Tax amendments and new housing incentive regimes

The measures include amendments to the VAT Code, the Personal Income Tax Code (IRS), the Property Transfer Tax Code (IMT), and the Tax Benefits Statute, as well as the creation of new schemes, namely the Investment Contracts for Leasing Regime (CIA), the Simplified Affordable Rental Regime (RSAA), and the partial VAT refund regime applicable to construction works for owner-occupied permanent housing.

The main measures introduced are as follows:

• Temporary application (until 31 December 2032) of the reduced VAT rate (6%) to construction or rehabilitation works on properties intended for the purchaser’s own permanent residence or for residential leasing at moderate rent levels.
• Application of the reduced VAT rate (6%) to construction or rehabilitation works on urban properties or autonomous units of urban properties intended for residential leasing or subleasing covered by the “investment contracts for residential leasing” regime.
• Exemption from Personal Income Tax (IRS) on capital gains where the proceeds from the sale of residential property are reinvested in properties intended for leasing at moderate rents. This measure applies to property sales carried out between 1 January 2026 and 31 December 2029.
• Reduction of the taxation applicable to rental income (earned up to 31 December 2029) arising from residential lease agreements with moderate rents:
  • the autonomous IRS tax rate is reduced to 10% (accordingly, withholding tax on such income - where the tenant is a legal entity or an individual maintaining organized accounting records - is also reduced to 10%);
  • income of this nature earned by Corporate Income Tax (IRC) taxpayers or by Personal Income Tax (IRS) taxpayers with organized accounting records (in the latter case, within the scope of “Category B”) is considered at only 50% of its amount for tax purposes.

•  The annual limit for the tax deduction of rent expenses borne by tenants (€800) is increased to:
  • €900 in 2026;
  • €1,000 from 2027 onwards.

• Creation of the Simplified Affordable Rental Regime (RSAA), aimed at:
  • promoting “housing supply with rents below a defined threshold” (for this purpose, the threshold is set at “80% of the median market rent value per m² in each municipality”)
  • ensuring a minimum lease term of 3 years.
    Provided that all legal requirements are met, rental income arising from agreements entered under this regime is exempt from taxation for both Personal Income Tax (IRS) and Corporate Income Tax (IRC) purposes (with progression).
    The regime will enter into force on 1 September 2026.

• Creation of the Investment Contracts for Residential Leasing (CIA), establishing tax benefits for a period of up to 25 years from the execution of the contract, including exemptions from IMT, IMI, AIMI, and Stamp Duty.
  This regime will enter into force on 1 September 2026.
• Partial refund of VAT borne by individuals at the standard rate of 23% in connection with the construction of their own permanent residence, provided that the property tax value (VPT) (or, if higher, the cost of the land plus construction costs) does not exceed the limits set out in this Decree-Law. Applicable to construction works for which VAT becomes chargeable up to 31 December 2032. The refund will correspond to the difference between the initially applied rate of 23% and the reduced rate of 6% referred to above.
• Introduction of a single increased IMT rate of 7.5% for non-residents acquiring residential property (except where the acquirer is resident in a “tax haven”, in which case the existing single rate of 10% will continue to apply).
  This increased rate will not apply if the acquirer has previously been considered a tax resident in Portugal, becomes a tax resident within two years from the acquisition date, or if the property is intended for “residential leasing at moderate rents”.