Housing Support Measures in Portugal – Overview of the Current Legislative Proposal

After the government presented the so‑called “tax shock” on housing last December, the Parliament approved a comprehensive tax package in its general debate on 9 January, aimed at easing the housing crisis in Portugal.

The package remains under the legislative process and may still be amended during subsequent parliamentary discussions and votes. Nevertheless, it already outlines several tax relief measures and incentives designed to stabilise the housing market and improve access to affordable housing.

1. Tax Incentives for Moderate Rental Levels

Reduction of Income Tax on Rental Income

• Reduction of the autonomous income tax rate from 25% to 10% on rental income from housing leases with monthly rents of up to €2,300.

• Applies to both existing and new leases generating income until 31 December 2029.

Corporate Income Tax (IRC)

• For companies, only 50% of rental income from housing leases with rents up to €2,300 is subject to taxation, also until 31 December 2029.

Capital Gains Tax Exemption upon Reinvestment

A capital gains tax exemption applies when the proceeds from the sale of a property (after repayment of any acquisition loan) are reinvested in another property intended for rental at moderate prices (maximum €2,300/month).

Conditions for the Exemption

• Reinvestment must occur between 24 months before and 36 months after the sale.

• The seller must declare the intention to reinvest in the income tax return for the year of the sale.

• The newly acquired property must be subject to a lease for at least 36 months within the first five years following reinvestment (unless justified exceptions apply).

• Rent may not exceed €2,300 during the first five years.

• The property may not be transferred (gratuitously or for consideration) within five years of reinvestment.

Simplified System for Affordable Rents (RSAA)

• Full exemption from Personal Income Tax (IRS) and Corporate Income Tax (IRC) for lease agreements with a minimum duration of 3 years (or 3 months in temporary housing situations),

• Rents must not exceed 80% of the median rent per m² in the respective municipality.

2. New Investment Contracts for Housing Rentals (CIA)

Purpose

Establishment of long‑term investment contracts to promote:

• Construction,

• Rehabilitation,

• Acquisition of properties for rental or subletting of residential housing.

Contract Framework

• Contracts are concluded between investors and the IHRU (Institute for Housing and Urban Rehabilitation).

• Duration: up to 25 years.

Requirements for Eligible Investments

• At least 70% of the building’s gross floor area must be designated for residential rental purposes;

  remaining areas may serve compatible or complementary uses.

• Rental prices must comply with statutory limits.

Requirements for Investors

• Demonstrated technical and administrative capacity.

• Proper bookkeeping in accordance with legal standards.

• Taxable profits must not be assessed through indirect methods.

• Tax and social security obligations must be in good standing.

Investor Benefits

• Exemption from IMT and Stamp Duty on the acquisition of properties (buildings or land) for rental purposes.

• IMI exemption for up to eight years, followed by up to 50% reduction thereafter.

• Exemption from AIMI.

• Reduced VAT rate (6%) for construction services.

• Refund of up to 50% of VAT on architectural and planning services.

• 50% reduction in Stamp Duty on assets designated for housing rental and held by alternative investment companies.

3. Reduced VAT Rate for Construction

6% VAT for Construction and Rehabilitation Works

Applies to properties intended:

• For permanent residence of the buyer, or

• For residential rental.

If the Property Is Intended for Sale

• The sale must occur within 24 months of issuance of the usage permit.

• IMT rates applicable to acquisitions for permanent own residence must apply.

If the Property Is Intended for Rental

• The lease must be VAT‑exempt and registered with the Tax Authority.

• The first lease agreement must commence within 24 months of issuance of the usage permit.

4. Partial VAT Reimbursement for Self‑Construction

• Private individuals may obtain reimbursement of the difference between the standard VAT rate (23%) and the reduced rate (6%) on construction services for the self‑construction of a permanent residence.

  Condition

  • The total value of the property (purchase price of the land or taxable value, if higher, plus construction costs) may not exceed €648,022.

5. Incentives for Investors and Investment Funds

• Dividends paid to unit holders or shareholders of alternative investment companies are subject to a reduced 5% tax rate, insofar as they derive from affordable housing rental income.

• Tax benefits of up to 30% (IRS or IRC) are available for investments in alternative investment funds whose assets consist of at least 50% affordable rental housing.

• Additional reductions in Stamp Duty apply to funds with a higher proportion of residential real estate.

6. Increased Tax Deductions for Tenants

• Increase of the rental tax deduction to €900 in 2026 and €1,000 from 2027 onwards.

  
  

7. Higher IMT for Non‑Residents

• Introduction of a one‑time IMT rate of 7.5% on the purchase of residential property by non‑residents.

• Exemptions apply where the buyer:

  • is already considered tax resident,

  • becomes resident within two years of purchase, or

  • rents the property at moderate prices (max. €2,300/month) within six months of purchase and for at least 36 months within the first five years.

Final Note

This legislative package represents a significant opportunity to strengthen the supply of affordable rental housing and to promote residential construction and urban rehabilitation. As all measures are subject to strict conditions — and the proposal is still under parliamentary discussion and may be amended — careful legal and tax assessment by property owners and investors is essential.