Portugal has enacted an important clarification for property owners, developers, contractors and investors involved in urban rehabilitation projects.
Law no. 48/2026, of 17 August, effective from 18 August 2026, confirms that the reduced 6% VAT rate under the former wording of item 2.23 of List I of the Portuguese VAT Code applies to qualifying urban rehabilitation contracts carried out in a legally designated Urban Rehabilitation Area (Área de Reabilitação Urbana or ARU) — even where no Urban Rehabilitation Operation (Operação de Reabilitação Urbana or ORU) had been approved.
The law is expressly interpretative and produces effects from the entry into force of the 2009 State Budget law, i.e. from 1 January 2009.
The short answer
Was an approved ORU required to apply 6% VAT to urban rehabilitation works in an ARU?
Under Law no. 48/2026, the answer is no for the historical version of item 2.23 that the law interprets. A legally designated ARU is sufficient; approval of an ORU is not an additional requirement.
This clarification is particularly relevant for older projects, VAT assessments, ongoing tax audits and disputes where the Portuguese Tax Authority challenged the 6% rate solely because the municipality had not approved an ORU.
What was the issue?
For many years, item 2.23 of List I of the Portuguese VAT Code applied the reduced VAT rate to urban rehabilitation contracts performed on properties or public spaces located in legally designated urban rehabilitation areas.
However, uncertainty arose over whether an ARU designation alone was enough, or whether the relevant municipality also needed to have approved a corresponding ORU.
In practice, this led to assessments at the standard VAT rate — generally 23% in mainland Portugal — for projects where the works were located in an ARU but no ORU had been approved.
Law no. 48/2026 resolves that question. Its Article 2 states that, for the relevant version of item 2.23, urban rehabilitation contracts include works performed on properties or public spaces located in ARUs legally designated under the applicable rules, regardless of approval of an ORU. See the official text of the law.
Which projects may be affected?
The new law concerns the previous wording of item 2.23, introduced by Law no. 64-A/2008. It is therefore especially relevant where:
- the property or public space was within a legally designated ARU;
- the work qualified as an urban rehabilitation contract under the applicable legislation;
- 6% VAT was denied, or 23% VAT was charged, because there was no approved ORU;
- there is an ongoing audit, administrative claim, judicial case or a still-open route to challenge the VAT treatment; or
- the project falls under the transitional rules that preserve the former wording of item 2.23 for certain pre-October 2023 planning procedures.
The 2023 amendment to item 2.23 already changed the rule for more recent cases. Therefore, the key question is not simply the invoice date: it is necessary to identify the applicable version of the VAT rule and, where relevant, the date and status of the planning procedure.
What the law does not change
Law no. 48/2026 does not mean that every service supplied to a property located in an ARU automatically qualifies for 6% VAT.
The remaining legal requirements still need to be met. In particular:
- the works must genuinely qualify as an eligible urban rehabilitation contract;
- the property or public space must be located within a legally designated ARU;
- the correct version of item 2.23 must apply to the project;
- invoices, contracts and supporting documents must accurately describe the works; and
- services that are separate from the construction contract — such as standalone architecture, consultancy, technical supervision or other professional services — should be assessed separately.
Can VAT already paid at 23% be recovered?
Potentially, yes — but the route and deadline depend on the facts.
A taxpayer should first review whether the VAT period remains open for correction, whether there is an ongoing audit or dispute, and whether a final decision has already become binding. Where VAT was charged by a contractor, any correction will normally require the contractor to issue the appropriate corrective documentation and refund the VAT difference to the customer.
A retrospective legal effect does not automatically reopen every closed case. Each file should be reviewed in light of the relevant VAT limitation periods, procedural status and documentary evidence.
Practical next steps for property owners, developers and contractors
If your rehabilitation project was affected by the ARU/ORU issue, we recommend gathering:
- Evidence that the property was located in a legally designated ARU;
- The municipal planning documentation and relevant licence, prior information request or prior communication;
- Construction contracts, invoices and payment evidence;
- Any VAT assessment, audit report, administrative claim or court filing; and
- Confirmation of whether the project involved rehabilitation works covered by item 2.23.
This documentation will help determine whether the reduced 6% VAT rate should have applied and whether a correction, refund request or procedural response may still be available.
Frequently asked questions
Is 6% VAT now available for any renovation in an ARU?
No. The ARU location removes the requirement for an approved ORU under the historical rule, but the work must still meet the other conditions for an eligible urban rehabilitation contract.
Does Law no. 48/2026 apply to projects completed years ago?
The law has effects from 1 January 2009. However, whether VAT can still be corrected or recovered depends on limitation periods, procedural status and whether the case is still legally open.
Does the law apply to new projects?
For newer projects, the current wording of item 2.23 and the transitional rules introduced in 2023 must be examined. The new law primarily clarifies the historical wording of item 2.23.
Do I need an ORU certificate now?
For the specific historical rule clarified by Law no. 48/2026, an approved ORU is not required. You should nevertheless retain proof that the property is located in a legally designated ARU and that the works qualify as urban rehabilitation.
Final note
Law no. 48/2026 is a significant development for Portuguese urban rehabilitation VAT. It removes a restrictive interpretation that created material VAT exposure for projects located in ARUs without an approved ORU.
For affected property and construction projects, a timely technical review is advisable — particularly where there is an ongoing audit, pending litigation, recent additional VAT assessment or an opportunity to correct the VAT charged.
This article is general information only and does not replace a case-specific review of the project documentation, VAT position and applicable procedural deadlines.
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