Legal Uncertainties in Portuguese VAT Changes Threaten Urban Rehabilitation and Housing Goals

• Recent changes in Portuguese VAT aim to support urban rehabilitation but face legal uncertainties.
• VAT on real estate transactions, especially construction services, is complex for developers and public bodies.
• VAT on construction is generally non-deductible, affecting profit margins and housing access.
• Tax benefits and incentives were introduced to promote urban area rehabilitation.
• A reduced VAT rate of 6 percent applies to rehabilitation works in urban rehabilitation areas.
• The definition of urban rehabilitation is unclear, causing disputes between taxpayers and tax authorities.
• Tax authorities require works to be part of an urban rehabilitation operation for the reduced rate.
• Municipalities can approve urban rehabilitation areas without immediate operations since 2012.
• Tax authorities’ restrictive view limits the reduced rate’s scope, despite opposition.
• Courts have rejected the tax authorities’ stance that the reduced rate excludes new building construction.
• In 2023, a law amendment was made to address the housing crisis and promote affordable housing.

Source: internationaltaxreview.com

Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.

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