Portugal Slashes VAT to 6% for New Housing Construction in Major Policy Shift
The Portuguese government has approved a significant reduction in the Value Added Tax (VAT) for new housing construction, lowering the rate to 6% for properties sold for up to €648,000. The measure, announced by the Prime Minister on Thursday, is part of a broader package aimed at combating the nation's severe housing crisis. The construction and real estate development sectors have applauded the move, calling it a positive step but urging for swift and clear implementation.
The announcement came from the Council of Ministers, which detailed that the 6% VAT rate will also apply to the construction and rehabilitation of properties designated for the rental market, with rent values considered “moderate” at up to €2,300 per month. This fiscal incentive is designed to directly stimulate the supply of new homes. Manuel Reis Campos, head of the Association of Industrialists of Civil Construction and Public Works (AICCOPN), stated that the “success of these initiatives will depend on their swift execution, the clarity of the applicable criteria, and coordination with complementary measures.”
In addition to the VAT cut, the government package includes a long-demanded simplification of municipal licensing processes, aimed at reducing project approval times and cutting through bureaucratic red tape. Further incentives include the elimination of capital gains tax (IRS) on the sale of properties, provided that the entire sale amount is reinvested into properties that will be offered for rent at moderate prices. These measures, according to AICCOPN, “largely reflect” proposals the association has been advocating for in recent years.
The Portuguese Association of Real Estate Developers and Investors (APPII) also expressed strong support. Its president, Hugo Santos Ferreira, said in a statement, “We welcome the 6% VAT measure for construction throughout the country, as well as for rental properties.” APPII views the announcement as a crucial first step in resolving what it terms “the systemic housing problem in Portugal.” The association emphasized the need to now analyze the measures in detail and collaborate with the government to ensure a rapid and non-bureaucratic implementation.
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While developers and construction firms celebrated the news, the government's plan drew sharp criticism from tenant advocacy groups. The 'Porta a Porta' movement described the package as a “'cocktail-bomb' to implode with tenants.” The group argues that the measures disproportionately benefit property owners and speculators. They denounced the new 10% flat IRS rate for most rental contracts and the high ceiling for what the government defines as “moderate rent,” arguing it will fail to control prices. The movement also raised alarms about the relaxation of building regulations, suggesting it could compromise urban planning and safety.
The government's strategy aims to tackle both the supply and demand sides of the housing equation. By lowering the financial barriers to construction, it hopes to incentivize the private sector to build more homes, thereby increasing the overall housing stock. The tax benefits for landlords are intended to make the long-term rental market more appealing compared to short-term tourist lets or leaving properties vacant.
For the construction industry, the VAT reduction represents a direct decrease in project costs, which could unlock developments that were previously not financially viable. The industry now awaits the specific legal diplomas that will codify these announcements into law, paying close attention to the precise criteria and timelines. The effectiveness of this ambitious policy will be closely watched by all market participants, from large-scale developers to individual families seeking affordable housing.
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