Porta da Frente Christie’s International Real Estate - 22/07/2026, 10:51:21
Building your own home: no 6% VAT, but a partial refund | Porta da Frente Christie’s International Real Estate
Building your own home: no 6% VAT, but a right to a partial refund
Many private individuals read in the papers that there is now VAT at 6% on housing
construction and concluded that they can build their own house at that rate. It is not quite like that. The construction contract is invoiced at the standard rate, but Decree-Law no. 97/2026 created, in its annex ii, a regime that lets the private individual ask the Tax Authority to refund the difference down to the reduced rate. This page explains both things: why there is no 6% on the invoice, and how the refund works.[1]
construction and concluded that they can build their own house at that rate. It is not quite like that. The construction contract is invoiced at the standard rate, but Decree-Law no. 97/2026 created, in its annex ii, a regime that lets the private individual ask the Tax Authority to refund the difference down to the reduced rate. This page explains both things: why there is no 6% on the invoice, and how the refund works.[1]
Self-build does not qualify for item 2.42.1
Item 2.42.1 applies to construction contracts for the building or refurbishment of properties intended for sale as the buyer's own permanent residence, or intended exclusively for residential letting.[1][2] Anyone building their house on land that is already theirs neither sells nor lets. They do not fit into either of the regime's two entry points.
The conclusion does not stem from any silence in the law. It stems from the conditions the law imposes. In the sale branch, article 10 requires that the property be sold, that the IMT rates of article 17 of the relevant Code apply on the acquisition, and that the application of the item be expressly mentioned in the title deed.[1] Anyone who already owns the land has no sale, no acquisition subject to IMT and no title deed. None of the three conditions can be met.
All the practical examples in Circular Letter no. 25116/2026 have a property developer as works owner, who then sells or lets. The private individual appears only downstream, as a buyer.[2]
So what rate comes on the builder's invoice
The standard rate. Since the recipient of the service is not a taxable person, there is no reverse charge: it falls to the supplier to charge the tax due on the invoice.[3] The builder charges 23% on the Mainland, 22% in Madeira and 16% in the Azores. It is on this VAT borne at the standard rate that the refund claim then bears.
The partial refund regime of annex ii
Here is the answer to the question that brings the reader to this page: I am building my house, what am I entitled to? Decree-Law no. 97/2026 approved, in annex ii, a regime for the partial refund of the amount equivalent to the VAT borne by private individuals on construction contracts for properties for their own permanent residence. In practice: the builder invoices at the standard rate, the private individual bears that VAT and, once the conditions are met, asks the Tax Authority to refund the difference down to the reduced rate.[1]
Who can claim
Those who can benefit are private individuals who contract construction works outside the pursuit of a business or professional activity, where the VAT becomes chargeable up to 31 December 2032, under articles 1 and 2 of annex ii.[1] It is, in other words, the regime designed for someone building their own house, and not for a developer.
How much is refunded
The amount refunded corresponds to the difference between the VAT actually and demonstrably borne at the standard rate and that which would result from applying the reduced rate to the eligible expenses, under article 6(1) of annex ii.[1] That is, the differential between 23% and 6% on the Mainland is refunded, on the eligible part.
The materials trap. Only the VAT borne on construction contracts at the standard rate is eligible, on invoices issued under the law and whose details have been reported under article 3 of Decree-Law no. 198/2012, of 24 August. [1] The mere purchase of materials incorporated into the construction is not eligible. If you buy the materials directly, the VAT on those materials falls outside the refund. Contract the supply within the construction contract.
The value cap
The regime applies to construction contracts for properties intended for own permanent residence whose taxable asset value entered in the register, or the acquisition value of the land plus construction costs excluding VAT if higher, does not exceed the limits of article 2(2) and (3) of the decree, the same €660,982 of 2026, updatable by ministerial order.[1] Construction costs include the movable goods, equipment or ancillary parts materially attached to the property on a permanent basis, and the services that add to its value. If the land was acquired free of charge, the value taken for stamp duty purposes is used. It is the same cap as on the price cap page.
