New Incentive Regime for Housing and Leasing in Portugal

Decree-Law no. 97/2026, of 20.05, approves a comprehensive set of tax relief measures aimed at stimulating the residential supply, with a cross-cutting impact on construction, rehabilitation, acquisition, and residential leases.

This decree introduces significant changes to several regimes, namely (i) the IVA (VAT) Code, (ii) the IRS (Personal Income Tax) Code, (iii) the Estatuto dos Benefícios Fiscais (Tax Benefits Statute or EBF) and (iv) the IMT (Property Transfer Tax) Code.

New specific regimes are created:

• investment Agreements for Leasing (Contratos de Investimento para Arrendamento – CIA);
• partial VAT refund regime for the construction of Own Permanent Residence (Habitação Própria Permanente – HPP);
• simplified Affordable Lease Regime (Regime Simplificado de Arrendamento Acessível – RSAA).

Most of the incentives in this decree are temporary in nature (until 2029).

 

Construction and Rehabilitation with Reduced VAT Rate

One of the main new features is the application of the reduced VAT rate of 6% to construction and rehabilitation works for residential properties.

This measure applies to both HPP and residential leased properties, provided that the sale price or monthly rent does not exceed the thresholds defined in the decree for “moderate” housing.

If the property (i) is not used, within six months of the date of acquisition, as the taxpayer’s own and permanent housing, as proven by their tax domicile, or (ii) is not allocated exclusively to the taxpayer’s own and permanent residence, as proven by their tax domicile, within 12 months of its allocation, an increase in IMT corresponding to 10% on the taxable value determined in accordance with Article 12 of the IMT Code shall apply.

This measure is temporary, meaning it applies to works whose licensing procedure begins by 31 December 2029, with item 2.42.1 of List I annexed to the VAT Code ceasing to be in effect on 31 December 2032.

Construction or rehabilitation works on properties intended for sale as the purchaser’s own permanent residence, or properties intended exclusively for residential leases, may benefit from the application of item 2.42.1 of List I annexed to the VAT Code, provided the following is met:

In the sale for the purchaser’s own permanent residence: the following conditions must be cumulatively met:

1. The property is sold as the purchaser’s own permanent residence, and the acquisition is subject to the rates provided for in subparagraphs a) or b) of number 1 of Article 17 of the IMT Code.
2. The sale must occur within a maximum period of 24 months from the date of issuance of the use approval, in accordance with the Legal Regime for Urbanization and Building (Regime Jurídico da Urbanização e Edificação – RJUE).
3. The acquisition title must expressly mention the application of the rate provided for in item 2.42.1 of List I annexed to the VAT Code.

In residential leases: the following conditions must be cumulatively met:

1. The lease is exempt under the terms of article 9 of the VAT Code.
2. The lease agreements are communicated under the terms of Article 60 of the Stamp Duty Code (Código do Imposto do Selo).
3. The first residential lease agreement enters into force within a maximum period of 24 months from the date of issuance of the use approval, under the terms of the RJUE.
4. The property is subject to active residential lease agreements for at least 36 months, consecutive or non-consecutive, during the first 5 years after the issuance of the use approval, under the terms of the RJUE.
5. No provision is agreed upon allowing for subleasing at a rent higher than the moderate value.

These measures enter into force in the quarter following the entry into force of the decree, ie on 1 July 2026, applying to operations where the licensing procedure started between 25 September 2025, and 31 December 2029, and in which VAT becomes chargeable from 1 January 2026.

 

Tax Reduction on Lease Income

The decree introduces the following tax benefits for properties placed on the lease market:

Rents will be taxed at a reduced autonomous rate of 10% (until 2029), provided they comply with the limits classified as “moderate”.

Only properties whose acquisition value for residence or monthly rent is deemed moderate are considered, meaning they do not exceed the following limits:

• In the case of moderate monthly rent, 2.5 times the value of the minimum monthly wage stipulated for 2026. This 2026 coefficient means that the moderate monthly rent in 2026 is up to EUR2,300.00.
• In the case of a moderate sale price, the upper limit of the 2nd bracket referred to in paragraph b) of paragraph 1 of Article 17 of the IMT Code, in the wording conferred by Law no. 73-A/2025, of December 30, which approved the State Budget for 2026 (from more than EUR330,539.00 up to EUR660,982.00, with an 8% rate and a deductible amount of EUR26,443.12).

The limits may be subject to update by decree, in accordance with the annual rent update coefficient for the various types of leases resulting from the total variation of the Consumer Price Index (Índice de Preços no Consumidor – IPC) excluding residential, corresponding to the last 12 months and for which values are available as of August 31, determined by the Portuguese National Statistics Institute (as provided for in Article 24 of the New Urban Lease Regime (NRAU), approved by Law no. 6/2006, of 27 February).

For companies or taxpayers with organized accounting, only 50% of the income can be taxed.

Additionally, under the new Simplified Affordable Lease Regime (RSAA), there may be a total exemption from IRS (Personal Income Tax) or IRC (Corporate Income Tax) on rents, provided certain conditions are met.

If the landlord chooses to include property income, the income exempt under the RSAA must mandatorily be included to determine the tax rate applicable to the remaining income.

These measures take effect from 1 January 2026.

