In short
Decree-Law No. 97/2026 created item 2.42 of List I of the Portuguese VAT Code: construction or refurbishment contracts for properties intended for sale as the buyer’s permanent home or exclusively for residential letting pay 6% VAT if the sale price does not exceed EUR 660,982 or the monthly rent does not exceed 2.5 times the 2026 monthly minimum wage. It applies to works whose permit application, prior notification or equivalent is filed between 25 September 2025 and 31 December 2029, with VAT due from 1 January 2026 (Article 18(5)). If the conditions fail, the missing VAT must be regularised (Article 11). Individuals building their own home outside a business may claim a refund of the difference (Annex II).
On a EUR 1,000,000 construction contract, the difference between 23% and 6% VAT is EUR 170,000. For a developer, that can decide whether a project is viable. For a buyer, it may be reflected in the price. But the reduced rate does not depend on the works alone: it depends on the property’s use, on the sale price or rent and on deadlines that run for years after construction. A failed condition means regularising the tax.
Which works qualify for 6%
| Intended use | Main conditions | Provision |
|---|---|---|
| Sale as a permanent home | Price up to the upper limit of the 2nd bracket of the 2026 youth IMT table (EUR 660,982); buyer taxed under IMT Art. 17(1)(a) or (b); sale within 24 months of the documentation for start of use; express reference to the rate in the purchase deed | DL 97/2026, Arts. 2(2)(b) and 10(1)(a) |
| Residential letting | Rent up to 2.5 times the 2026 monthly minimum wage; letting exempt from VAT and reported under Art. 60 of the Stamp Duty Code; first lease within 24 months of the documentation for start of use; let for at least 36 months in the first five years; no subletting above the limit | DL 97/2026, Arts. 2(2)(a) and 10(1)(b) |
| Letting under an investment-for-letting contract | Properties covered by the regime in Annex I of the decree-law | VAT Code, List I, item 2.42.2 |
The limits are measured on the total amount paid for the property or the rent, including equipment permanently attached and enhancement services, even if contracted separately (Article 3(1)). Where several people buy, the total value counts, not each share (Article 3(2)). In co-ownership, the rate only applies if all co-owners use the property as their permanent home (Article 10(2)).
Buildings with several units
Under horizontal property, the 6% rate applies only to the part of the contract proportional to the gross floor area of the units that meet the conditions, depending on whether they are for sale or letting (Article 10(3)). A building with shops, offices or units priced above the limit has mixed VAT. The same rule applies, with adaptations, to buildings with independently usable parts not under horizontal property (Article 10(4)).
From when and until when
- The item applies to contracts for urban operations whose procedural initiative takes place between 25 September 2025 and 31 December 2029, with VAT becoming due from 1 January 2026 (Article 18(5)).
- The procedural initiative is the filing of the permit application, the prior notification or, for exempt works, the prior opinion or the notice of start of works (Article 18(6)).
- As a rule, it takes effect from the quarter following the decree-law’s entry into force (Article 18(4)), but applies from 1 January 2026 where the contractor and the client jointly opt for it (Article 18(7)).
Who accounts for VAT: reverse charge
The decree-law amended Article 2(1)(j) of the VAT Code. Buyers of item 2.42 construction services who carry out only operations without a right to deduct now also account for the tax under the reverse charge. This is the typical case of a developer selling housing or letting under the exemption. The construction contract and invoicing must reflect this regime.
What happens if the conditions fail
- VAT regularisation. If a condition is not met or ceases to be met, the taxpayer must regularise the missing tax (Article 11(1)). If done by the end of the tax period following the event, and the requirements of Article 11(2)(a) are met, only compensatory interest is added.
- IMT surcharge on the buyer. If the buyer does not use the home as their permanent residence within six months, or does not keep it as such for the following 12 months, an IMT surcharge of 10% on the taxable value applies. Exceptional circumstances under the IRS Code, such as marriage, divorce or new dependants, are excluded (Article 10(5) and (6)).
Building your own home: VAT refund
Annex II of the decree-law allows individuals who, outside any business activity, contract the construction of their permanent home to claim a refund of the difference between the VAT paid at the standard rate and the VAT at the reduced rate. The property value (tax value, or land plus construction costs if higher) must not exceed the limits in Article 2. It covers VAT due up to 31 December 2032. The claim is filed electronically with the Tax Authority within 12 months of the documentation for start of use. Materials bought separately are not eligible (Annex II, Articles 2 to 4).
Frequently asked questions
Which construction works pay 6% VAT in Portugal in 2026?
Construction or refurbishment contracts for properties intended for sale as the buyer’s permanent home, priced up to EUR 660,982, or exclusively for residential letting, with rent up to 2.5 times the 2026 monthly minimum wage (VAT Code, List I, item 2.42.1, and Decree-Law No. 97/2026, Article 2(2)).
Until when does 6% VAT on construction apply?
To urban operations whose procedural initiative, such as the permit application or prior notification, takes place between 25 September 2025 and 31 December 2029, with VAT due from 1 January 2026 (Decree-Law No. 97/2026, Article 18(5) and (6)).
What if the property is sold above the limit?
The condition is no longer met and the taxpayer must regularise the missing VAT (Decree-Law No. 97/2026, Article 11). In buildings with several units, the reduced rate applies only to the part of the contract relating to units that meet the conditions (Article 10(3)).
Does the buyer of a home built with 6% VAT have any obligations?
They must use it as their permanent home within six months and keep it as such for the following 12 months. Otherwise an IMT surcharge of 10% on the taxable value applies, save for exceptional circumstances such as marriage, divorce or new dependants (Decree-Law No. 97/2026, Article 10(5) and (6)).
I am building my own home. Can I pay only 6% VAT?
The contract is invoiced at the standard rate, but you may claim a refund of the difference from the Tax Authority if the property value does not exceed the legal limits, within 12 months of the documentation for start of use. It covers VAT due up to 31 December 2032, and materials bought separately are not eligible (Decree-Law No. 97/2026, Annex II).
Who accounts for VAT on these contracts?
Where the client only carries out operations without a right to deduct, such as selling housing or exempt letting, the client accounts for the tax under the reverse charge (VAT Code, Article 2(1)(j), as amended by Decree-Law No. 97/2026).
The firm structures residential construction and refurbishment projects, including construction contracts, unit allocation and the 6% VAT analysis, together with the client’s accountant. Book a meeting.
Read also
Housing tax package 2026 · Affordable letting (RSAA): landlord tax benefits · Tacit approval under the new RJUE
Sources
Official Portuguese Gazette (Diário da República), consolidated versions; links checked on 18 October 2026. Always confirm the version in force on the date of your decision.
General information, updated on 18 October 2026. It does not replace an analysis of the specific case and is not legal advice.