VAT on urban rehabilitation: Waiver of ORU approval

Law 48/2026 of August 17 (“Law 48/2026”), published on August 17, 2026, establishes the authentic interpretation of item 2.23 of List I attached to the Value-Added Tax Code (“VAT Code”), as amended by Law 64-A/2008 of December 31.

This legislative clarification directly affects real estate developers, builders and investors operating in the urban rehabilitation sector.

Item 2.23 of List I of the VAT Code, as amended by Law 64-A/2008, provided for the reduced VAT rate to apply to urban rehabilitation projects. This rule covered projects carried out on real estate or public areas located in legally delimited urban rehabilitation areas (“ARUs”).

However, after Law 32/2012 of August 14 entered into force, interpretive uncertainty arose. That law allowed an ARU to be delimited without simultaneous approval of the corresponding urban rehabilitation operation (“ORU”). Therefore, the question was whether prior approval of an ORU remained necessary to benefit from the reduced VAT rate.

The Portuguese Tax Authorities took the view that ORU approval was an essential requirement for the application of the VAT reduced rate. The Supreme Administrative Court adopted the same position in its caselaw of March 26, 2025. In practice, that interpretation led to tax inspection proceedings and additional VAT assessments at the 23% rate against real estate builders and developers that had applied the 6% rate.

Article 2 of Law 48/2026 provides that:

“urban rehabilitation projects are considered all projects carried out on real estate or public spaces located in legally delimited urban rehabilitation areas, regardless of whether an urban rehabilitation operation has been approved.”

This is an interpretive law that rules out the understanding according to which prior approval of an ORU (Urban Rehabilitation Operation) by the municipality would be a necessary condition for the application of the reduced VAT rate of 6%..

Yes. Under article 3 of Law 48/2026, the law takes effect from the date on which Law 64-A/2008 entered into force: January 1, 2009.

The retroactive effects follow from the legislation’s interpretative nature. By defining the provision’s meaning from the outset, the lawmaker intends the new interpretation to apply to all past, present and future situations covered by that wording, which applied between January 1, 2009, and October 6, 2023, when Law 56/2023 (the “More Housing Law”) entered into force. In addition, the interpretation may also apply to situations that remain in effect, particularly where the transitional rule in the More Housing Law applies.

The legislative clarification may have the following consequences:

• Resolution of pending disputes: In light of this authentic interpretation, the players in the market will need to review inspection and litigation proceedings concerning the VAT rate applicable to urban rehabilitation projects in an ARU without an approved ORU.
• Recovery of tax: Taxpayers that paid VAT at the 23% rate on urban rehabilitation projects carried out in an ARU without an approved ORU may consider seeking recovery of the excess tax paid.

Despite the clarity of the interpretative law, its impact on past and pending situations requires a case-by-case analysis of:

• applicable statute of limitation;
• the existence of administrative or judicial decisions;
• the appropriate procedural avenues, including ex officio review, administrative appeal and judicial challenge; and
• coordination with any ongoing inspections or assessment procedures.

Law 48/2026 will require careful analysis of the situations in which it may have an impact. These include pending tax inspection proceedings, disputed or not yet disputed additional VAT assessments, and urban rehabilitation operations in an ARU without an approved ORU that were taxed at the standard rate.

Therefore, economic operators should assess the specific circumstances of each situation on a case-by-case basis. They should then take the appropriate steps to protect their rights and interests.