Here’s a comprehensive summary of the VAT rate reduction from 23% to 6% for construction of homes intended to be rented for residence purposes, based on the latest legislative developments and industry insights:
What Has Changed?
Portugal has introduced a major fiscal measure reducing the VAT rate on housing construction and rehabilitation from 23% to 6%. This initiative is part of a broader housing policy aimed at tackling the affordability crisis and stimulating the real estate market. [vatupdate.com], [realestate…lisbon.com], [litehaus.co], [rebrealty.com]
Scope of the Measure
- Applies to:
- New construction and major renovations of homes intended for:
- Sale up to €648,000.
- Rental under a “moderate rent” scheme with monthly rents capped at €2,300.
- New construction and major renovations of homes intended for:
- Excludes: Luxury properties and high-end developments to ensure focus on middle-class housing needs. [vatupdate.com], [realestate…lisbon.com]
Key Conditions
- Rental Contracts: Must be for a minimum of three years.
- Usage Deadline: Homes benefiting from the reduced VAT must be sold or rented within two years after receiving a usage license.
- Certification: Projects must meet affordability criteria and may require certification by housing authorities (e.g., IHRU). [casa-nova.com.pt], [litehaus.co]
Implementation Details
- Effective Date: Approved by the Council of Ministers; awaiting full legislative decree for implementation.
- Retroactive Application: Applies to projects whose licensing began in late October 2025.
- Duration: Expected to run through 2029, subject to interim review. [rebrealty.com], [vatupdate.com]
Economic Impact
- Cost Reduction: Significant savings for developers and self-builders, improving project viability.
- Market Stimulus: Encourages build-to-rent projects and expands housing supply in high-demand urban areas.
- Bankability: Lower construction costs improve financing metrics and shorten payback periods. [rebrealty.com]
Administrative Notes
- Reverse Charge Mechanism: VAT will be self-assessed by developers, simplifying compliance and reducing fraud risk.
- Refund for Self-Builders: Initially pay 23%, then claim reimbursement down to 6% (processing time ~150 days). [vatupdate.com], [litehaus.co]
Why It Matters
This measure is a game-changer for Portugal’s housing sector, aiming to:
- Boost affordable housing supply.
- Support middle-class families.
- Stimulate construction activity and job creation.
- Portugal’s Council of Ministers has approved a significant VAT reduction on new housing construction and major renovations from 23% to 6%, aimed at addressing the housing affordability crisis and encouraging the development of mid-market homes, particularly in cities like Lisbon and Porto.
- The reduced VAT rate applies to properties priced up to €648,000 and rental units with monthly rents capped at €2,300, specifically excluding luxury properties to focus on the needs of the middle class and stimulate increased housing supply.
- This VAT cut is part of a broader strategy that includes simplifying urban planning processes to reduce bureaucratic hurdles, creating a comprehensive approach to boost housing availability and support the real estate market in Portugal.
Source
- Join our Linkedin Group on ”VAT Rates – Legislative changes”, click HERE
- Global upcoming VAT rate changes – VATupdate
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