Updated: August 2026
Portugal introduced a significant package of tax incentives for housing in 2026. The new rules affect property buyers, landlords, real estate investors, developers and individuals building their own permanent home in Portugal.
The measures were introduced by Decree-Law No. 97/2026 of 20 May and cover VAT, personal income tax (IRS), property transfer tax (IMT) and affordable rental incentives.
Here are the main changes you should know.
1. Reduced 6% VAT for qualifying residential construction
One of the most important measures is the possibility of applying the reduced 6% VAT rate in mainland Portugal to qualifying construction or rehabilitation contracts.
The regime may apply where the property will be:
- sold as the buyer’s permanent home; or
- used exclusively for residential rental.
For 2026, the relevant limits are:
- maximum sale price: €660,982
- maximum moderate monthly rent: €2,300
The reduced VAT regime is subject to several conditions and deadlines. In general, the relevant urban planning procedure must have started between 25 September 2025 and 31 December 2029.
Important: the 6% VAT is generally applied through reverse charge
For qualifying construction contracts between VAT taxable persons, the contractor normally invoices without VAT using the VAT reverse-charge mechanism.
The customer then self-assesses the VAT at the applicable rate.
This means developers should not simply ask their contractor to issue an invoice charging 6% VAT. The correct VAT mechanism and eligibility conditions must first be confirmed.
2. Building your own permanent home? You may recover part of the VAT
There is a separate benefit for private individuals constructing their own permanent home.
In this situation, the contractor normally continues to invoice construction services with VAT at the standard rate. The individual may subsequently request a partial refund equivalent to the difference between the standard and reduced VAT rates.
For example, on qualifying construction costs of €400,000 in mainland Portugal:
VAT at 23%: €92,000
Equivalent VAT at 6%: €24,000
Potential refund: €68,000
The regime is subject to strict conditions, including the value of the property. Broadly, the relevant value — based on the property’s taxable value or the land plus construction costs, whichever is higher — cannot exceed €660,982 in 2026.
A particularly important distinction is that this refund regime applies to construction of a permanent home, not ordinary renovation or rehabilitation of an existing home.
3. Rental income can qualify for a 10% IRS rate
Portugal has also introduced a particularly attractive incentive for residential landlords.
Rental income from qualifying residential leases with a moderate rent can be taxed at a special 10% autonomous IRS rate, provided the relevant conditions are met.
For 2026, the moderate-rent threshold is generally €2,300 per month.
The benefit applies to qualifying rental income earned until 31 December 2029 and may also apply to rental agreements that were already in place before 2026.
Where a more favourable tax rate already applies — for example under certain long-term rental arrangements — the more favourable regime may continue to be used.
4. Companies may obtain a 50% exclusion on qualifying rental income
The Housing Package also provides a benefit for qualifying residential rental income earned through:
- Portuguese corporate entities subject to IRC; and
- individuals carrying on a business activity under Category B with organised accounting.
Where the moderate-rent conditions are satisfied, only 50% of the qualifying rental income is taken into account for taxation until the end of 2029.
This can make the tax structure of residential property investments significantly more relevant when deciding whether to hold property personally or through a company.
5. Capital gains can be exempt when reinvested into rental property
A major change concerns Portuguese property capital gains.
For qualifying sales taking place between 1 January 2026 and 31 December 2029, a capital gain arising from the sale of a residential property may be excluded from Portuguese taxation where the proceeds are reinvested in another Portuguese residential property that will be rented at a moderate rent.
Importantly, the property being sold does not have to be your permanent home.
The reinvestment may generally take place:
- up to 24 months before the sale, or
- up to 36 months after the sale.
The replacement property must then comply with several conditions. Among others, a qualifying rental agreement generally needs to be entered into within six months, and the property must be rented for at least 36 months during the first five years.
This creates an important new planning opportunity for property owners who wish to sell one Portuguese residential property and reinvest into the long-term rental market.
6. Non-residents may face 7.5% IMT when buying residential property
Foreign buyers should pay particular attention to the new IMT rules.
