, the change is invisible day to day but tells you something about the machinery behind the scenes. Portugal 2030 pays for the things that shape a region's prospects — business grants, worker training, water and energy infrastructure, municipal regeneration — and whether that money actually lands, rather than being handed back to Brussels, is one of the clearest tests of the state's capacity to deliver. Accounting tweaks like this one buy time and lift the numbers. Whether they translate into finished projects on the ground, rather than faster paperwork, is the question the year-end deadline will answer.