School Caterers Must Charge Municipalities 13 Percent VAT on Meals the Pupils Then Eat Tax Free

A company that cooks and serves lunches in a municipal school canteen has to invoice the council at 13 percent VAT, even though the plate the pupil pays for carries no VAT at all. The Autoridade Tributária e Aduaneira (Tax and Customs Authority) set this out in a binding ruling published on the Portal das Finanças and signed on 28 August by the director of services of its VAT division.

The question came from a municipality that runs schools covering the second and third cycles of basic education and secondary education. Its problem was that two rules in the VAT Code appear to point in opposite directions. Food and drink services are taxed at Portugal's intermediate rate, set by heading 3.1 of List II annexed to the code and standing at 13 percent on the mainland (9 percent in the Azores, 12 percent in Madeira). Yet article 9(9) of the same code exempts services whose object is teaching, together with connected supplies of goods and services including accommodation and meals, when they are provided by establishments integrated into the National Education System or recognised by the competent ministries as having equivalent purposes.

How the tax authority resolved it

The ruling splits the transaction in two. The private caterer supplying the municipality is not an education establishment, so it cannot claim the exemption. It must charge VAT at the rate in force, which for a meal is 13 percent, when it invoices the council for the school meal service. The council then bills the pupils, and at that second stage it charges no tax, because the exemption in article 9(9) applies to it.

The consequence is the part that costs money. Because the municipality's onward supply is exempt, it has no right to deduct the VAT it paid upstream. The 13 percent charged by the caterer is a real cost to the council rather than a sum it recovers, and it lands on top of a meal price the council does not set: under the same 2019 framework, the price of school meals is fixed by joint order of the ministers for finance, education and local government, after consulting the national association of municipalities.

Why municipalities are the ones asking

This is a direct consequence of the transfer of education powers to town halls. Decreto-Lei 21/2019 (Decree-Law 21/2019) of 30 January moved school meal provision to the câmaras municipais, and its preamble is explicit that refectories in second and third cycle and secondary schools passed to municipal management, joining the pre-school and first cycle canteens councils already ran. Article 35 of the same decree allows the meals themselves to be supplied by other certified entities under contracts, agreements or protocols, which is exactly the arrangement in the case the tax authority examined.

So the ruling does not change the law. It confirms a reading that leaves councils absorbing non-deductible VAT on a service they were handed by central government, in a sector where nutritionists have already warned that meal budgets are too thin to feed children properly.

What This Means for Expats

• Your child's canteen bill does not change. The exemption at the point of sale to pupils is untouched. Nothing here adds VAT to what families pay.
• The cost falls on the council. Where a municipality outsources catering, the irrecoverable 13 percent is a budget line that competes with everything else the same council funds.
• If you run a catering business: invoicing a school or a municipality at 0 percent on the assumption that education is exempt is now clearly wrong. The exemption belongs to the establishment, not to the supply chain behind it.
• Binding rulings are binding on the tax authority. An informação vinculativa published on the Portal das Finanças commits the AT to that reading in comparable cases, which is why practitioners read them.

The wider pattern is familiar. Portugal's VAT exemptions are drafted around who provides a service rather than what the service is, and every time a public body subcontracts, the exemption stops at the boundary and the tax sticks somewhere in the middle. School lunches are simply the version of that problem which starts again every September.