6% VAT: errors, fines and risks to avoid
Applying 6% where the law requires 23% is not a saving. It is tax owed, with interest
and with penalties. This page brings together the mistakes that a reading of Decree-Law No. 97/2026 and of the Tax Authority's circulars allows you to anticipate.
Mistake 1. Confusing item 2.42.1 with item 2.42.2
They are distinct items. Item 2.42.1 covers construction contracts for sale to an own permanent residence buyer or for exclusive residential letting, and takes effect on 1 July 2026. Item 2.42.2 covers buildings under the regime of investment contracts for letting, and takes effect on 1 September 2026.[1] Many press summaries mix them up.
Mistake 2. Thinking that self-build benefits, or that it is entitled to nothing
The item requires sale for the acquirer's own permanent residence, or exclusive residential letting.[1][2] Anyone building on their own land meets neither. But the mirror error also misleads: the private individual has a regime of their own for the partial refund of VAT, in annex ii of the diploma.[1] See the page on works on your own home.
Mistake 3. Applying the reduced rate to services that are not construction work
The Tax Authority excludes services that do not fall within the strict concept of construction or rehabilitation work on the built structure.[3] The boundary depends on how the service is contracted: site supervision contracted within an overall construction contract is absorbed into the construction contract regime.[3] Standalone design, brokerage and marketing services follow the general regime.
Mistake 4. Treating subcontracts as if they were construction contracts
The reverse charge provided for within item 2.42 applies exclusively to construction contracts and does not extend to subcontracts, without prejudice to the general reverse charge under article 2(1)(j) of the VAT Code being applicable to them.[3] Because the item refers to construction contracts, the dominant reading is that subcontracts do not benefit from the reduced rate, although the circulars do not expressly set the rate applicable to them.[4] Do not proceed without written confirmation from your chartered accountant.
Mistake 5. Forgetting accessory parts and value adding services in the price cap
The acquisition value includes movable goods, equipment and accessory parts materially attached to the property on a permanent basis, and the services that contribute to its enhancement, even where they are the subject of separate legal transactions.[1] Splitting finishes or the garage into a separate contract does not remove them from the calculation.
Mistake 6. Apportioning by value instead of by area
In horizontal property, the item applies only to the part of the construction contract proportional to the gross construction area and the area in excess of the footprint, field A of article 40 of the IMI Code.[1][5] The key is the area, not the value, even when a unit is ineligible because of its value.[2]
Mistake 7. Missing the 24 month deadline
The sale must take place, or the first lease enter into force, within a maximum of 24 months from the issue of the documentation relating to the start of use.[1][6] It is a condition of the benefit, not a commercial best practice.
Mistake 8. Omitting the mention in the title deed
In the sale variant, express mention must be made, in the title deed, of the application of the item 2.42.1 rate.[1] A silent deed is an unmet condition.
The consequences for the taxable person
Whenever any of the conditions is not met, or ceases to be met, the taxable person must regularise the tax owed, under article 11 of the decree.[1]
Situation | Consequence |
|---|
Regularisation by the end of the tax period following the event that triggers the loss of the right, where the legal requirements are met | No penalties apply beyond the compensatory interest due.[1] |
Other cases | Replacement of the periodic return, without prejudice to the interest and other
applicable penalties.[1][7] |
Tax wrongly charged by the contractor in an operation subject to reverse charge | The acquirer cannot deduct that tax.[3][8] |
The consequence for the buyer
If the property is not used as an own permanent residence within six months of acquisition, proved by tax domicile, or ceases to be used exclusively as an own permanent residence in the 12 months following occupation, an IMT surcharge of 10% applies on the taxable value determined under article 12 of the IMT Code.[1][9][10] Exceptional circumstances provided for in article 10(26) of the Personal Income Tax Code
are excepted.[1][11]
Note the architecture: the use as an own permanent residence by the acquirer is not a condition for applying the reduced rate. Its absence does not oblige the developer to regularise the VAT. It creates liability for the buyer, in terms of IMT.[1][10]
Additional risk: the assignment of contractual position
The assignment of the position in a promissory contract before the deed may trigger IMT at that moment, under article 2(3) of the IMT Code, a reading upheld by CAAD.[12][13][14][15] For VAT purposes it has its own treatment.[16][17] It may also generate capital gains forpersonal income tax.[11] It is an operation that looks simple and rarely is.
How to protect yourself
- Confirm, in writing and before the first invoice, which of the two items applies.
- Ask your chartered accountant for an opinion on the framing of the project and on the subcontracts.
- Document the procedural initiative, the area matrix and the price schedule by unit.
- Control the 24 month deadlines and, for letting, the 36 months within five years.
- Ensure the mention of the item in the title deed.
- Inform buyers, in writing, of the IMT surcharge they may face.
- Reassess the framing whenever a new administrative instruction is issued.
Frequently asked questions
If I applied 6% by mistake, what do I do?
Regularise under article 11. If the regularisation takes place by the end of the following tax period and the legal requirements are met, no penalties apply beyond compensatory interest.[1] Talk to your chartered accountant.
Does liability fall on the contractor or the works owner?
It depends on who was required to charge the tax. With the reverse charge, the obligation lies with the works owner. Without the reverse charge, it lies with the supplier.[3] The obligation to regularise falls on the taxable person.[1]
Can the buyer be held liable?
Yes, through the IMT surcharge of 10% on the taxable value, if they do not use the property as an own permanent residence within the legal deadlines.[1][9]
Does the developer lose the reduced rate if the buyer does not move in?
No. Use by the acquirer is not part of the conditions for applying the reduced rate.[1][10]
Call to action
Do you have a construction, renovation or home purchase project and want to understand the real impact of 6% VAT? The Porta da Frente Christie’s International Real Estate team supports developers, owners and buyers at every stage of the transaction, from the initial framing to the deed. Talk to us and arrange a no obligation conversation.
Sources
All sources were verified on the date shown at the top of this page.
[1] Decree-Law 97/2026, full text (PDF, Diário da República, series I no. 97).
https://files.diariodarepublica.pt/1s/2026/05/09700/0001400040.pdf[6] Portuguese Urbanisation and Building Legal Regime (RJUE), Decree-Law 555/99 of 16
December.
https://diariodarepublica.pt/dr/legislacao-consolidada/decreto-lei/1999-34448575[15] Gómez-Acebo & Pombo, IMT on the assignment of promissory contracts (September 2025).
https://ga-p.com/wp-content/uploads/2025/09/Impuesto_transmisiones_patrimoniales_pt.pdf[16] Portuguese Order of Certified Accountants, VAT on assignment of contractual position.
https://www.occ.pt/pt-pt/noticias/iva-cedencia-da-posicao-contratual-0[17] Tax Authority binding rulings IVE 12151, IVE 13145 and IVE 1658 (assignment of contractual position).
http://taxfile.pt/file_bank/news5217_30_1.pdfThis content is informational and does not constitute tax or legal advice. The legislation referred to may change. Always confirm your specific situation with a certified accountant or lawyer. Porta da Frente Christie’s International Real Estate
