6% VAT on housing: frequently asked questions and glossary
We have gathered the questions we receive most often about 6% VAT on housing construction, and a glossary of the terms that appear in the legislation and in the Tax Authority's instructions.
Frequently asked questions
What is 6% VAT on housing?
It is the application of the reduced VAT rate to certain construction and rehabilitation contracts for housing, created by Decree-Law No. 97/2026 through item 2.42 of List I of the VAT Code.[1][2][3]
What is the difference between item 2.42.1 and item 2.42.2?
Item 2.42.1 covers construction contracts for properties intended for sale to an own permanent residence buyer, or exclusively for residential letting. Item 2.42.2 covers buildings under the regime of investment contracts for letting, the CIA regime.[2]
Since when has it been in force?
Item 2.42.1 takes effect from the quarter following the decree's entry into force, that is, 1 July 2026. The CIA regime, and therefore item 2.42.2, takes effect on 1 September 2026.[2][4]
Do I pay 6% VAT when I buy the house?
No. The transfer of property is exempt from VAT.[5] The 6% falls on the construction contract engaged by the works owner.
What is the price cap?
€660,982 in 2026, by reference to the upper limit of the second band of article 17 of the IMT Code. It can be updated by ministerial order.[2][6]
Do garages count towards the cap?
Yes. Accessory parts materially attached to the property on a permanent basis count, as do value adding services, even where they are the subject of separate legal transactions.[2][7]
What is the rent limit?
2.5 times the guaranteed minimum monthly wage set for 2026, which corresponds to €2,300 per month.[2]
When must the works be licensed?
The procedural initiative must begin from 25 September 2025 to 31 December 2029.[2]
How long does the benefit last?
Item 2.42.1 ceases to be in force on 31 December 2032.[2]
I am building my house. Am I entitled to 6% VAT?
Not under item 2.42.1, which requires a sale or a letting.[2][8] The builder invoices at the standard rate, but you may then claim a partial refund of the difference down to the reduced rate, under annex ii of the diploma.[2] Renovation works on the home where you live may benefit from item 2.27.[3]
How does the VAT refund on building your own home work?
Annex ii of Decree-Law No. 97/2026 lets private individuals building for their own permanent residence claim from the Tax Authority the difference between the VAT borne at the standard rate and what would result from the reduced rate. The claim is electronic, within 12 months of the start-of-use documentation, and the Tax Authority makes the refund within a maximum of 150 days.[2]
Are subcontracts at 6%?
The specific reverse charge of item 2.42 does not extend to subcontracts.[9] The
dominant reading is that they do not benefit from the reduced rate, but the circulars do not state this expressly.[10]
What is the reverse charge?
It is the rule whereby, in civil construction services, the VAT is charged by the acquirer and not by the supplier. There is no reverse charge when the acquirer is not a taxable person for VAT.[9]
What about the architectural design?
Services that do not fall within the strict concept of construction or rehabilitation work are excluded from the scope.[9] Site supervision contracted within an overall construction contract is absorbed into the construction contract regime.[9]
How is the construction contract apportioned in a building with ineligible units?
By area, with reference to the gross construction area and the area in excess of the footprint, field A of article 40 of the IMI Code.[2][7][8]
What rates apply in Madeira and the Azores?
In Madeira, a standard rate of 22% and a reduced rate of 4%. In the Azores, 16% and 4%.[11][12]
What happens if I buy and then do not move in?
An IMT surcharge of 10% applies on the property's taxable
value, save in exceptional circumstances.[2][13]
Is the developer required to lower the price of the house?
No. The law reduces the VAT cost on the construction contract, it does not regulate the sale price.
Is urban rehabilitation covered?
Item 2.42.1 covers rehabilitation under the conditions of the decree.[2] There are dedicated items for rehabilitation, namely 2.23 and 2.27, which the decree did not repeal.[3][14] A clarification bill for item 2.23 was approved only at first reading on 6 July 2026.[15]
How much does this measure cost the State?
The Government estimated between €200 million and €300 million per year. The Budget Support Technical Unit pointed to a higher figure.[16]
Where do I find the official text?
