Changes to Income Taxation (IRS and IRC) - Mais-Habitação Program - VCA

After approval by Parliament, the Bill presented by the Government under the “Mais Habitação” Program was sent to the President of the Republic for promulgation. Under this program promoted by the Government, income taxation undergoes relevant changes that we summarize below.

Personal Income Tax (IRS)

Reduction of the personal income tax rate to be applied to income from long-term housing lease contracts, based on the duration of the contract:
- Up to 5 years: 25%
- Between 5 and 10 years: 15% (and for each renewal of the same duration, a reduction of 2% is applied, with reductions relating to the renewal of the contract subject to a limit of 10%).
- Between 10 and 20 years 10%
- More than 20 years 5% (as well as property income arising from contracts of real right of durable habitation (DHD)).
The reduction of the IRS rate, between 15% and 5%, does not apply to property income arising from housing lease contracts, entered into as of January 1, 2024, whose monthly rent exceeds by 50% the general limits of rent price by typology depending on the municipality where the property is located.
An additional reduction of 5% of the respective autonomous rate is applied to lease contracts that benefit from the reduction of the IRS rate, between 15% and 5%, whenever the rent is at least 5% lower than the rent of the previous lease contract on the same property;
- Exemption from taxation of income from rents, in the following cases:
  Contracts framed in the PAA;
- Contracts prior to 1990;
- Contracts arising from the conversion of local accommodation into a rental.
Rent insurance is now deductible from gross income under category F (Property Income).
For IRS purposes, the determination of property income arising from rental contracts falling under category F, to which the rates provided for in paragraph 1 of article 68 or paragraph 2 of article 72 of the CIRS apply, is obtained by applying the coefficient of 0.90 after the deductions referred to in article 41 of the same Code.
The support coefficients applicable to income to which one of the special rates provided for in paragraphs 3 to 5 of article 72 of the CIRS applies are added:
- 21%…………………………. 0,87
- 19%…………………………. 0,86
- 15%…………………………. 0,81
- 5%………………………….. 0,45

In addition to the cumulative requirements set out in article 10, no. 5 CIRS for the exclusion from IRS taxation of gains from the transfer for consideration of real estate intended for the taxpayer’s own permanent residence or that of his household, the following requirements are added:
- The property transferred is intended for the taxpayer’s own permanent home or that of his household, proven through the respective tax residence, in the 24 months prior to the date of the transfer;
- The taxable person has not benefited from this exclusion scheme in the year in which the gains were obtained, nor in the three previous years, without prejudice to proof by the taxable person, made in the liquidation procedure, that the failure to comply with this condition was due to exceptional circumstances.
The aforementioned benefit is not available if the taxable persons have not fixed their tax residence or that of their household on the property.
Capital gains realized from the sale of real estate to the State, Autonomous Regions and Municipalities, will be exempt from taxation, with the following exceptions:
- Capital gains realized by a resident in a tax haven;
- Capital gains obtained as a result of the exercise of pre-emptive rights.
The capital gains obtained from the sale of land for construction or housing properties (other than own and permanent housing), occurring from January 1, 2022, if applied in the amortization of credit for own and permanent housing of the owner or descendants, will be exempt from taxation.
If the capital gain is higher than the value of the loan, the remainder will be subject to taxation under the general terms.
Capital gains earned by IRS taxpayers residents in Portuguese territory arising from the first sale, subsequent to the intervention, of a property located in an urban rehabilitation area, will no longer be taxed at the autonomous rate of 5%, without prejudice to the option for aggregation.
Property income earned by IRS taxpayer’s resident in Portuguese territory, when entirely derived from the rental of:
- Properties located in an ‘urban rehabilitation area’, recovered under the terms of the respective rehabilitation strategies;
- Leased properties subject to a phased updating of rents under the terms of articles 27 and following of the NRAU, which are subject to rehabilitation actions.

Corporate Income Tax (IRC)

The income obtained by investment funds set up between 2008 and 2013 with assets in real estate subject to urban rehabilitation will no longer be exempt from IRC.
The tax benefits applicable to real estate funds incorporated between January 1, 2008, and December 31, 2013, whose assets consisted of at least 75% of the real estate subject to urban rehabilitation actions initiated and completed within that period are revoked, namely:
- IRC exemption applicable to income of any nature obtained by the funds;
- The 10% rate is applicable to income from participation units paid or placed at the disposal of the respective holders or to the positive balance between capital gains and capital losses resulting from the sale of participation units.
Gains from the sale of residential real estate for consideration to the State, the Autonomous Regions, public corporate entities in the housing area or local authorities are exempt from IRC, with the exception of gains obtained by residents with tax residence in a country, territory or region included in the list of “tax havens” or from the exercise of the right of preference.
Property income arising from lease contracts for permanent housing of real estate that is used for the operation of local accommodation establishments until December 31, 2022, provided that the lease contract is signed until December 31, 2024, is exempt from IRC until December 31, 2029.