VAT changes for residential construction and rehabilitation works

Following the publication of Decree-Law No. 97/2026 of 20 May, several tax measures aimed at increasing the supply of housing have entered into force, both in the residential lease market and in the homeownership sector.

In this article, we highlight the amendments to the Portuguese VAT Code that are particularly relevant to construction and rehabilitation works relating to primary residences, whether intended for owner-occupation or for residential lease purposes.

Construction and rehabilitation works may now benefit from the reduced VAT rate of 6%, provided that certain conditions are met, including the following:

Sale for use as a primary residence

• The sale price must not exceed € 660,982.00;
• The property must be acquired for use as the primary residence (with the application of the IMT rates provided for in Article 17(a) and (b) of the Property Transfer Tax Code);
• The sale must take place within 24 months of the issuance of the documentation relating to the beginning of the works, in accordance with the Legal Framework for Urban Planning and Building (RJUE);
• The deed of transfer must expressly refer to the application of this regime.

Residential lease

• Monthly rent must not exceed € 2,300.00;
• The lease must qualify for the VAT exemption provided for in Article 9 of the VAT Code;
• The lease agreement must be registered with the Portuguese Tax Authority in accordance with Article 60 of the Stamp Duty Code;
• The first residential lease agreement must be entered into within 24 months of the issuance of the documentation authorising the use of the property, under the RJUE;
• The property must be subject to residential lease agreements in force for at least 36 months, whether consecutive or non-consecutive, during the first five years following the issuance of the documentation authorising the use of the property;
• The lease agreement may not allow subletting for an amount exceeding € 2,300.00 per month.

Construction of a primary residence

The Decree-Law also introduces support measures for individuals constructing a property intended to serve as their primary residence.

Under this regime, individuals acting outside the scope of a business or professional activity may be entitled to a partial refund of VAT. The refund corresponds to the difference between the VAT paid at the standard rate and the amount that would have been payable had the reduced rate applied to the eligible expenses.

The following conditions must be met:

• The property’s taxable value or the acquisition cost of the land plus construction costs (excluding VAT), whichever is higher, must not exceed € 660,982.00;
• The property must be allocated to the owner’s primary residence within six months of the issuance of the documentation authorising its use, under the RJUE;
• The property’s status as the owner’s primary residence, evidenced through the relevant tax domicile, must be maintained for a minimum period of 12 months.

Given the complexity of the new regime, consulting an attorney is particularly important to ensure proper compliance with the requirements associated with the tax benefits that have now been implemented. Schedule a meeting with VPA; we have a team ready to support you throughout the entire process.