Portugal has approved tax incentives for residential construction and moderate-rent housing as part of a broader effort to increase housing supply.
Portugal has introduced a broad package of tax incentives and housing reforms through Decree-Law No. 97/2026 on 20 May 2026, with measures aimed at increasing housing supply and supporting moderate-priced homes for the middle class and first-time buyers.
The legislation applies a temporary 6% VAT rate to residential construction and rehabilitation projects intended for sale as a primary residence or for rental purposes, provided they meet moderate price or rent limits.
Individuals building their own primary residence may also qualify for a partial VAT refund.
In addition, the first acquisition of certain cost-controlled housing may benefit from an exemption from Municipal Property Transfer Tax (IMT) and a reduction in Stamp Duty, subject to specific conditions.
A central element of the reform is the creation of the simplified affordable rental regime (regime simplificado de arrendamento acessÃvel – RSAA), which replaces the 2019 Programme of Support for Rental. Under the RSAA, rents must not exceed 80% of the median rental value in the relevant municipality, and income generated from qualifying contracts is exempt from IRS and IRC.
For residential rental contracts outside the RSAA but within the moderate rent thresholds, the autonomous IRS tax rate on rental income is reduced to 10% until the end of 2029. The annual limit for tenants to deduct rent from their IRS is also increased to EUR 900 in 2026 and EUR 1,000 from 2027.
The decree introduces incentives for investment in the rental sector through Rental Investment Contracts (CIA), under which investors committing to long-term moderate-rent projects may receive exemptions from IMT, Stamp Duty and IMI, together with a 50% reduction in IMI after the initial exemption period.
Property owners will also be able to benefit from an IRS exemption on capital gains when proceeds from the sale of a property are reinvested in residential rental properties that meet moderate rent requirements.
Most IRS and IRC measures apply retroactively from 1 January 2026, while the RSAA and CIA regimes are scheduled to enter into force on 1 September 2026. The reduced VAT rate is expected to remain in place until 31 December 2032.