 

New Simplified Affordable Lease Regime (RSAA)

The decree creates a simpler and more efficient accessible lease regime that replaces the previous model (Programa de Apoio ao Arrendamento), under the following terms:

• Rents must have a value of up to 80% of the median rent per m² in the municipality;
• Agreements have minimum terms (as a general rule, 3 years for permanent residence, and 3 months for temporary residence);
• Procedures are simplified and centralised on a digital platform.

The RSAA also covers temporary residence agreements for tenants with a tax residence in a municipality different from the leased property and can even apply to a part of the residence (provided it has independent access, a bathroom, and a bedroom with a window, balcony, or sunroom to the exterior).

The main advantage is the total tax exemption on property income (IRS or IRC).

Compared to the previous program, the RSAA significantly reduces administrative burdens and formal requirements.

These measures take effect from 1 September 2026.

 

Benefits for Tenants

The IRS deduction limit for rents paid by tenants increases to EUR900.00 in 2026 and to EUR1,000.00 from 2027 onwards.

This measure produces effects from 1 January 2026.

 

Home Purchase with Tax Advantages

The decree provides support for housing acquisition, especially in the controlled-cost residential segment, which depends on municipal decisions and may cover:

• Exemption or reduction of IMT;
• Stamp Duty.

These measures apply to all property transfers carried out after the entry into force of the decree (20 May 2026).

 

Capital Gains Exemption with Reinvestment

A relevant amendment regarding IRS allows for a tax exemption on real estate capital gains, provided that the sale value is reinvested in the purchase of properties intended for residential leasing with moderate rent.

To obtain and maintain this benefit, the following requirements must be met, failing which the benefit will be lost:

• the property must be leased for at least 36 months within the first 5 years;
• the first lease agreement must be concluded within 6 months after acquisition;
• the rent value must respect the moderate value mentioned above;
• the property cannot be sold within the first 5 years after the reinvestment;
• the reinvestment (via acquisition) must be carried out between 24 months before and 36 months after the date of realization of the capital gain;
• declarative procedures must be complied with.

These measures take effect from 1 January 2026.

 

Support for Construction of Own Housing

A regime has been created that allows private individuals to recover part of the 23% VAT incurred on the construction of their own permanent housing, by effectively reducing the VAT burden from 23% to 6%.

The request must be submitted within 12 months after the issuance of the use permit/approval, and the Tax Authority has 150 days to process the refund. Only properly invoiced construction works are eligible; the mere purchase of materials does not grant the right to a refund of the VAT portion.

This regime applies to projects whose licensing procedure starts between 25 September 2025, and 31 December 2029, and whose tax chargeability occurs from 1 January 2026.

Licensing procedure means the submission of the licensing request, prior communication, or notice of initiation of works, depending on the type of construction.

 

Incentives for investors (new CIA regime)

The decree creates the Investment Agreements for Leasing (Contratos de Investimento para Arrendamento – CIA), aimed at investors with larger-scale projects.

The CIAs take the form of administrative agreements with the Institute for Housing and Urban Renovation (Instituto da Habitação e da Reabilitação Urbana – IHRU) and may include mechanisms ensuring investment stability and economic rebalancing.

The CIAs, which can have a duration of up to 25 years, provide the following tax benefits:

• exemption from IMT and Stamp Duty on property acquisition;
• exemption or reduction of IMI;
• exemption from AIMI (Additional Municipal Property Tax);
• application of a reduced VAT rate on construction.

The requirements to access this regime are as follows:

1. 70% of the total construction area is intended for residential lease;
2. rents must comply with limits considered moderate, under the terms mentioned above.

In the event of non-compliance, the termination of the CIA entails the repayment of a certain percentage of the tax benefits enjoyed:

• 100% if the non-compliance occurs within the first 10 years;
• 50% between year 10 and the last 5 years of the agreement’s term; and
• 30% during the last 5 years.

The objective of this regime is the development of the “build-to-rent” market.

These measures will take effect from 1 September 2026.

 

Incentives for Real Estate Investment Funds

The decree updates the tax regime applicable to Alternative Investment Funds (Organismos de Investimento Alternativo – OIA) with assets in affordable lease. Distributed income resulting directly from affordable residential lease agreements is taxed at a rate of just 5%.

For the remaining income, a progressive tax exclusion regime applies:

 

The two highest tiers also benefit from a 25% reduction in the applicable Stamp Duty rate. Additionally, OIAs covered by the CIA regime benefit from a 50% reduction in that same rate.

These measures will take effect from 1 September 2026.

 

IMT Non-Residents

There are now new rules for non-resident purchasers:

• Application of a flat IMT rate of 7.5% on the purchase of housing;
• Possibility of reducing the 7.5% rate if the non-resident meets one of the following requirements:
• has been considered a resident for tax purposes in Portuguese territory, under the terms of Article 16 of the IRS Code;
• becomes a resident within two years from the date of the property acquisition;
• allocates the property to affordable lease, under a moderate monthly rent, within six months from the date of acquisition, provided it is leased for a minimum period of 36 consecutive or non-consecutive months during the first 5 years post-acquisition.

As a rule, at the time of purchase, the non-resident is required to pay IMT at the 7.5% rate. Subsequently, upon fulfilling one of those requirements, the non-resident can request a refund of the difference between the IMT paid at the 7.5% rate and the general IMT rates. This must be requested via an application submitted within 6 months after the occurrence of the qualifying event.

These amendments to the IMT for non-residents apply from the entry into force of the decree, without being designated as a transitional measure.