Allocation to own permanent residence
The property must be allocated to own permanent residence within six months of the issue of the documentation relating to the start of use, under the Urbanisation and Building Legal Regime, evidenced by the tax domicile, and that allocation must be maintained for a minimum of 12 months, save in exceptional circumstances under article 10(26) of the Personal Income Tax Code.[1][4][5] The regime of article 10 of the decree also applies, with the necessary adaptations.
How to claim the refund, step by step
Stage | What the law requires |
|---|---|
Where and when | Claim made exclusively by electronic data transmission to the Tax Authority, within 12 months of the issue of the start-of-use documentation.[1] |
Documents to attach | Identification of the property; identification of all co-owners and their respective shares; the construction contract or contracts; the use permit (RJUE); proof of the land value; invoices for the whole of the construction costs.[1] |
Retention | Keep the supporting documents for five years, without prejudice to other tax retention periods.[1] |
Payment deadline | The Tax Authority makes the refund within a maximum of 150 days of receiving the duly documented claim.[1] |
Method of payment | By bank transfer to the IBAN recorded in the Tax Authority's database.[1] |
If any of the conditions is not met, or ceases to be met, the Tax Authority may correct the amount refunded within four years of the end of the legal deadline for meeting those conditions, issuing the corresponding additional assessment, under article 7 of annex ii.[1]
The dates of the refund regime
Annex ii takes effect from the quarter following the entry into force of the decree, that is, 1 July 2026, and applies to construction contracts relating to urban operations whose procedural initiative begins from 25 September 2025 to 31 December 2029 and where the tax becomes chargeable from 1 January 2026.[1] See the deadlines and dates page.
Two cautions about the dates. First: claims relating to the first three quarters of 2026 may only be submitted from 1 October 2026, with the 12-month period counted from that date.[1] Second: the joint option to backdate to 1 January 2026, provided for item 2.42.1, does not mention annex ii. Do not assume that the refund is retroactive by option.
What exists for refurbishment works
For those carrying out works on the home they already live in, rather than new construction, the answer changes. Decree-Law no. 97/2026 repealed only Decree-Laws nos. 68/2019 and 69/2019.[1] It did not touch the reduced-rate items that already existed in List I of the VAT Code for works on housing, which remain in force.[6]
Item | What it covers | Important note |
|---|---|---|
2.27 | Construction contracts for the improvement, remodelling, renovation, restoration, repair or conservation of properties used for housing.[6] | The reduced rate does not cover incorporated materials, unless their value does not exceed 20% of the total value of the supply of services.[6] Cleaning work and the maintenance of green spaces and swimming pools are excluded. |
2.23 | Construction contracts for the rehabilitation of buildings located in delimited urban rehabilitation areas.[6] | Depends on the property being located in an urban rehabilitation area (ARU) delimited under the law. A matter subject to a parliamentary clarification bill, approved only in general terms on 6 July 2026.[7] |
In other words: building your house from scratch is invoiced at the standard rate, with the right to the annex ii refund we saw above, but remodelling the home you live in may be taxed at 6% under item 2.27, with the limitation regarding materials. If the property is in an urban rehabilitation area (ARU), also check item 2.23.
The 20% materials rule, in practice
Under item 2.27, the reduced rate applies to the supply of services. Incorporated materials only qualify if their value does not exceed 20% of the total value of the supply.[6] In a remodelling job with a heavy materials component, for example high-end kitchens, sanitary ware and finishes, that threshold is frequently exceeded. Ask the builder for the breakdown between labour and materials before signing.
Documents to keep
- The construction contract, with the breakdown between labour and materials.
- Proof of the submission date of the licence application or the prior notification.
- All the builder's invoices, with the rate applied and the item invoked clearly shown.