In the Diário da República, Decree-Law No. 97/2026 of 20 May, and in circulars No. 25116/2026 and No. 25117/2026 of the Tax Authority.[1][2][8][9]
Glossary
Accessory parts (partes acessorias)
Movable goods, equipment or parts that are materially attached to the property on a permanent basis. They count towards the price cap.[2][7]
Assignment of contractual position (cedência de posição contratual)
Transfer of the promissory buyer's position to a third party before the deed. It may trigger IMT and has its own treatment for VAT.[17][18][19]
CIA, investment contracts for letting
A regime approved as an annex to Decree-Law No. 97/2026, with tax benefits for a period of up to 25 years for investment in properties intended for residential letting. It is the scope of item 2.42.2 and takes effect on 1 September 2026.[2]
Construction contract (empreitada)
A contract by which one party undertakes to carry out works for a price. It is the object of item 2.42.[3]
Field A (campo A)
The sum of the gross construction area and the area in excess of the footprint, under article 40 of the IMI Code. It is the key for apportioning the construction contract.[7][8]
IMT
Municipal Tax on Transfers of Property for Consideration, due on purchase.[17][20]
IMT surcharge (agravamento do IMT)
A surcharge of 10% on the property's taxable value, applicable to the buyer who does not use the property as an own permanent residence within the legal deadlines.[2][13]
Interim payment certificate (auto de medicao)
A document that certifies the works carried out in a period and that serves as the basis for invoicing the construction contract.
Item 2.27
A pre-existing item of List I, applicable to construction contracts for improvement, remodelling, renovation, restoration, repair or conservation of properties used for housing. It does not cover incorporated materials, unless their value does not exceed 20% of the total value of the service.[3]
Item 2.42.1
The item of List I of the VAT Code that applies the reduced rate to construction contracts for properties intended for sale to an own permanent residence buyer or exclusively for residential letting.[2][8]
Item 2.42.2
The item applicable to urban buildings for residential letting covered by the CIA regime.[2]
Own permanent residence (habitação própria e permanente)
Use of the property as the acquirer's habitual residence, proved through their tax domicile.[2]
Procedural initiative (iniciativa procedimental)
Submission of the licensing application, the prior notification, the prior opinion or the notice of commencement of works. Its date determines eligibility.[2][21]
Regularisation of the tax in favour of the State
The obligation of the taxable person to regularise the tax owed when any of the conditions of item 2.42.1 ceases to be met, under article 11 of the decree.[2]
Self-assessment, reverse charge (autoliquidação)
The same as the reverse charge. The acquirer accounts for the VAT instead of the supplier.[9]
Subcontract (subempreitada)
A contract between the contractor and a third party for the execution of part of the works. The specific reverse charge of item 2.42 does not extend to it.[9]
Taxable asset value, VPT
Taxable asset value, determined by the tax valuation of the property.[7]
Taxable person (sujeito passivo)
A natural or legal person with VAT obligations. A private individual is not a taxable person, and so there is no reverse charge on the works they engage.[9]
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 of 20 May (Diário da República, Portuguese official gazette).
https://diariodarepublica.pt/dr/detalhe/decreto-lei/97-2026-1124493227[2] Decree-Law 97/2026, full text (PDF, Diário da República, series I no. 97).
https://files.diariodarepublica.pt/1s/2026/05/09700/0001400040.pdf[4] Portuguese Order of Certified Accountants, technical summary of the Housing Package (PDF).
https://www.occ.pt/sites/default/files/public/2026-05/HABITACAO_22maioa.pdf[12] Tax Authority Circular 25045/2024 (Madeira reduced rate, Regional Decree 6/2024/M).
https://at.madeira.gov.pt/ficheiros/Oficio_circulado_25045_2024.pdf[15] Idealista, Parliament approves at first reading, unanimously, a bill clarifying the 6% rate for urban rehabilitation (6 July 2026). Awaiting committee stage and publication.
https://www.idealista.pt/news/imobiliario/habitacao/2026/07/06/76380-parlamento-aprova-por-unanimidade-iva-a-6-na-reabilitacao-urbana[19] Portuguese Order of Certified Accountants, VAT on assignment of contractual position.
https://www.occ.pt/pt-pt/noticias/iva-cedencia-da-posicao-contratual-0[20] Tax Authority Circular 40129/2026 of 6 January (2026 IMT rate tables).
https://at.madeira.gov.pt/ficheiros/Oficio_circulado_40129_2026.pdf[21] Portuguese Urbanisation and Building Legal Regime (RJUE), Decree-Law 555/99 of 16 December.
https://diariodarepublica.pt/dr/legislacao-consolidada/decreto-lei/1999-34448575This 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.
