Reduced VAT and tax benefits for housing

In December 2025, we published a Legal Flash analyzing the main tax measures established in Law Proposal 47/XVII/1.ª. This proposal authorized the government to approve tax relief measures aimed at increasing housing supply. As we noted then, the law proposal’s text was subject to changes during the parliamentary process.

We inform you that this legislative authorization law was published in the Official Gazette of the Republic of Portugal on March 6, 2026, as Law 9-A/2026.

In light of its publication, we highlight below 10 key aspects that the government must implement through a decree-law, consolidating our earlier analysis with updates introduced in the final version of the law.

1. Reduced VAT rate on construction or rehabilitation works

A 6% VAT rate will apply to construction or rehabilitation works intended for:

• ·sale as the purchaser’s own permanent residence (“OPR”), with the price capped at €660,982; or

•  housing rental, with the rent capped at €2,300.

2. Partial VAT refund scheme for individuals

The decree-law will regulate the partial VAT refund borne by individuals (outside business activities) on OPR-related building works. This regime will cease applying if the property is not used for OPR or if the purchaser does not reside in the property for at least 12 months, triggering a 10-percentage-point increase in property transfer tax (“IMT”).

3. Rental investment contracts (“RIC”)

The decree-law must establish a regime for RIC between investors and the Housing and Urban Rehabilitation Institute (“IHRU”), which represents the State, for terms of up to 25 years. Tax benefits include exemptions from IMT, stamp duty and municipal property tax (“IMI”) for up to eight years, followed by a 50% reduction. Further benefits include exemptions from additional IMI and reductions in VAT on construction works and the General Stamp Duty Table. Engineering services will now qualify for partial VAT refunds for RIC, in addition to architectural services, projects, and studies already listed in the law proposal.

4. Simple affordable rent regime (“SARR”)

The government must approve the SARR, which grants exemptions from personal income tax (“PIT”) and corporate income tax (“CIT”) on property income derived from housing rental contracts. These contracts must comply with maximum rent thresholds, set at 80% of the median rent per square meter, as published by the National Statistics Institute (“INE”). Also, they must adhere to minimum term requirements of three years for permanent residence and three months for temporary residence.

5. Capital gains exemption on reinvestment in residential rentals

The decree-law must establish the capital gains tax exemption for gains generated from the transfer of residential real estate, provided they are reinvested in acquiring property for residential rental within moderate rental limits. Also, the reinvestment must be made within 24 months before or 36 months after the gain is made. The published law also introduces an important safeguard allowing the reinvestment period to be suspended or extended if reinvestment in an OPR is prevented by circumstances beyond the taxpayer’s control, such as judicial impediment.

6. PIT and CIT reduction on property income

The decree-law will introduce a 10% autonomous PIT levy and provide that only 50% of income from rental housing contracts—where rent falls within moderate limits—will be considered for CIT purposes. These measures apply to income generated up to December 31, 2029.

The published law will also reduce the withholding tax on category F income to 10% when the paying entities, which are obligated to withhold tax, maintain organized accounts.

7. Tax regime for collective investment undertakings

The decree-law must implement the tax regime for collective investment undertakings. Specifically, this regime will introduce a 5% tax on participants’ income, calculated in proportion to affordable rental income. It will also extend the tax exemption percentage to 30% when at least 50% of the assets are allocated for residential rental purposes.

8. IMT changes for nonresidents

The decree-law must implement a 7.5% IMT rate for property acquisitions by nonresidents. Exceptions will apply if the buyers become residents or use the property for rental housing at a moderate rent.

9. Tax benefits for controlled-cost housing

The law is expected to address benefits for OPR purchasers, including a potential IMT exemption, subject to municipal resolution, and the deduction of stamp duty from taxable income.

It will also regulate the progressive increase in the PIT deduction for tenants, which is set to reach €1,000 by 2027.

10. Safeguards and penalty regime reinforced

The published law provides key clarifications regarding safeguards. Specifically, no penalties will apply to taxpayers using the reduced VAT rate, provided the moderate sales price is maintained, unless it is evident that the property was not intended for OPR purposes.

Failure to use the property for OPR purposes or to meet the minimum 12-month stay will result in a 10-percentage-point IMT increase for the purchaser, except when exceptional circumstances impede compliance.

The government must define the regularization regime applicable to these measures.

Law 9-A/2026 of March 6 serves as a legislative authorization. However, to implement the established measures, the government must now approve the authorized decree-law by September 2, 2026. Without this approval, the measures will not enter into force.

We will continue to monitor the legislative process and keep you informed of any key developments.