Tax incentives

Tax incentives

The Portuguese tax system has a wide range of benefits applicable to urban renovation, as follows:

  • In terms of VAT, the urban renovation construction contracts are subject to a reduced rate of 6%. In this regard, we note that the application of a reduced VAT rate is subject to certain conditions, notably that the construction contract qualifies as an urban renovation contract (“empreitada de reabilitação urbana”). In this regard, recent experience shows that Tax Authorities require additional supporting documentation to evidence compliance of this requirement.
  • The renovation of immovable property, directly contracted with the National Fund for Urban Renovation (“Fundo Nacional de Reabilitação do Edificado”) by its management company is also subject to the reduced rate of 6%.
  • In terms of Municipal Property Tax there are two applicable exemptions (which are alternative and not cumulative):
    • Exemption for buildings or units (inserted in buildings) built more than 30 years ago;
    • Exemption for buildings or units (inserted in buildings) located in urban renovation areas.
  • For the application of this type of exemptions, the following cumulative requirements must be met: (i) the buildings or units are subject to renovation of buildings according to the concept of "renovation of buildings" provided for in the Urban Renovation Legal Regime ("Regime Jurídico da Reabilitação Urbana"); and (ii) as a consequence of this intervention, the conservation status goes up two levels in relation to the conservation status before renovation, with a minimum level of "good" (certified by the Municipality) and complies with applicable energy efficiency and thermal quality requirements.
  • The above exemptions are valid for a period of three years, counting from the year the renovation works were completed, which may be renewed upon request, for an additional five years period (only in the case of properties used for personal and permanent residence or residential long-term lease).
  • At the Property Transfer Tax level there are also exemptions for urban renovation, in the same periods referred to Municipal Property Tax:
    • Exemption for the purchase of property to be renovated, provided that the purchaser starts the renovation work within three years from its purchase;
    • Exemption applicable to the first acquisition of the property after the conclusion of the renovation works, provided the acquirer is an individual that will use the property for personal and permanent residence, when located in an urban renovation area.
  • For the application of these exemptions, the cumulative requirements concerning Municipal Property Tax must also be verified.