Just days before the 6% VAT rate on construction comes into force, the Tax Authority clarifies the rules and the Government proposes changes to the law.
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Author: Redaction
Tax Authority clarifies the application of 6% VAT on construction
The reduction of VAT on residential construction from 23% to 6% comes into force on 1 July 2026, but the rules continue to raise questions. As the date approaches, the Portuguese Tax and Customs Authority (AT) published a document explaining how the new reduced rate should be applied and clarifying the tax framework under the current legislation.
However, while the Tax Authority was presenting its interpretation of the law, the Government submitted a proposal to Parliament to amend the legislation even before the measure takes effect, which could change some of the rules initially approved.
Government wants to simplify the regime
One of the main proposed changes concerns the way VAT is settled in construction operations. Under the current model, the builder issues invoices without VAT to the property developer, who is then responsible for self-assessing and paying the tax, provided they meet the conditions required to benefit from the reduced rate.
However, the legislation currently limits this mechanism to purchasers of construction services who are entitled to full or partial VAT deduction. The Government's proposal seeks to remove this restriction, extending the regime to all purchasers of construction services.
Conditions to benefit from the reduced rate
Access to the 6% VAT rate remains subject to compliance with several legal requirements. These include the obligation for the properties to be intended as permanent homes, as well as maximum limits on the sale price or rental value.
Currently, the reduced rate only applies to homes with a sale price of up to €660,000 or monthly rents of up to €2,300, provided the remaining legal conditions are met.
Changes may arrive in the coming months
Although the new rate comes into force at the beginning of July, the legal framework may undergo further changes following Parliament's discussion of the Government's proposal.
The aim is to simplify the application of the 6% VAT rate on construction and reduce uncertainty for developers, builders and other operators in the sector. Until any amendments are approved, the current rules remain in force, together with the clarifications issued by the Tax Authority.
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