New Simplex Law Expands Withholding Tax Exemption for Property Income
The Portuguese government has enacted new tax simplification measures under Decree-Law n.º 49/2025, which introduces significant changes to the Personal Income Tax (IRS) code, particularly concerning withholding tax obligations. As part of the ongoing Simplex program, these alterations are designed to reduce the administrative burden on taxpayers. A key measure with direct implications for the real estate sector is the expansion of the withholding tax exemption to now include property income (Rendimentos Prediais, Category F).
The new legislation establishes a standardized minimum threshold for withholding tax across several income categories. The government has broadened the applicability of a withholding tax exemption for any single payment where the tax to be withheld is less than €25.00. This rule now covers income from Category B (business and professional), Category E (capital), and, most notably for property investors, Category F (property). This represents a significant change from the previous framework, where, until June 30, 2025, a similar exemption was primarily applicable to capital gains and was capped at a much lower value of €5.00.
The implementation timeline for this measure is immediate, as the law took effect following its publication. The primary objective of this change is to streamline tax procedures for low-value transactions, eliminating the need for taxpayers and paying entities to process minor withholding tax amounts. This is expected to improve cash flow for the recipients of such income, as they will receive the gross amount and settle their tax liability in the annual tax return, rather than having tax deducted at the source on small payments throughout the year.
This new exemption specifically affects property owners who receive rental income. For example, considering the standard withholding tax rate of 25% on rental income, any electronic rent receipt issued for an amount less than €100.00 will now be exempt from withholding tax, as the resulting tax would be below the €25.00 threshold. This is particularly relevant for landlords with lower-rent properties or those who issue receipts for partial payments. The law also benefits service providers whose activities are linked to the real estate market, such as notaries or intermediaries who receive commissions, as their services were not previously covered by such a withholding exemption.
The compliance requirements have been updated accordingly. The Portuguese Tax Authority's online portal (Portal das Finanças) has already been adapted to incorporate this new rule. When taxpayers issue electronic invoices or rent receipts (faturas-recibo or recibos de renda eletrónicos), the system now provides the option to apply this specific withholding tax exemption, citing the relevant article of the IRS Code. This ensures a smooth and immediate implementation of the new legal provision, allowing taxpayers to benefit from the simplification without delay.
This legislative change is part of a broader set of simplifications introduced by the decree-law, which also includes the standardization of deadlines for various tax obligations, moving them to the end of February each year to create a more uniform and predictable tax calendar. The government's rationale behind these changes is to create a more efficient and user-friendly tax system, reducing bureaucracy and supporting economic activity by improving liquidity for individuals and small businesses, including those operating within the property market.
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