The Portuguese government has enacted a package of real estate tax reforms that could significantly affect property buyers, homeowners, developers, landlords, and foreign investors. The measures, approved by the National Assembly and signed by the President, have now been formally published as Decree-Law No. 97/2026, of 20 May, in the Diário da República. With the final text now in force, stakeholders can rely on the confirmed rules rather than proposals, though some parameters remain subject to future ministerial orders.
1. Reduced VAT on Residential Construction Projects
One of the most significant proposed changes concerns VAT on residential construction. The proposed reform would introduce a reduced VAT rate of 6% for residential properties valued up to €660,000, with the stated objective of making housing more affordable. How the Refund Mechanism Is Expected to Work Contractors would continue issuing invoices at the standard VAT rate during construction. However, once the property is completed and formally registered, the owner could apply for a refund of the difference between the standard rate and the reduced rate. These changes will take effect from the quarter following the entry into force of the legislation, and will apply to construction projects initiated between September 25, 2025 and December 31, 2029.
2. Limits on deductions for rental expenses
On the tenants' side, the limit for the annual deduction of rent paid for residential leases in personal income tax will progressively increase to €900 in 2026 and to €1000 from 2027 onwards.
3. Changes to IMT (Property Transfer Tax)
The proposed reforms also include significant amendments to IMT. Under the proposed rules, buyers who are not Portuguese tax residents at the time of acquisition may be subject to a 7.5% flat IMT rate. Potential Refund After Relocation The proposal would allow non-resident buyers to reclaim part of the tax if they become Portuguese tax residents within two years of purchase and use the property as their own residence.
4. Expanded Capital Gains Tax Relief
Under the new framework, capital gains tax exemptions may be expanded beyond primary residences. Owners of residential properties could benefit if sale proceeds are reinvested into qualifying long-term residential rental properties. The reinvestment must occur between 24 months before and 36 months after the date of the capital gain, and the property must remain rented (income within the limits) for at least 36 months in the first 5 years, otherwise the benefit will be lost.
5. Significant Reduction in Personal Rental Income Taxation
Qualifying residential rental income could benefit from a reduced flat tax rate of 10%, compared with approximately 25% under current rules. Eligibility Requirements To qualify, the rental arrangement would need to satisfy conditions including residential use, primary residence occupancy by the tenant, rent below €2,300 per month, and a lease term of at least three years. These rules are retroactive to January 1, 2026, and apply until December 31, 2029.
6. Significant Reduction in Corporate Rental Income Taxation
Qualifying residential rental income will only be half taxed from the current corporate tax. Eligibility Requirements To qualify, the rental arrangement would need to satisfy conditions including residential use, primary residence occupancy by the tenant, rent below €2,300 per month, and a lease term of at least three years. These rules are retroactive to January 1, 2026, and apply until December 31, 2029.
7. Investment Contracts for Leasing (CIA)
New regime (in force from September 1, 2026) that allows investors, through a contract with IHRU for up to 25 years, to benefit from: reduced VAT of 6% on construction, exemption from IMT on the acquisition of land and buildings, exemption from IMI for up to 8 years (with a 50% reduction in the remaining period), total exemption from AIMI, and reduction of Stamp Duty, requiring that at least 70% of the construction area be allocated to residential leasing, with rents up to €2,300/month.
8. Simplified Affordable Housing Scheme (RSAA)
Full exemption from personal income tax (IRS) and corporate income tax (IRC) on property income generated by residential lease (or sublease) agreements that meet the scheme's requirements, applicable to both individual landlords and entities with organized accounting. Rent ceilings must be based on 80% of the median rent value per m² in each municipality, with a minimum contract duration of 3 years for permanent residence and 3 months for temporary residence, and enrollment dependent on registration on the IHRU platform by January 15th of the year following the signing of the contract. Also entering into force on September 1, 2026.
Eligibility Requirements
To qualify, the rental arrangement would need to satisfy conditions including residential use, primary residence occupancy by the tenant, rent below €2,300 per month, and a lease term of at least three years.
Conclusion
Portugal's proposed 2026 real estate reforms aim to increase housing affordability, stimulate residential construction, and encourage long-term rental supply. While the announced measures could provide substantial tax savings for buyers, homeowners, landlords, developers, and investors, many details remain subject to the final published legislation.
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