- If invoking item 2.23, proof that the property is located in a delimited urban rehabilitation area (ARU).
- If you are going to claim the annex ii refund, the use permit, proof of the land value and invoices for the whole of the construction costs. Keep everything for five years.
- The use permit and the property tax register entry after completion.
Frequently asked questions
I am a private individual and I am going to build my house. Do I pay 6% VAT?
No. Item 2.42.1 requires a sale for the buyer's own permanent residence, or residential letting, and self-build fits into neither.[1][2] The builder charges the standard rate. You may, however, later ask the Tax Authority to refund the difference down to the reduced rate, under annex ii of the decree, if you meet its conditions.[1]
How do I recover the difference between 23% and 6%?
Through the partial refund claim of annex ii. The claim is made electronically to the Tax Authority, within 12 months of the start-of-use documentation, supported by the construction contract, the use permit, proof of the land value and the invoices for all the construction costs. The Tax Authority makes the refund within a maximum of 150 days.[1]
I bought the materials myself. Do they count towards the refund?
No. Only the VAT on construction contracts invoiced at the standard rate and reported under the law is eligible. The mere purchase of materials is expressly excluded.[1] Buy
through the builder, within the construction contract.
through the builder, within the construction contract.
What if I set up a company to build and then buy the house from that company?
In that case there is a sale, and the treatment changes. This is, however, an operation with significant tax and corporate implications. Do not proceed without written advice from a certified accountant or a lawyer.
I am going to remodel the home I live in. What rate applies?
The 6% rate may apply under item 2.27, on the supply of services. Incorporated materials only qualify if their value does not exceed 20% of the total value of the supply.[6]
Do I have to submit any VAT return?
No. A private individual is not a taxable person. There is no reverse charge and it is the builder who charges and remits the tax.[3]
I buy the tiles and the kitchen myself. Do I benefit from the reduced rate?
No. Materials acquired separately, outside the construction contract, follow the general tax rules.[3]
Call to action
Do you have a construction, refurbishment or home-purchase project and want to understand the real impact of VAT at 6%? The Porta da Frente Christie’s International Real Estate team supports developers, owners and buyers at every stage of the operation, from the initial assessment to the deed. Talk to us and arrange a conversation with no obligation.
Do you have a construction, refurbishment or home-purchase project and want to understand the real impact of VAT at 6%? The Porta da Frente Christie’s International Real Estate team supports developers, owners and buyers at every stage of the operation, from the initial assessment to the deed. Talk to us and arrange a conversation with no obligation.
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
[2] Tax Authority Circular 25116/2026 of 23 June (item 2.42.1, with worked examples). https://info.portaldasfinancas.gov.pt/pt/informacao_fiscal/legislacao/instrucoes_administrativas/Documents/Oficio-Circulado-25116-2026.pdf
[3] Tax Authority Circular 25117/2026 of 24 June (reverse charge). https://info.portaldasfinancas.gov.pt/pt/informacao_fiscal/legislacao/instrucoes_administrativas/Documents/Oficio-Circulado-25117-2026.pdf
[4] Portuguese Urbanisation and Building Legal Regime (RJUE), Decree-Law 555/99 of 16
December. https://diariodarepublica.pt/dr/legislacao-consolidada/decreto-lei/1999-34448575
December. https://diariodarepublica.pt/dr/legislacao-consolidada/decreto-lei/1999-34448575
[5] Portuguese Personal Income Tax Code (CIRS), articles 10 and 43 (capital gains). https://info.portaldasfinancas.gov.pt/pt/informacao_fiscal/codigos_tributarios/cirs_rep/Pages/irs10.aspx
[6] Portuguese VAT Code, full List I (items 2.18, 2.23, 2.25, 2.27 and 2.42). https://info.portaldasfinancas.gov.pt/pt/informacao_fiscal/codigos_tributarios/civa_rep/Pages/c-iva-listas.aspx
[7] 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
This 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.
