3-4 minutes
Law No. 48/2026, of August 17, has resolved a controversy of particular relevance to real estate developers, builders, investors, and owners who carried out works in Urban Rehabilitation Areas (ARU).
Through an authentic interpretation of item 2.23 of List I of the VAT Code, the law establishes that applying the reduced VAT rate to urban rehabilitation construction works did not depend on the existence of a previously approved Urban Rehabilitation Operation (ORU).
More importantly, this interpretation takes effect retroactively from January 1, 2009.
What did Law No. 48/2026 establish?
The new law establishes that, for the purposes of the wording of item 2.23 introduced by Law No. 64-A/2008, urban rehabilitation construction works are considered to be those carried out on properties or public spaces located in legally delimited Urban Rehabilitation Areas, regardless of whether an ORU had been approved.
In practice, the legislator rejected the interpretation under which two separate requirements were needed:
- the property’s location within an ARU; and
- the existence of an already-approved ORU for that area.
Under the regime now given this authentic interpretation, the absence of an approved ORU is not, by itself, grounds to deny the reduced rate.
Why did this uncertainty exist?
The controversy became particularly relevant following changes to the legal framework for urban rehabilitation, which began allowing an ARU to be delimited without its corresponding ORU having to be approved at the same time.
The Tax Authority argued, in several cases, that applying the reduced rate also required the ORU to be approved.
This interpretation was ultimately adopted by the Supreme Administrative Court, in a case-law harmonization ruling of March 26, 2025, published as STA Ruling No. 3/2026, according to which classification as urban rehabilitation construction work presupposed the existence of an ARU for which an ORU had been previously approved.
Law No. 48/2026 now expressly establishes the opposite solution.
Since when does the new interpretation apply?
Formally, Law No. 48/2026 entered into force on August 18, 2026, but it provides that the interpretation now established takes effect from the date Law No. 64-A/2008 entered into force — that is, from January 1, 2009.
The impact is particularly significant with regard to the wording of item 2.23 that was in force between 2009 and October 6, 2023, without prejudice to situations that remain covered by applicable transitional provisions.
This is important: Law No. 48/2026 does not mean that any work currently carried out in an ARU automatically benefits from this rule. It is necessary to determine which version of the legislation applies to the operation in question, taking into account, in particular, its date and the relevant urban planning procedure.
What consequences could this have for past works?
This is precisely where the change gains the most practical importance.
Taxpayers who, due to the absence of an approved ORU, were charged VAT at the standard rate of 23% instead of the reduced 6% rate, or who were subject to corrections by the Tax Authority, should reassess their situation.
Law No. 48/2026 may be relevant, in particular, in cases involving:
- ongoing tax inspections;
- additional VAT assessments already issued;
- pending complaints, appeals, or arbitration proceedings;
- VAT previously charged or paid at the standard rate in situations that may fall under item 2.23.
The existence of the new law does not mean, however, that all amounts can automatically be recovered. It will be necessary to analyze the applicable deadlines, the specific circumstances of each assessment, whether decisions have already become final, and what procedural or judicial avenues remain available.
What should developers, builders, and owners do?
For operations potentially covered by the previous regime, it makes sense to review existing documentation, including construction contracts, invoices, the property’s location within the ARU, relevant dates in the urban planning procedure, VAT actually charged, and any correspondence or decisions from the Tax Authority.
The difference between a 6% rate and a 23% rate can represent very significant amounts, especially in larger real estate projects.
For this reason, older cases that were handled for tax purposes on the assumption that no ORU existed are now worth reviewing again.
Frequently Asked Questions
Did work in an ARU need an approved ORU to benefit from the 6% rate?
For the purposes of the wording of item 2.23 now subject to authentic interpretation, no. Law No. 48/2026 expressly establishes that approval of an ORU is not a requirement.
Does Law No. 48/2026 apply only to future works?
No. The interpretation takes effect from January 1, 2009, although whether it can practically produce tax consequences in past situations depends on the applicable deadlines and circumstances.
Can someone who paid 23% VAT claim back the difference?
There may be grounds to recover the tax, but not automatically. It is necessary to check who charged and bore the tax, the periods involved, the deadlines still available, and the appropriate legal avenue.
Does the rule stay the same for new works in 2026?
Not necessarily. Law No. 48/2026 interprets the previous wording of item 2.23, so current operations must also be assessed in light of the legislative changes since introduced to the VAT rules applicable to construction and rehabilitation.
How can we help?
URB Law Services provides advisory services in real estate taxation, VAT, and tax litigation, including the analysis of construction and urban rehabilitation operations, corrections made by the Tax Authority, and the potential recovery of overpaid tax.
If you carried out or promoted a real estate operation in an Urban Rehabilitation Area — particularly in the Algarve, Almancil, Loulé, or Faro — and 23% VAT was applied due to the absence of an ORU, a review of the tax treatment in light of Law No. 48/2026 may be worthwhile.
Contact us to learn more.
