Government Proposes Tax Exemptions for Build-to-Rent Projects
The Portuguese Government has put forward a new package of measures designed to stimulate the housing market, introducing significant tax incentives for investors in the Build-to-Rent (BTR) sector. The announcement, made during a recent Council of Ministers meeting, details a 'fiscal shock' intended to increase the supply of rental housing across the country.
Under the proposed legislation, investment contracts for BTR developments will benefit from a reduced Value Added Tax (VAT) rate of 6% on construction. The projects are also set to receive an eight-year exemption from the Municipal Property Tax (IMI), a significant extension from the standard three-year exemption. Following this initial period, the IMI rate will be reduced by 50% from the ninth year onward. Additionally, these projects will be exempt from the Municipal Property Transfer Tax (IMT) and will receive a total exemption from the Additional to IMI (AIMI).
A central condition for accessing these fiscal benefits is that the properties must be rented at prices classified as “moderate,” defined as having a monthly rent of up to 2,300 euros. This requirement is intended to ensure that the new housing supply contributes to alleviating rental market pressures. The government also specified that income distributions from Collective Investment Organisms (OIC) related to these projects will be taxed at a reduced rate of 5%.
The fiscal incentives also apply more broadly to general housing construction. Any new housing project will be eligible for the 6% VAT rate on construction, provided the final sale price does not exceed 648,022 euros. This value has been established as the upper limit for what the government considers “moderate value” housing. Furthermore, capital gains from property sales will be tax-exempt if the proceeds are reinvested into another housing property within a five-year period, up to the same value limit.
For landlords in the broader rental market, the government has proposed a reduced IRS (personal income tax) rate of 10% for those who offer three-year rental contracts with rents at or below the 2,300 euro ceiling. Corporate landlords will benefit from a 50% exclusion on their IRC (corporate income tax). In cases where rents are set 20% below the median for the municipality, a full exemption from both IRS and IRC is proposed. For investors, understanding these new rules is critical, and consulting with professionals in property tax is advisable.
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The government has also signaled its intention to introduce further reforms by December, which will address the urban lease regime, eviction processes, and rent support programs. These future changes will also include new regulations for the real estate mediation industry, condominium management, the Housing Emergency Fund, and the legal status of undivided inheritances. This aligns with a broader effort to modernize the regulatory and legal frameworks governing property.
To support these initiatives, public guarantees will be established to help finance Public-Private Partnerships (PPPs), the national Affordable Rent Program, and BTR contracts. A senior official from the Ministry of Housing stated, “Our primary objective is to bring more properties into the rental market, especially in the metropolitan areas of Lisbon and Porto where housing pressure is most acute.”
The government aims to align the housing cost-to-income ratio for families with the recommendations of the Organisation for Economic Co-operation and Development (OECD) and the European Commission, which suggest a maximum effort rate of 40%. The comprehensive set of measures will now proceed to the Assembly of the Republic for debate and final approval. The outcome will be closely watched by developers and investors active in the Portuguese market. For more information on navigating these changes, our buying guide offers valuable resources.
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