Maintenance of the reduced VAT rate in urban rehabilitation
To date, the Portuguese Government has not amended the regime of the reduced 6% VAT rate for urban rehabilitation, maintaining this tax incentive as a key instrument for the regeneration of the real estate stock.
Nevertheless, the Executive has strengthened tax incentives for housing by extending the application of the reduced VAT rate to certain construction and rehabilitation operations of properties intended for residential use, within the framework of public policies aimed at access to housing in Portugal.
Application of the reduced VAT rate to construction and residential leasing
The application of the reduced VAT rate to construction and residential leasing in Portugal is subject to the following economic thresholds:
- Owner-occupied permanent housing (HPP):
Acquisition price up to €648,000.
- Residential leasing:
Monthly rent up to €2,300.
These measures have a direct impact on construction and leasing projects in Portugal, both for developers and private individuals, and require a rigorous analysis from a tax law perspective.
Self-construction and VAT refund
In cases of self-construction, where the owner directly acquires construction services to build or rehabilitate a property intended for their own permanent residence, the Government’s proposal provides for a specific VAT refund mechanism.
In such cases, the purchaser may request a refund of the difference between the standard VAT rate (23%) and the reduced rate (6%).
The request must be submitted to the Tax Authority within a maximum period of 12 months from the issuance of the use permit.
Temporal scope of application
The VAT reduction applies to urban development operations initiated between 23 September 2025 and 31 December 2029.
The regime will remain in force until 31 December 2032, which requires appropriate tax planning of real estate projects.
Requirements for the application of the reduced VAT rate in urban rehabilitation
It is important to recall the decision of the Supreme Administrative Court of 26 March 2025 (case no. 012/24.9BALSB), which unified the criteria for the application of the reduced 6% VAT rate to urban rehabilitation works.
According to that case law, the reduced rate is only applicable when the following requirements are cumulatively met:
- The property must be in an Urban Rehabilitation Area (ARU)
- There must be a previously approved Urban Rehabilitation Operation (ORU) for that ARU.
In turn, the Tax Authority has consistently interpreted that the VAT reduction is only applicable where there are formal construction contracts and an urban planning certificate issued by the Municipal Council that correctly frames the operation.
The Tax Department of Belzuz Advogados, S.L.P. provides comprehensive advice in the field of tax law in Portugal, including:
- Analysis of the tax framework of urban rehabilitation projects.
- Risk assessment in the application of the reduced VAT rate to construction and residential leasing.
- Assistance in tax inspection procedures.
- Defence in tax litigation before the Tax Authority and the Portuguese courts.