Portugal's New Housing Tax Package Promises Relief, but EU Rules Limit the Boldest Measure

The Portuguese government spent Tuesday laying out the fine print of what may be the most significant housing policy intervention in years. At a seminar in Lisbon organized by Imojuris at the offices of law firm VdA, Secretary of State for Tax Affairs Cláudia Reis Duarte presented the scope of the new housing fiscal package — and, just as importantly, its limits.

The headline measure is the temporary reduction of VAT on construction and rehabilitation of housing from 23 percent to 6 percent. For anyone who has watched Portugal's housing deficit grow to an estimated 300,000 units, the idea of slashing construction costs by nearly a fifth sounds transformative. But Reis Duarte was careful to manage expectations: the EU VAT Directive only permits reduced rates within the framework of social housing policy, meaning affordable housing, public projects and regulated rental schemes. A blanket 6 percent VAT on all residential construction is, in her words, “not a possibility.”

That distinction matters enormously for the market. Developers building luxury apartments or high-end condominiums will not qualify. The reduced rate applies to construction destined for sale at “moderate prices” — capped at 660,982 euros for purchases and 2,300 euros per month for rentals. While those thresholds are generous enough to cover most of the middle market, they exclude the premium segment that has driven much of Portugal's recent price acceleration.

Beyond VAT: A Broader Tax Overhaul

The VAT measure, however, is only one piece of a broader package that touches virtually every tax relevant to property. The authorization law, published on 6 March, gives the government 180 days to draft the implementing legislation. Among the key provisions:

• Capital gains tax exemptions on the sale of residential property when proceeds are reinvested into homes destined for rental
• A reduction in the tax rate on rental income from 25 percent to 10 percent for landlords charging “moderate” rents of up to 2,300 euros per month
• An increase in the IRS deduction cap for rent payments to 1,000 euros per month
• A new flat 7.5 percent IMT rate for non-resident buyers acquiring primary housing
• Two new legal frameworks: the Contratos de Investimento para Arrendamento (CIA), offering fiscal benefits for up to 25 years, and the Regime Simplificado de Arrendamento Acessível (RSAA), granting full IRS and IRC exemption to landlords who respect rent ceilings

The government estimates the full package will cost between 200 and 300 million euros annually and is designed to remain in force until the end of 2029.

What It Means for Expats and Foreign Buyers

For the growing number of foreigners in Portugal's property market — who accounted for one in four home purchases last year — the new 7.5 percent IMT rate for non-residents acquiring primary housing is a notable development. Previously, non-residents faced a higher marginal IMT schedule. The flat rate simplifies the calculation and, for higher-value properties, may represent a meaningful reduction.

The rental incentives are perhaps more consequential in the medium term. Portugal's chronic shortage of rental stock has been a persistent complaint among both expats and younger Portuguese. By offering landlords a 10 percent tax rate instead of 25 percent on compliant rental income — and full exemption under the new RSAA framework — the government is betting that tax incentives can coax empty properties back onto the rental market.

The 300,000-Unit Question

Whether any of this is enough remains the central question. Manuel Maria Gonçalves, president of the APPII (the Portuguese association of property developers and investors), warned at the seminar that Portugal's estimated deficit of 300,000 homes cannot be resolved within the four-year window the legislation provides. With Fitch warning of another 15 percent price increase this year, the race between supply incentives and market momentum is far from settled.

The package is undeniably the most comprehensive fiscal approach to housing Portugal has attempted. But as tens of thousands marched across the country earlier this year demanding action, the test will be whether tax tweaks can deliver homes at a pace that matches the urgency on the street.

Background: See the property-tax guide covering IMI, AIMI, IMT and capital-gains for 2026.