Full Effect of 6% Construction VAT Only Expected from 2027, Says Finance Minister
The Minister of Finance, Joaquim Miranda Sarmento, anticipates that the "major effect" of the reduction in the construction VAT rate from 23% to 6% will only materialize from 2027 onwards, as the impact will not be immediate. This timeline is a critical piece of information for developers and investors, particularly those working with constructors in Lisbon on future projects.
"This is a very important measure, but it is medium-to-long term. It will not have very significant effects as early as 2026. Projects take some time to get their approval, and then for constructors to be able to start building," stated Sarmento during a parliamentary hearing on the proposed State Budget for 2026 (OE2026).
During the session with the Committee on Budget, Finance, and Public Administration (COFAP), Joaquim Miranda Sarmento clarified that the 6% VAT will apply "to new projects submitted to the municipalities," a process that will begin "at the moment the law comes into force," which is planned for 2026.
However, he emphasized that the results will not be instantaneous. "The major effect will start to be felt in 2027, due to this delay that exists between the presentation of projects, their approval, and the start of works," he noted. This delay is a key factor for financial planning, a topic covered in our guide on financial concerns when buying property.
The policy change was first announced by the Prime Minister on September 25th. The government intends to propose to parliament a VAT rate reduction to 6% for the construction of homes for sale priced up to €648,000. For properties intended for the rental market, the reduced rate will apply to those with rents up to €2,300 per month.
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This new tax regime is scheduled to remain in effect until 2029, as stated by the head of government. Prime Minister Luís Montenegro conceded that the €2,300 rental cap "sounds a bit high," but defended it as a "maximum ceiling" intended to stimulate housing construction for families in high-pressure areas, specifically citing the Lisbon and Porto Metropolitan Areas.
The measure is a central component of the "Constructing Portugal - Rental and Simplification" package. This initiative is designed to increase the supply of affordable housing and is aligned with measures within the national Recovery and Resilience Plan (RRP). For foreign investors, understanding the tax implications is crucial, and consulting with accountants specializing in property tax is advisable.
The proposed legislation for the VAT reduction has not yet been formally introduced in parliament and is not included as part of the OE2026 initiative. Stakeholders in the construction and real estate sectors are awaiting the formal submission of the bill for further details.
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