Portugal has introduced one of the most significant housing tax reform packages in recent years through Decree-Law no. 97/2026, published on 20 May 2026. The legislation introduces broad tax incentives aimed at increasing affordable housing supply, stimulating residential construction, and encouraging long-term rental investment.

For property investors, developers, landlords, expatriates relocating to Portugal, and individuals considering residential construction projects, these changes may substantially reduce the overall tax burden associated with housing acquisition, construction, rehabilitation, and rental activity.

This article provides a technical overview of the main measures introduced under the new regime and their practical implications under Portuguese tax law.

What Is Decree-Law 97/2026?

Decree-Law no. 97/2026 introduces a comprehensive set of housing-related tax incentives designed to:

Increase affordable residential supply
Encourage private investment in housing
Reduce taxation on qualifying rental income
Promote long-term residential leases
Facilitate access to housing for middle-income families
Stimulate residential construction and rehabilitation projects

The new framework amends several Portuguese tax codes simultaneously, including:

Portuguese VAT Code (Código do IVA)
Portuguese Personal Income Tax Code (Código do IRS)
Portuguese Municipal Transfer Tax Code (Código do IMT)
Portuguese Tax Benefits Statute (EBF)

The regime also creates entirely new legal structures, including:

Investment Contracts for Residential Leasing (CIA)
Simplified Affordable Rental Regime (RSAA)
Partial VAT refund system for private residential construction

Key Tax Measures Introduced in Portugal’s 2026 Housing Reform

1. Reduced 6% VAT on Residential Construction and Rehabilitation

One of the most impactful measures is the introduction of a temporary reduced VAT rate of 6% applicable to qualifying residential construction and rehabilitation works.

This represents a major reduction compared to Portugal’s standard VAT rate of 23%.

Eligible Projects

The reduced VAT rate may apply to:

Construction of residential properties intended for:
- Owner-occupied permanent residence
- Long-term residential rental
Rehabilitation projects
Affordable housing projects
Certain institutional rental developments

Important Conditions

The regime contains strict technical requirements, including:

Maximum sale price thresholds
Maximum rental price thresholds
Time limits for occupancy or leasing
Mandatory documentation references in acquisition deeds
Specific reporting obligations

Importantly, the legislation clarifies that failure of the purchaser to ultimately use the property as a permanent residence does not automatically invalidate the reduced VAT rate. Instead, an IMT surcharge mechanism may apply in certain situations.

Effective Period

The 6% VAT regime is temporary and currently scheduled to remain in force until 31 December 2032.

2. New 10% IRS Tax Rate for Residential Rental Income

Portugal has introduced a preferential 10% autonomous tax rate on qualifying residential rental income.

This is highly relevant for:

Individual landlords
Real estate investors
Expats acquiring rental properties in Portugal
Property holding structures

Conditions

The reduced tax rate applies where:

The property is exclusively used for residential leasing
Monthly rent remains below legally defined thresholds
The rental contract qualifies under the new affordability framework

Duration

The measure currently applies to income earned until 31 December 2029.

3. 50% Tax Reduction for Organized Business Structures

The legislation introduces an additional incentive for companies and taxpayers operating under organized accounting.

Qualifying rental income may only be taxed on 50% of the income base where:

The activity is carried out through:
- Corporate structures (IRC taxpayers)
- IRS Category B taxpayers with organized accounting
The rental contracts comply with affordability thresholds

This measure may substantially improve the tax efficiency of structured Portuguese real estate investments.

4. Capital Gains Tax Exemption for Reinvestment Into Residential Rental Property

Portugal has expanded the capital gains reinvestment exemption rules.

Under the new regime, capital gains arising from the sale of real estate may become exempt if the proceeds are reinvested into residential rental properties meeting affordability criteria.

Main Conditions

The exemption generally requires:

Reinvestment into Portuguese residential property
Use of the new property for qualifying residential rental
Rental prices below statutory thresholds
Compliance with reinvestment deadlines
Minimum holding and leasing periods

Anti-Abuse Provisions

The law includes clawback provisions if:

The property is not rented within six months
Rental conditions cease to qualify
The property is sold too early
Rental values exceed legal limits

These provisions require careful long-term planning before implementing a reinvestment strategy.

