The proposal submitted by the government to the Assembly of the Republic constitutes a legislative authorization allowing the administration under Luís Montenegro to amend the VAT Code and other tax codes with the aim of promoting housing supply at more controlled prices.
The initiative includes applying a VAT rate of 6% instead of the standard 23% for a temporary period until 2029, under certain conditions.
The tax incentive is applicable if property owners construct or rehabilitate properties intended for housing and either sell the house for up to 648,000 euros or rent it out with a monthly rent not exceeding 2,300 euros.
This VAT benefit is implemented through a refund of the difference between the two rates. A proprietor conducts the renovations, pays the regular VAT, and subsequently requests the Tax and Customs Authority (AT) for a refund of the amount they are entitled to, provided they meet the conditions.
According to the legislative authorization text, “the AT will issue the refund within a maximum period of 150 days from the reception of the duly compiled request” submitted by taxpayers.
“The refunded amount corresponds to the difference between the amount of VAT actually and verifiably borne at the standard rate [23%] and that which would result from applying the reduced rate on eligible expenses,” the legislative text states.
If a proprietor fails to comply with “any of the conditions” of this new regime, the AT “can correct the refunded amount within four years from the deadline for fulfilling those conditions, issuing the corresponding additional liquidation.”
With the proposed change, the list in the VAT Code that enumerates the goods and services covered by the 6% rate will include “construction or rehabilitation contracts for properties intended for sale for personal and permanent housing of the purchaser, or for residential leasing, with the sale price or monthly rental value not exceeding the limits” specified in a new decree-law to be drafted by the government.
The same applies to “construction or rehabilitation contracts for urban buildings or autonomous fractions of urban buildings for residential leasing or subleasing covered by the investment contract regime for leasing,” to be approved by the government through a decree-law.
The statute delivered to parliament specifies these thresholds, already announced by the government, making it clear that the allocation of tax incentives is subject to “maximum limits of moderate monthly rent and moderate sale price.”
For owners constructing houses for leasing, the rent cannot exceed “2.5 times the minimum monthly wage expected for 2026,” that is, 2,300 euros, according to the amount announced by the government.
In the case of sale prices, the incentive only applies if the alienation does not exceed “the upper limit of the 2nd tier referred to in subparagraph b) of paragraph 1 of Article 17 of the IMT Code,” i.e., 648,022 euros.
Besides the amendment to the VAT Code, the government also proposes changes to the IRS Code, the Tax Benefits Statute, and the IMT Code (Municipal Tax on Real Estate Transfers).
To increase housing availability, the administration proposes that owners selling a house be exempt from IRS on real estate capital gains if they reinvest the earnings in properties for residential leasing.
It also anticipates a reduction in the autonomous IRS tax rate applied to income earned until 2029 from residential and subleasing contracts. Instead of the current rate of 25%, the administration requests parliamentary authorization for 10%, if the rent remains within the executive’s defined moderate price limit (2,300 euros monthly).
If the properties are held by companies, the administration foresees only half of the rental income being subject to corporate tax.
