The Housing Package introduced a number of new tax measures with direct implications for construction projects, refurbishment works, residential letting and real estate investment in Portugal.
In this first newsletter, we highlight the main incentives available to developers, investors, property owners, real estate companies and entities involved in residential rental projects.
Changes relating to capital gains taxation, rent deductions, partial VAT refunds for self-construction, IMT and non-resident purchasers will be addressed in a second newsletter.
- At a glance
The Housing Package introduces five key measures:
Reduced VAT rate of 6% on certain construction and refurbishment works;
Investment Contracts for Residential Letting;
Exemption from Personal Income Tax (IRS) or Corporate Income Tax (IRC) for certain affordable rental agreements;
Reduced taxation of rental income associated with moderate rents;
Tax incentives for real estate investment vehicles holding assets allocated to affordable housing.
Key considerations
These incentives are not automatic. Their application depends on compliance with specific requirements, including price and rent thresholds, deadlines, tax reporting obligations, contractual wording and the continued residential use of the property.
- For 2026, the main reference thresholds are:
Moderate monthly rent: up to €2,300;
Moderate sale price: up to €660,982.
1. Reduced 6% VAT on construction and refurbishment
One of the central measures of the Housing Package is the possibility of applying the reduced VAT rate to certain construction and refurbishment works relating to residential properties located in mainland Portugal.
1.1. Eligible transactions
The reduced VAT rate may apply to properties intended:
for sale as the purchaser’s primary and permanent residence;
exclusively for residential letting purposes;
for projects covered by Investment Contracts for Residential Letting.
The fact that the works concern a residential property is not, by itself, sufficient. The intended use of the property, the applicable sale price or rent, deadlines and formal requirements must also be verified.
1.2. Sale for primary and permanent residence
Where the property is intended for sale as the purchaser’s primary and permanent residence, the following requirements must generally be met:
the property must be acquired as the purchaser’s primary and permanent residence;
the acquisition must qualify under the IMT rules applicable to primary residences;
the sale must occur within 24 months following the issuance of the property’s use documentation;
the acquisition deed must expressly mention the application of the reduced VAT rate;
the applicable moderate sale price threshold must be respected.
Failure by the purchaser to allocate the property to primary and permanent residence within the required timeframe may trigger an IMT surcharge corresponding to 10% of the property’s taxable value.
1.3. Residential letting
For properties intended for residential letting, the following requirements generally apply:
the letting activity must be VAT exempt;
rental agreements must be reported to the Portuguese Tax Authority;
the first residential lease agreement must enter into force within 24 months following the issuance of the property’s use documentation;
the property must remain allocated to residential letting for at least 36 months, consecutive or non-consecutive, during the first five years;
the applicable moderate rent threshold must be respected.
The application of the reduced VAT rate requires planning before the works commence and ongoing compliance after completion.
1.4. Duration of the measure
This measure is temporary.
In general terms, it applies until 31 December 2032 to construction and refurbishment works linked to urban planning procedures initiated between 25 September 2025 and 31 December 2029, provided that VAT becomes chargeable from 1 January 2026 onwards.
- 2. Investment Contracts for Residential Letting
The Housing Package also introduces Investment Contracts for Residential Letting (“CIA”).
This regime is aimed at structured investment projects involving residential rental properties or properties intended for residential subletting.
These contracts are entered into between the investor and the Institute for Housing and Urban Rehabilitation (IHRU), acting on behalf of the Portuguese State, and may remain in force for up to 25 years.
2.1. Who may benefit?
This regime may be particularly relevant for:
property developers;
real estate companies;
institutional investors;
funds and alternative investment vehicles;
large-scale residential rental projects.
2.2. General requirements
Eligible projects must generally ensure:
a substantial allocation of the construction area to residential letting;
compliance with moderate rent thresholds;
adequate technical and management capacity;
a regularised tax and social security status;
compliance with the monitoring obligations established by the regime.
2.3. Potential tax benefits
The regime may provide access to several tax incentives, including:
IMT exemption on the acquisition of properties allocated to the project;
Stamp Duty exemption on qualifying property transfers;
IMI exemption for an initial period of up to eight years;
reduced IMI during the remaining contractual period, subject to applicable limits;
access to the reduced VAT rate on qualifying construction and refurbishment works;
AIMI exemption throughout the duration of the contract;
partial VAT refunds on certain technical services, including architecture, engineering, design and feasibility studies.
Failure to comply with the applicable requirements may result in the loss of these benefits.
- 3. Affordable letting and moderate rents
The Housing Package also introduces the Simplified Affordable Letting Regime, replacing the previous Affordable Rental Programme.
3.1. Eligible agreements
The regime may cover:
residential lease agreements;
residential subletting agreements;
residential lease agreements entered into under municipal or intermunicipal affordable housing programmes.
The regime takes effect from 1 September 2026 and applies to both new agreements and renewals.
3.2. Tax benefit
The principal advantage is the possibility of a full exemption from IRS or IRC on qualifying rental income.
The applicable rent threshold is determined by reference to 80% of the median rents published by Statistics Portugal (INE) for the municipality in which the property is located.
Minimum contractual duration requirements generally correspond to:
three years for permanent residence;
three months for temporary residence.
3.3. Reduced taxation of moderate rents
In addition to the Simplified Affordable Letting Regime, the Housing Package also introduces reduced taxation for rental income arising from residential lease agreements with moderate rents.
In general terms:
individual landlords may benefit from a 10% autonomous tax rate;
withholding tax may also be reduced to 10% in certain situations;
companies and taxpayers subject to organised accounting may only be required to include 50% of qualifying rental income for tax purposes.
Unlike the affordable letting regime, these measures do not provide a full exemption, but rather a reduced tax burden.
- 4. Real estate investment vehicles
The Housing Package also introduces tax incentives for alternative investment vehicles holding assets allocated to affordable housing.
The regime may be relevant for investors participating in collective real estate investment structures focused on affordable residential letting.
Measures include:
favourable taxation of certain distributions made to investors;
partial tax exemptions based on the percentage of qualifying assets;
incentives for allocating real estate assets to affordable housing projects.
- 5. How we can assist
The application of these regimes requires prior analysis and planning before the commencement of construction works, the sale of properties, the execution of lease agreements or the structuring of investments.
Our team can assist with:
assessing project eligibility;
identifying available tax incentives;
validating applicable price and rent thresholds;
reviewing construction contracts, promissory agreements, deeds and lease agreements;
structuring real estate projects from a legal and tax perspective;
monitoring tax compliance obligations;
assessing risks associated with the loss of benefits.
Early planning and proper implementation may be decisive in securing access to the tax incentives introduced by the Housing Package.
Contact us to learn more.