As a general rule, a non-resident purchasing residential property in Portugal is subject to the 7.5% IMT rate, without the normal reductions or exemptions.
However, important exceptions apply.
The normal IMT treatment may ultimately be available where, for example, the buyer:
- has previously been a Portuguese tax resident;
- becomes Portuguese tax resident within two years after the purchase; or
- places the property on the qualifying moderate-rent residential market.
Where the higher IMT has already been paid and the conditions are subsequently satisfied, it may be possible to request a refund of the difference.
This makes the timing of a property purchase in relation to becoming Portuguese tax resident particularly important.
7. A new Affordable Rental Scheme starts in September 2026
From 1 September 2026, Portugal introduces the new Simplified Affordable Rental Scheme — Regime Simplificado de Arrendamento Acessível (RSAA).
Qualifying rental income under the RSAA can be exempt from both IRS and IRC.
The maximum permitted rent depends on the municipality and property characteristics and is based broadly on 80% of the median rental value for the relevant area.
For permanent residences, qualifying contracts generally need to have a minimum term of three years.
For landlords willing to accept a lower market rent, this regime may therefore provide a substantial tax advantage.
8. Tenants also receive a higher IRS rental deduction
The annual IRS deduction available for rent paid on a permanent home increases to:
- €900 for 2026
- €1,000 from 2027 onwards
The deduction remains subject to the general IRS rules and applicable limits.
What does this mean in practice?
The 2026 Housing Package creates meaningful tax opportunities, particularly for:
Property developers: qualifying projects may benefit from 6% VAT on construction.
Private individuals building a home: part of the VAT paid on construction may potentially be recovered.
Landlords: qualifying residential rents may benefit from a 10% IRS rate or, under the RSAA, potentially a full IRS exemption.
Property investors: residential property sales followed by qualifying reinvestment may benefit from capital-gains relief.
Foreign property buyers: the timing of becoming Portuguese tax resident should now be considered carefully because of the new 7.5% IMT rule.
However, most of these incentives depend on strict price limits, deadlines, contractual wording and ongoing conditions. Losing one of the requirements can lead to repayment of the tax benefit, interest and, in some circumstances, penalties.
Frequently Asked Questions
Is VAT on residential construction now always 6% in Portugal?
No. The 6% rate applies only to qualifying construction and rehabilitation projects that satisfy the conditions established by Portuguese law. Private individuals building their own home normally pay the standard VAT rate first and may then qualify for a partial refund.
What is the moderate rent limit in Portugal for 2026?
For the main Housing Package incentives, the moderate-rent threshold is €2,300 per month in 2026. This threshold may be updated in future years.
Can rental income in Portugal be taxed at 10%?
Yes. Qualifying residential rental income with a moderate rent can benefit from a 10% autonomous IRS rate until the end of 2029, provided the legal requirements are met.
Can I avoid Portuguese capital gains tax by buying another rental property?
Potentially. For qualifying residential property sales between 2026 and 2029, the gain may be excluded from taxation where the proceeds are properly reinvested in Portuguese residential property rented under the required conditions.
Do non-residents pay more IMT when buying property in Portugal?
Generally, yes. A non-resident buyer of residential property may initially face a 7.5% IMT rate. Exceptions and refund mechanisms can apply, particularly where the buyer becomes a Portuguese tax resident within two years.
Planning to buy, build or invest in Portuguese property?
The tax treatment can change substantially depending on when you become Portuguese tax resident, how the property will be used, the purchase price, the rent charged and whether the investment is made personally or through a company.
At GoalSeek, we advise international clients, property owners and investors on Portuguese tax implications before a transaction takes place, helping them identify the applicable tax incentives and avoid unexpected Portuguese tax costs.
Contact GoalSeek before signing a purchase, construction or rental agreement if you would like us to review the Portuguese tax implications of your project.
This article provides general information based on Portuguese legislation and administrative guidance available in August 2026. It does not constitute individual tax advice. Eligibility for any tax incentive should be assessed based on the specific facts and documentation of each case.
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