(Draft Law No. 47/XVII/1st)

I. Introduction

On Wednesday, 18 February, Draft Law No. 47/XVII/1st — known as the “Tax Package for Housing” — was approved at the committee stage. The legislation constitutes an authorisation law enabling the Government, for a period of 180 days, to introduce significant amendments to the Personal Income Tax Code (IRS), the Corporate Income Tax Code (IRC), the VAT Code, the Property Transfer Tax Code (IMT), and the Tax Benefits Statute.

The solution adopted confirms the political direction already outlined at the general stage: this is not a transversal reduction of the tax burden on the real estate sector, but the creation of a system of selective, conditional, and time-limited tax incentives aimed at increasing the supply of housing at moderated prices.

The architecture of the legislation relies on a clear quid-pro-quo logic: tax benefits are conditional upon the effective allocation of the property to permanent own residence or, above all, to residential lease within objective limits on rent and sale price. The model favours predictability and parametrisation, relying on objective indexation mechanisms (RMMG and IMT tables) and reinforcing legal stability through structured instruments such as Investment Contracts for Leasing (CIA).

A summary of the main measures is presented below.

II. Main Measures

1. Capital Gains and Reinvestment

One of the central measures of the tax package is the exclusion from taxation of real estate capital gains when the sale proceeds are reinvested in the acquisition of property intended for residential leasing, within the legally established parameters.

Basic Rule

Under the general rules of the Personal Income Tax Code, capital gains obtained by individuals from the sale of real estate are taxed at 50% of their amount, which is then included in taxable income and subject to progressive IRS rates (which, in 2026, may reach 48%, plus solidarity surcharges, where applicable).

The new regime allows this taxation to be avoided — totally or partially — provided that the reinvestment occurs as required.

Reinvestment Conditions

The exclusion from taxation depends on:

• Reinvestment of the sale proceeds (after deducting any outstanding loan);

• Allocation of the acquired property to residential lease;

• Compliance with the limits applicable to the regime (namely regarding moderated rent — currently defined as a monthly amount not exceeding €2,300.00);

• Full or proportional reinvestment, with the exclusion adjusted accordingly.

The final text does not expressly provide a reinvestment deadline, a silence that suggests the maintenance of the deadline provided in Article 10(5)(b) of the IRS Code: reinvestment must be carried out between the 24 months preceding and the 36 months following the date of sale (an extension may be granted where the delay is not attributable to the taxpayer).

Where reinvestment is only partial, the exclusion applies in proportion to the amount reinvested.

This measure applies until 31 December 2029, reinforcing the temporary and incentivising nature of the regime.

2. VAT: Reduced Rate and Refund Mechanisms

The tax package introduces significant changes to the VAT regime applicable to the construction and rehabilitation of housing.

Application of the Reduced Rate

The reduced VAT rate (6% in mainland Portugal) now applies to certain construction or rehabilitation works on:

• Urban buildings or autonomous units intended for permanent own residence;

• Properties allocated to residential leasing, including within Investment Contracts for Leasing.

This measure has a direct impact on the global cost of real estate development by reducing the indirect tax burden associated with housing promotion.

Partial VAT Refund — Investment Contracts for Leasing

Within the context of CIA, the legislation further provides for:

• Refund of up to 50% of the VAT incurred on technical services associated with construction or rehabilitation (namely architecture, engineering, projects, and studies).

This is a complementary mechanism to the reduced VAT rate, strengthening the financial attractiveness of structured residential leasing projects.

Partial Refund for Construction of Own Residence

The regime also allows partial refund of VAT incurred by individuals on the construction of their own permanent residence, within the temporal limits set by the legislation.

3. Taxation of Rental Income

In the area of residential leasing, the tax package introduces a significant set of incentives:

• Application of a reduced autonomous IRS rate of 10% for rental income from residential lease contracts;

• Reduction of withholding tax to 10%;

• For IRC taxpayers or IRS Category B taxpayers, only 50% of rental income is considered for tax purposes.

In parallel, the Simplified Affordable Rental Scheme (RSAA) is created, which is the most favourable regime of the package, granting full IRS or IRC exemption on rental income, provided that strict requirements are met.

These include:

• Rent capped at 80% of the median rent per square metre, as determined by Statistics Portugal (INE);

• Minimum contract term of three years (or three months in the case of temporary residence);

• Compliance with monitoring and oversight mechanisms.

The model is clear: the greater the tax benefit, the greater the degree of rent moderation and contractual stability required.

4. Investment Contracts for Leasing (CIA)

The most structurally significant innovation of the package lies in the creation of Investment Contracts for Leasing (CIA).

These contracts allow investors to benefit from a coordinated set of tax incentives, namely:

• Exemption from IMT and Stamp Duty on the acquisition of properties allocated to the regime;

• IMI exemption for up to eight years, with potential reductions of up to 50% in subsequent years;

• Exemption from Additional IMI during the term of the contract;

• Application of the reduced VAT rate to construction or rehabilitation works;

• Refund of up to 50% of VAT incurred on technical services such as architecture and engineering;

• Reduction of up to 50% of the Stamp Duty rate under item 29.2 of the General Stamp Duty Table for certain collective investment undertakings.

Properties must be allocated to residential leasing and comply with maximum rent limits, namely up to 2.5 times the 2026 RMMG.

There is an additional legally relevant element: a mechanism for safeguarding the economic and financial balance of the contract, with the possibility of compensation in the event of subsequent legislative changes that materially affect that balance. This strengthens legal stability and investment predictability.

5. Collective Investment and Objective Parameters

The package also includes specific incentives for collective investment in affordable housing, including:

• 5% taxation on distributions by alternative investment undertakings operating in this segment;

• Partial exclusion of income where a certain percentage of assets is allocated to affordable leasing.

As for structural limits, the legislation establishes:

• A moderated rent cap indexed to the RMMG (up to 2.5 × 2026 RMMG (€2,300.00));

• A moderated sale price indexed to the upper limit of the 2nd bracket of the IMT table under Article 17(1)(b) (≤ €660,982 for 2026).

The use of objective criteria aims to reduce interpretative uncertainty and ensure greater consistency in the application of the tax regime.

III. Assessment

The approved tax package does not constitute broad fiscal liberalisation nor a systemic reform of real estate taxation. Rather, it is a calibrated intervention that uses taxation as an instrument of public housing policy, seeking to influence the market without replacing it.

The goal is to replace isolated measures with a coherent set of coordinated incentives, making stable leasing, moderated pricing, and structured investment more fiscally attractive. The creation of contractualised instruments, such as Investment Contracts for Leasing, introduces an uncommon degree of institutional sophistication in this field.

The regulatory architecture demonstrates technical consistency and concern for legal stability and predictability. However, the regime’s actual impact will depend on its ability to mobilise real supply, particularly in areas where market prices deviate significantly from the defined thresholds.

Put simply: opening the door is not enough — someone must be willing to walk through it.

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