The government has presented a legislative proposal to parliament seeking authorization to amend various tax laws, including VAT, IRS, and IMT codes, as well as the Fiscal Benefits Statute.
Under the IRS, Prime Minister Luís Montenegro’s administration proposes exempting capital gains from real estate sales from IRS if owners reinvest the proceeds in rental properties with monthly rents up to 2,300 euros.
The “moderate monthly rent” limit, used as a reference for this and other tax incentives, equals “2.5 times the minimum monthly wage expected for 2026,” or 2,300 euros.
The government also seeks permission to apply a “reduced autonomous IRS rate of 10%, instead of 25%,” to rental income from lease contracts within the mentioned rent threshold.
Companies renting out properties at or below the 2,300 euros limit will also receive an incentive, with corporate income tax on rental income being halved.
The proposal includes a “5% tax rate on income from participants or shareholders in alternative investment entities,” proportionate to the “income derived from residential rental or sub-rental contracts made under the simplified affordable rental scheme or other legislation promoting affordable housing.”
Landlords participating in the simplified affordable rental scheme will have their income exempt from IRS.
Eligibility requires the monthly rent to be “equal to or less than the maximum limit per category, defined in a ministerial order by government finance and housing officials,” based on 80% of the median rent values published by the National Statistics Institute (INE, I.P.) for the respective municipality, and may consider property features like energy efficiency and private parking availability.
If taxpayers opt to combine rental income with other income (from work or other sources) for taxation under progressive IRS brackets, the income remains exempt but is included “in determining the rate applicable to other income,” according to the legislative text.
The law also establishes an investment contract regime for rental properties, providing “a set of tax benefits for up to 25 years, for investments in construction, rehabilitation, or acquisition of properties for residential rental or sub-rental.”
For tenants under residential rental contracts, the proposal raises the rent deduction limit from the regular 800 euros to 900 euros in 2026 and 1,000 euros in 2027 and subsequent years.
Homebuyers of controlled-cost housing will see a reduction in IMT and Stamp Duty, as outlined in the proposal.
