Government Signals Potential 6% VAT for Housing Construction in 2026 State Budget
A proposal within the Portuguese State Budget for 2026 (OE2026) has signaled the government's intention to introduce a significant fiscal stimulus for the housing sector, according to specialists speaking at a conference in Lisbon on Tuesday. The measure, part of the 'Construir Portugal' program, includes a potential reduction of the VAT rate to 6% for the construction and rehabilitation of properties, a move long demanded by the real estate and construction industries.
The announcement was a central topic at a debate promoted by Jornal Económico and EY Portugal at the Chamber of Commerce and Industry in Lisbon. Bruna Melo, a tax services partner at EY, explained that while the government has presented a broad set of proposals, they currently remain "a set of intentions." She emphasized that the specifics of implementation are not yet clear but identified the VAT reduction as the "most emblematic measure" with the potential for a significant "fiscal shock" to the sector.
According to the initial details, the reduced 6% VAT rate would apply to new construction and rehabilitation projects for properties sold for up to €648,000. For properties entering the rental market, the benefit would apply to those with monthly rents up to €2,300. "It was the most reclaimed measure and the one that can have the most significant impact on the sector," stated Melo, adding, "It is necessary to understand how it will be implemented, all the details are important."
This legislative proposal aims to directly address the housing supply shortage by lowering the costs associated with development. The current standard VAT rate for construction is 23%, and a reduction to 6% would represent a substantial cost saving for developers. The government's plan also includes a renewed push to incentivize the 'built-to-rent' market, which, according to Melo, failed to gain traction under previous incentive schemes. For those in the sector, staying informed on these developments is crucial, and resources like legal updates news provide ongoing information.
Jaime Rocha, a partner for international tax and transaction services at EY, provided a broader context for the OE2026, noting it is the "first year in which we do not truly have large fiscal measures." He described the gradual reduction of the corporate income tax (IRC) over three years as a "symbolic, but important" message that "Portugal wants to improve fiscal policy." However, for the property sector, the focus remains squarely on the housing-specific proposals.
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The government's rationale is to stimulate an increase in the housing stock, thereby alleviating price pressures in high-demand urban centers like Lisbon and Porto. By making development more financially attractive, the policy aims to encourage private investment in both new builds and the renovation of existing buildings. Developers and investors considering new projects may find it beneficial to engage with certified constructors who are prepared for these new regulations.
While the proposal has been met with optimism, industry stakeholders are awaiting the final legislative text to understand the precise terms and conditions. The eligibility criteria for projects, the administrative process for applying the reduced rate, and the exact timeline for implementation are details that will determine the measure's ultimate effectiveness. Navigating these changes will require expert financial advice, particularly from professionals like property tax accountants who specialize in the sector.
The 'Construir Portugal' program represents a cornerstone of the current government's housing strategy. Its success will depend on the clear and effective implementation of its core measures, particularly the promised VAT reduction. The real estate market will be watching closely as the budget is debated and finalized in the coming weeks.
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