6 % VAT on construction approved
The Portuguese Parliament has approved slashing VAT to 6% on new residential housing construction projects for affordable housing to help encourage developers to meet pressing demand for housing among the middle and lower middle classes.
The savings also go for individuals for their private houses providing it is for their own permanent primary residence for at least one year.
Members of the Portuguese Parliament’s Budget and Finance Committee approved the government’s housing tax package this Wednesday.
Measures include reductions in personal income tax (IRS) and corporate income tax (IRC) on rental income, and a reduced VAT rate of 6% for the construction of a primary and permanent residence within the ‘moderate’ values (€2,300 for rentals and €648,000 for sales).
Only a few changes were made to the initial proposal regarding VAT. As reported by Económico, the Socialist Party (PS) and the CDS-People’s Party presented a proposed amendment to hold property buyers responsible if the properties are not subsequently used as their own permanent residence for at least one year. In such cases, the buyer will be penalized with a 10 % increase in the property transfer tax (IMT) they paid.
On the other hand, the reduced VAT rate ceases to apply if the property is not used as the primary and permanent residence or, if it is, if the buyer does not remain in the property for a minimum period of 12 months. The rule does not apply in cases of “exceptional circumstances” already foreseen in the IRS code, such as changes in the family unit due to marriage, common-law partnership, dissolution of marriage or common-law partnership, or an increase in the number of dependents.
In self-build projects, taxpayers are also entitled to a partial refund of VAT on construction, benefiting from a 6% rate. The approved proposal stipulates that, for one year, the house must be used as the primary and permanent residence, also allowing for the same exceptional situations.
These VAT measures continue to apply to “urban development operations whose procedural initiative begins between September 25, 2025, and December 31, 2029, and whose tax liability arises from January 1, 2026,” according to the same source.
According to Negócios, in this context, what should be considered a “procedural initiative” is defined, eliminating possible doubts about its future application. In the case of works subject to licensing, the procedural initiative coincides with the submission of the licensing application; in the case of works subject to prior notification, it will be the submission of the prior notification. When works are exempt from prior control, the date of submission of the prior opinion from the municipal council will be taken into account, if applicable, or, in other cases, the submission of information on the commencement of works.
Regarding VAT, a refund of up to 50% of the amount equivalent to the VAT paid on architectural services, projects and studies related to construction or rehabilitation is permitted in the case of so-called investment contracts for lease, and this possibility is also extended to engineering services.
Sources: CNN Portugal; Vida Imobiliário, Negócios, and SOL; Credits: Pexels
