School meal companies have to make VAT of 13% to municipalities

Na binding information recently published in the Portal das Finanças, signed on 28 August by the Director of Services of the VAT Division of the Tax and Customs Authority (AT), the tax authority explains how the VAT rules of meals are reconciled when an educational establishment, instead of providing the service directly to students, subcontracts the activity to a private company.

In this case, the doubt was put to the OA by a municipality which manages schools of the 2nd and 3rd grades of basic education and secondary education, because VAT legislation provides, on the one hand, that the supply of food and beverage services is taxed at the intermediate rate (of 13%) and, on the other hand, that there is a VAT exemption (0%) on “the provision of services for education, as well as the transmission of goods and related services, such as the provision of accommodation and food, carried out by establishments integrated into the National Education System or recognised as having similar purposes by the competent ministries”.

Looking at the two questions, the AT explains that the private company that provides the service to a municipality that manages the school “must settle the VAT at the legal rate in force” – in this case 13%, because it is a meal – when billing the municipality “the service of providing school meals”.

Subsequently, the municipality will be billing the service to students and, at that time, “not liquid tax” because the exemption rule, provided for in “Article 9(9) of the VAT Code”, applies, identifies the tax authority.

As, at first, there was VAT paid and, in this second phase, there is no VAT collection, the municipality will not be able to “deduce the tax borne upstream”, adds the tax.

Since 2019 the provision of meals in the cafeterias of schools of the 2nd and 3rd cycles of primary and secondary education has been managed by municipalities.

In the case analyzed by the Finances, meals are provided by the private company, charges the municipality the values defined in the service contracts and, in turn, the municipality “is responsible for charging some of these values to students”.

Before reaching that conclusion, the TA explains that the provision of meals “configures a provision of services related to education”, but “only is exempt from VAT when carried out” by the “establishments integrated into the National Education System or recognised as having similar purposes by the competent ministries”, i.e. those managed by the municipalities, covered by the sharing of competences.

For Finance, the provision made “by entities or undertakings providing meals to educational establishments or municipalities “cannot benefit” from the exemption, and that rule on the collection of VAT by the private undertaking should apply and then the exemption by the school or municipality without the right to deduct.