Decree-Law no. 97/2026 introduced tax measures designed to encourage the construction, rehabilitation and supply of residential property in Portugal.
One of the main measures is the application of the reduced 6% VAT rate to qualifying construction or rehabilitation works contracts involving properties intended:
- for sale as the purchaser’s primary and permanent residence; or
- exclusively for residential rental.
The reduced rate is subject to limits on the sale price or monthly rent, as well as specific deadlines and documentary requirements.
Main Conditions
Properties for sale as a primary and permanent residence
The reduced VAT rate may apply where:
- the property is sold as the purchaser’s primary and permanent residence;
- the applicable residential IMT rates are used;
- the sale takes place within 24 months of the documentation authorising the start of use; and
- the acquisition title expressly refers to the application of the reduced VAT rate.
The purchaser must register the property as their tax address within six months and maintain it as their primary and permanent residence for at least 12 months. Failure to do so does not automatically remove the reduced VAT treatment but may result in an additional IMT charge of 10%, except in legally recognised exceptional circumstances.
Properties for residential rental
The reduced rate may apply where:
- the rental is exempt from VAT;
- the rental agreements are duly reported to the Portuguese Tax Authorities;
- the first rental agreement begins within 24 months of the documentation authorising the start of use;
- the property is rented for at least 36 months, consecutive or otherwise, during the first five years; and
- any permitted subletting remains within the applicable rent limit.
The maximum monthly rent under the general moderate-rent limit is 2.5 times the Portuguese minimum monthly wage applicable in 2026.
Self-build projects
Individuals constructing their own primary and permanent residence, outside a business or professional activity, may qualify for a partial refund of the VAT paid at the standard rate on eligible construction works contracts.
The refund corresponds to the difference between the VAT paid at the standard rate and the amount that would result from applying the reduced rate. Direct purchases of construction materials are not eligible, and the regime applies to construction rather than rehabilitation works
What Happens if the Conditions Are Not Met?
Where a condition governing the reduced VAT rate is not met, or ceases to be met, the taxable person may be required to adjust the VAT previously charged.
Depending on the circumstances, this may involve compensatory interest, replacement VAT returns and other applicable penalties. A separate additional IMT charge may apply where the purchaser fails to use the property as their primary and permanent residence.
Need Support with the VAT Treatment of Your Project?
Before applying the reduced VAT rate or submitting a refund request, it is important to confirm that the project meets the applicable tax, contractual and documentary requirements.
Oporto Accounting can assess the VAT framework applicable to your project and support compliance with the relevant tax and reporting obligations.
Contact your account manager to discuss your project.
