Housing in Portugal: New Tax Measures to Boost Rental Supply and Construction

Decree-Law no. 97/2026, published on 20 May, introduces a comprehensive package of tax relief measures aimed at stimulating housing supply in Portugal.

The changes span multiple areas — from VAT and personal/corporate income tax to property transfer tax and stamp duty — and establish two new regimes that directly impact the rental market and residential construction.

Most of the new rules enter into force on 1 September 2026.

Investment Contracts for Letting (CIA)

The legislation creates a new regime for Investment Contracts for Letting (Contratos de Investimento para Arrendamento), to be entered into between qualifying investors and the Institute for Housing and Urban Rehabilitation (IHRU, I.P.).

To be eligible, investments must meet two cumulative requirements:

At least 70% of the construction area must be allocated to residential letting
The monthly rent may not exceed €2,300 (moderate rent).

These contracts have a maximum term of 25 years and may benefit from a wide range of tax incentives:

Exemption from Property Transfer Tax (IMT) and Stamp Duty on acquisition
Exemption from Municipal Property Tax (IMI) for the first 8 years, followed by a 50% reduction for the remainder of the contract (up to 10 additional years)
Exemption from the Additional Municipal Property Tax (AIMI) for the full duration of the contract
Reduced VAT rate on construction works
Restitution of 50% of the VAT borne on services, projects and studies related to construction or rehabilitation
50% reduction of the Stamp Duty rate applicable to Collective Investment Undertakings

Simplified Affordable Letting Regime (RSAA)

The RSAA (Regime Simplificado de Arrendamento Acessível) replaces the current Affordable Letting Programme, retaining the rationale of incentivising rental housing supply at controlled prices under a more favourable tax framework.

Eligible agreements include residential tenancy and sub-tenancy contracts, as well as those entered into under municipal or inter-municipal affordable letting programmes. Monthly rents may not exceed 80% of the median rents published by the National Statistics Institute (INE) for the relevant municipality, and contracts for permanent residence must have a minimum duration of 3 years (3 months for temporary residence).

The key benefit is a full exemption from personal income tax (IRS) and corporate income tax (IRC) on rental income derived from these agreements.

Tax incentives for construction, sale and residential letting

The decree-law also introduces a cross-cutting set of tax incentives:

For personal income tax (IRS) purposes

Exemption from capital gains tax on the sale of residential properties, provided the proceeds are reinvested in properties for residential letting at rents not exceeding €2,300
Progressive increase in the rent deduction from tax liability: €900 in 2026 and €1,000 in 2027
A separate tax rate of 10% on residential rents up to €2,300 under agreements exclusively for letting
A new 10% withholding tax rate on rental income of this nature, where paid by entities with organised accounting
The reinvestment period may be suspended where non-compliance results from circumstances not attributable to the taxpayer and is the subject of court proceedings

For IRS and IRC purposes

Until 31 December 2029, rental income from residential tenancy agreements with rents not exceeding €2,300 is taxed on only 50% of its value, where obtained by IRC taxpayers or by IRS taxpayers with organised accounting (within Category B)

For VAT purposes

Until 31 December 2032, the reduced VAT rate applies to construction or rehabilitation works on properties intended for sale as owner-occupied permanent housing (sale price up to €660,982) or for residential letting (rent up to €2,300)
The reverse charge mechanism also applies in these cases
If the conditions for the reduced rate cease to be met, the outstanding VAT must be regularised
Failure to allocate the property to owner-occupied permanent housing triggers an additional IMT charge of 10% on the taxable value

Alternative Investment Undertakings (OIA) with RSAA assets

For Alternative Investment Undertakings with assets allocated to affordable letting, the legislation provides:

A special 5% rate on distributions to participants, in proportion to the income derived from agreements covered by the RSAA
Partial exclusion from taxation (up to 30%) at the investor level, applicable to the remainder of distributions and to income from redemptions or liquidations, depending on the proportion of eligible assets

Partial VAT restitution for owner-occupied construction

Until 31 December 2032, individuals who bear VAT at the standard rate on construction works for owner-occupied permanent housing (outside the scope of business activity) may apply for reimbursement of the difference between the VAT paid and the amount that would have resulted from applying the reduced rate.

If the requirements cease to be met, the Tax Authority may correct the restituted amount within four years.

Property Transfer Tax (IMT) for non-residents

The decree-law establishes an IMT rate of 7.5% for the acquisition by non-residents of urban buildings or autonomous units intended exclusively for housing.

This higher rate does not apply, however, where the acquirer:

Was considered a tax resident in Portugal
Becomes tax resident within two years of the acquisition
Allocates the property to residential letting at a rent not exceeding €2,300, entering into a tenancy agreement within 6 months and maintaining it for at least 36 months during the first 5 years

The Tax Authority may, upon application, cancel the difference between the tax paid and the amount resulting from the standard rates.

How can VCA help

These changes carry practical implications for investors, property owners, developers and individuals — both resident and non-resident — with interests in the Portuguese real estate market. VCA closely monitors the evolving tax framework for the housing sector and is available to assess each situation in light of the new rules.

Contact our team for legal tax support