Value Added Tax (VAT)

Value Added Tax (VAT)

As a general rule, the leasing of real estate under standard leases is VAT exempt.

However, taxpayers (landlords) that lease properties to other VAT taxable persons under standard leases may waive the exemption (typically to recover VAT in construction or renovation), provided that the latter use those properties for activities that are subject to VAT and are also granted the right to deduct VAT. In that case, the rents are subject to VAT at the standard rate (currently 23%), and no Stamp Duty is payable.

In shopping center leases and services agreements (in this last case, to the extent certain requisites are met), rents are subject to VAT at the standard rate of 23%. Hotel and accommodation services (such as Short-Term Rental) are also subject to VAT at a reduced rate of 6%.

Stamp Duty

Standard lease agreements are subject to Stamp Duty (known in Portugal as "Imposto do Selo") at a rate of 10%. Stamp Duty applies upon registration of the lease agreement with the Tax Authorities and is levied on the amount of one monthly rent.

Tax Benefits for Residential Leases

Affordable Leasing Program ("Programa de Arrendamento Acessível")

Leasing income deriving from lease agreements subject to the Affordable Leasing Program is exempt from Corporate and Personal Income Tax. Please note, however, that the application of such exemption depends on the compliance with the formal requirements of the Affordable Leasing Program.

Conversion of Short-Term Leases into standard leases

Under Personal Income Tax rules, the termination of Short-Time Rental activities and the re-allocation of the real estate to passive holding may imply the immediate taxation of real estate latent capital gains (regardless of any disposal of property). The Personal Income Tax code was amended in 2020, allowing that latent gains remain untaxed if upon termination of the Short-Time Rental activities the real estate property is used for standard leasing activities (arrendamento).

Long-Term Leases

Leasing income deriving from "long-term" lease agreements may benefit from Personal Income Tax rate reductions, as follows:

  • reduction of 2% in respect of lease agreements with a duration from 2 up to 5 years; for renewals with the same duration, an additional reduction of 2% shall also be applicable (which may never go below the 14% tax rate);
  • reduction of 5% in respect of lease agreements with a duration from 5 up to 10 years; for renewals with the same duration, an additional reduction of 5% shall also be applicable (which may never go below the 14% tax rate);
  • reduction of 14% in respect of lease agreements with a duration from 10 up to 20 years; and
  • reduction of 18% in respect of lease agreements with a duration of over 20 years.