The new Law provided an authoritative interpretation of the concept of urban rehabilitation works contracts, determining that the Legal Regime for Urban Rehabilitation encompasses all works contracts carried out on properties or public spaces located within Urban Rehabilitation Areas (Áreas de Reabilitação Urbana – ARU) delimited in accordance with the applicable legal requirements, irrespective of whether an Urban Rehabilitation Operation (Operação de Reabilitação Urbana – ORU) has been approved.
This clarification is particularly significant because, for many years, the reduced rate was applied by numerous contractors without the existence of an ORU previously approved by the Municipality necessarily being taken into account. The controversy arose when the Tax Authority began to adopt the opposite interpretation, which was subsequently halted by the Supreme Administrative Court.
We recall that, in respect of procedural initiatives submitted on or after 7 October 2023, this interpretation of Law No. 48/2026 is no longer relevant, since item 2.23 was amended so as to require only that the works be located within an approved ARU. In addition, the provision also came to exclude new construction, applying only to the rehabilitation of buildings.
As regards the actual applicability of this legislation, reference should be made to the exceptionally clear analysis put forward by the Order of Certified Accountants (Ordem dos Contabilistas Certificados – OCC) on the very date of publication of the legislation, which states, in the context of its analysis entitled VAT on Urban Rehabilitation:
The OCC’s understanding in this respect is that this “production of effects” should be interpreted as follows:
i) It applies to taxable events in respect of which the tax became chargeable on or after 1 January 2009, but
ii) It applies only to tax periods covered by ongoing tax inspections or judicial proceedings, and to tax periods in respect of which the statutory time limit has not yet expired, i.e. where VAT became chargeable on or after 1 January 2022, taking into account the application of item 2.23 in the wording in force until 6 October 2023 (Article 50(9) of Law No. 56/2023 of 6 October).
In this context, the OCC considers that this Law does not produce effects in relation to:
i) VAT assessed in respect of which the statutory time limit has already expired for the purposes of Article 98 of the VAT Code, i.e. transactions in respect of which VAT became chargeable before 1 January 2022.
ii) Tax periods prior to 2022 covered by completed tax inspections which have not been — or will not be — challenged through administrative and/or judicial proceedings.
iii) Tax periods, whether prior or subsequent to 2022, which have been challenged through administrative and/or judicial proceedings, where such challenges have been dismissed and not further contested, or have been held unfounded by the courts, with the VAT assessments thereby becoming final.
For more information or specialized assistance, click here to schedule a meeting with one of our professionals.
The content of this information does not constitute any specific legal advice; the latter can only be given when faced with a specific case. Please contact us for any further clarification or information deemed necessary in what concerns the application of the law.