Portugal unveils new tax package with 7.5% IMT on property for non-doms

Portugal’s government has agreed a new IMT flat tax of 7.5%  on property for overseas residents who are not domiciled in the country for tax purposes.

It is one element of what are certainly the most positive and sweeping tax changes on property for a generation. Under the terms of the new package, now sent to parliament,  VAT on building or refurbishing an existing property for personal use will fall to 6%.

All told, there are reductions in VAT and IRS, IMT, IMI, and Stamp Duty exemptions, a new simplified regime for affordable renting, and a flat IMT tax for housing purchases by non-doms.

The package of housing tax incentives that the government approved on Friday has been delivered to parliament and has a detailed breakdown of the changes.

Building firms that engage in new build or refurbishment can now benefit from a 6% VAT for properties that are destined for sale to the purchaser as their own, permanent home, or for renting out providing the rent does not exceed €2,300 per month. The value of the sale to the purchaser, either for own use or rental must not exceed €648,000 – an amount that can be updated annually by the government.

The properties must be sold or leased within a maximum period of 24 months from the date of notification of their use to the municipality.

In the case of investment in housing made by the owner, in construction contracts for own and permanent housing, there will be a partial refund of the VAT paid.

The acquisition of housing by non-resident citizens will be subject to a single rate of 7.5%, but with some exceptions, namely if the property is for residential rental and is rented for at least 36 months, consecutive or interpolated, during the first five years after acquisition.

 As previously announced, there will be a reduction in IRS and IRC on income from housing lets and sublet contracts, obtained until the end of 2029.

In the first case, the autonomous rate applied to rents is reduced to 10% in the case of contracts whose rent does not exceed €2,300 and which are concluded for a period of at least three years.

In the case of companies, property income will be considered at only 50%. Rents must always be at moderate values, that is, up to €2,300 per month.

The government is also pressing ahead with a new regime for Contracts for Investment Rental (CIA) which covers a number of tax benefits on investments in construction, refurbishments, or for the acquisition of properties for renting, sub-letting as housing.

These tax benefits should remain in place for a period of up to 25 years and cover housing offer the respects the €2,300 rental cap and €648,000 sale cap.

Anyone who owns a property for housing, sells it, and invests the sale revenues in another property, also destined for housing, and which is intended for rental at moderate values will also benefit from an IRS exemption on capital gains.

The measure had already been announced by the Government, but it is now known that it should cover reinvestment “made between the 24 months before and the 36 months after the date of completion”. 

For tenants, as had already been announced, the limit of the annual IRS deduction of rents paid under housing lease agreements will be increased to €900 in 2026 and to €1,000 euros from 2027 onwards.

Renters of housing at controlled costs who go on to buy the respective property will benefit from a reduction in IMT and Stamp Duty at the time of purchase.

The government has also replaced the affordable rent programme. The proposal now presented to parliament also foresees a new simplified affordable rental scheme (RSAA) that will replace the current affordable rental scheme (PAA) which the government had initially planned on keeping for existing contracts.