5. New IMT Rules for Non-Residents

The reform also significantly changes Portuguese Property Transfer Tax (IMT) rules applicable to non-residents.

New 7.5% IMT Rate

A flat 7.5% IMT rate may apply to acquisitions by non-residents purchasing residential property in Portugal.

However, important exceptions exist.

Potential Exemptions or Refunds

The increased IMT burden may be reversed if the purchaser:

Becomes Portuguese tax resident within two years
Uses the property for qualifying residential rental purposes
Meets affordability criteria established under the new regime

This is particularly relevant for:

Future expatriates relocating to Portugal
International investors
Foreign nationals acquiring relocation properties

6. VAT Refund Scheme for Private Home Construction

A separate regime allows individuals constructing their own permanent residence to obtain a partial VAT refund.

Who May Benefit?

Private individuals constructing homes outside a business activity may qualify.

Refund Mechanism

The refund generally corresponds to the difference between:

VAT actually paid at 23%
VAT that would have applied at the reduced rate

Requirements

The regime includes:

Property value limitations
Permanent residence requirements
Construction cost documentation
Electronic filing obligations
Long-term compliance conditions

This may significantly reduce the effective construction cost of primary residences in Portugal.

7. Simplified Affordable Rental Regime (RSAA)

The legislation replaces Portugal’s prior affordable rental framework with the new:

RSAA – Regime Simplificado de Arrendamento Acessível

The RSAA creates a simplified system for affordable leasing.

Major Tax Benefit

Qualifying rental income under the RSAA may become fully exempt from:

Portuguese IRS
Portuguese IRC

This may create substantial tax optimization opportunities for landlords operating within the affordability thresholds.

Rent Caps

Rental limits will generally be based on:

80% of local municipal median rent levels
Property typology
Energy efficiency
Geographic location

Investment Contracts for Residential Leasing (CIA)

A completely new investment framework was also introduced:

CIA – Contratos de Investimento para Arrendamento

This regime allows qualifying investors to obtain long-term contractual tax incentives for residential rental developments.

Potential Benefits Include

IMT exemptions
Stamp Duty exemptions
IMI exemptions
Reduced IMI rates
Reduced VAT rates
AIMI exemptions
Partial VAT refunds
Additional investment fund tax incentives

Contract Duration

The agreements may remain in force for up to 25 years.

This regime may become highly relevant for:

Real estate developers
Institutional investors
Build-to-rent projects
Real estate funds
International housing investment groups

Practical Impact for Expats and International Investors

For expatriates and foreign investors relocating to Portugal, these changes create several planning opportunities:

Potential Advantages

Lower construction VAT costs
Reduced taxation on rental income
More favorable capital gains reinvestment rules
Incentives for affordable rental projects
Potential IMT relief for future Portuguese residents

Important Caution

Most incentives are highly conditional and require:

Strict compliance
Long-term holding periods
Rental price limitations
Administrative reporting
Ongoing monitoring

Failure to comply may trigger:

Tax reassessments
Clawback mechanisms
Interest and penalties

Professional tax structuring is therefore strongly recommended before implementing any acquisition, construction, or rental strategy under the new regime.

When Do These Measures Enter Into Force?

The legislation contains multiple effective dates.

Main Effective Dates

Several IRS measures apply retroactively from 1 January 2026
Certain VAT measures become effective from the quarter following entry into force
The RSAA and CIA regimes become operational from 1 September 2026

Final Thoughts

Portugal’s 2026 housing reform represents a major shift in the country’s residential taxation framework.

The government is clearly attempting to:

Increase affordable housing supply
Attract private capital into residential projects
Encourage long-term leasing
Reduce pressure on the housing market

For investors and expatriates, the new rules may create significant tax optimization opportunities, particularly in:

Residential rental activity
Build-to-rent projects
Property rehabilitation
Affordable housing structures
Long-term relocation planning

However, the legislation is technically complex and heavily condition-based, meaning that proper tax planning and legal structuring are essential before relying on any of these incentives.

At GoalSeek, we assist expatriates, property investors, landlords, and international clients with Portuguese tax structuring, real estate taxation, rental compliance, and cross-border tax planning related to Portuguese property investments.

Portugal’s New Housing Tax Incentives in 2026: What Property Investors, Landlords, and Expats Need to Know