Portugal continues to strengthen its position as one of Europe’s most attractive destinations for real estate investment. Following a sustained period of growth in hospitality, student housing, commercial assets, and hybrid residential projects, the Portuguese government has now introduced a package of tax incentives under the Construir Portugal programme. The scheme is designed to boost housing supply, encourage affordable rental markets, and attract domestic and foreign capital into the construction and rehabilitation of residential real estate.
The programme delivers a coordinated set of tax measures amending personal income tax (PIT), corporate income tax (CIT), VAT, and property taxes rules. It also creates a layered incentive structure that, when combined with Portugal’s existing tax regimes – including the special taxation framework for collective investment undertakings (SICs) and other available benefits – may materially enhance investment returns and after-tax cash flow across the project life cycle.
PIT and CIT: reducing the tax burden on rental income
At the core of the programme lies a significant reduction in the taxation of rental income for individuals and corporate investors. For individual landlords, a reduced autonomous PIT rate of 10% applies to residential rental income where rents do not exceed €2,300 per month, provided the lease is entered into by December 31 2029.
A further incentive applies at the individual level through a capital gains reinvestment exclusion. Capital gains realised on the sale of residential properties may be fully excluded from PIT, provided the proceeds (net of outstanding financing) are reinvested – between 24 months before and 36 months after the disposal – in the acquisition of a property destined for residential letting at moderate rents.
For corporate investors, only 50% of rental income from contracts with moderate rents (i.e., €2,300) is included in the CIT-able base, effectively halving the corporation tax charge on qualifying rental revenues earned until December 31 2029. When combined with Portugal’s progressive reduction of the headline CIT rate – from 19% in 2025 to 17% by 2028 – the effective tax rate on qualifying rental income can be brought to very competitive levels.
Alternative investment undertakings: a dedicated vehicle for affordable housing
The programme introduces a targeted set of benefits for alternative investment undertakings (OIA), the Portuguese equivalent of alternative investment funds focused on real estate.
To qualify, the OIA must:
Be constituted or amended by December 31 2029;
Allocate at least 5% of its assets to properties subject to affordable rental contracts or the Simplified Accessible Rental Regime (RSAA); and
Lease those properties within one year of its formation or amendment.
The tax benefits are substantial. Distributions to participants attributable to qualifying rental income are subject to withholding tax at a reduced rate of 5%. For the remaining income, an exclusion from the taxable base applies on a sliding scale depending on the proportion of eligible assets, reaching up to 30% where more than 50% of the OIA’s portfolio is allocated to affordable housing. In addition, the quarterly stamp duty levied on the OIA’s net asset value is reduced by 25% for qualifying vehicles.
Compared with the current regime – where distributions from real estate collective investment undertakings are typically subject to a 10% withholding tax (for non-residents) – the new framework effectively reduces the distribution tax rate for OIAs with a meaningful allocation to affordable rental assets. This represents a powerful incentive for institutional investors seeking to deploy capital into Portuguese housing through fund-like structures, and it can be combined with the income tax advantages described above to achieve a highly efficient overall tax profile for residential rental investment.
CIA contracts and the Simplified Accessible Rental Regime
The Construir Portugal programme also introduces two contractual frameworks designed to provide long-term tax certainty for large-scale housing investment.
Investment contracts for housing rental (CIA) are agreements entered into between the investor and the IHRU (the Portuguese housing authority), acting on behalf of the state, for periods of up to 25 years. To qualify:
At least 70% of the construction area must be allocated to residential letting;
Rents must not exceed €2,300 per month; and
The investor must demonstrate technical capacity and maintain organised accounting.
The CIA unlocks a comprehensive package of tax benefits:
A reduced VAT rate on construction and rehabilitation works;
Restitution of 50% of VAT incurred on architecture and engineering services;
Exemption from property transfer tax on the acquisition of land and buildings for rental purposes (subject to municipal approval);
Exemption from municipal property tax (IMI) for up to eight years post-acquisition, with a 50% reduction for the remainder of the CIA term;
Full exemption from the additional municipal property tax for the duration of the CIA;
Exemption from stamp duty on property transfers covered by the contract; and
A 50% reduction in stamp duty on financial operations related to OIAs covered by the CIA, proportional to the assets allocated to rental housing.
Crucially, the CIA framework also includes an economic-financial rebalancing mechanism: where legislative or regulatory changes materially affect the rent-setting regime or other contractual conditions, the investor may seek a rebalancing of the contract, which should extend to the tax terms of the CIA itself. This provides a level of tax stability and predictability, which will naturally be of utmost importance to investors.
Running alongside the CIA is the RSAA, a lighter framework applicable to residential leases with rents at or below 80% of the average rent prices published by Portugal’s national statistics institute for the relevant municipality, with a minimum lease duration of three years. Under this regime, rental income is fully exempt from PIT and CIT.
The combination of CIA contracts, the RSAA, and the OIA incentives creates a multi-layered framework that investors may tailor to the size and profile of each project – from large-scale institutional build-to-rent developments through to individual rental units – maximising the available tax benefits at every level.
Reduced VAT rate on housing construction
One of the programme’s most impactful measures is the extension of the reduced 6% VAT rate to construction works for residential housing, a significant saving compared with the standard 23% rate. The reduced rate applies to construction or rehabilitation works on residential properties in two scenarios:
Where the property is sold for owner-occupation – the sale price must not exceed €648,022, the reduced IMT rates for primary residence acquisition must apply, and the sale must be completed within 24 months of the issuance of the documentation permitting legal use of the property; and
Where the property is destined for residential letting – rents must not exceed €2,300 per month, the first lease must take effect within 24 months of the property becoming legally habitable, and the property must remain leased for at least 36 months in the first five years.
The reduced rate applies to urban development operations initiated from September 25 2025, with VAT chargeability arising from January 1 2026, and remains in force until December 31 2032. A regularisation regime applies if any of the qualifying conditions cease to be met, requiring the promoter to repay the VAT benefit.
A critical change also comes along with this measure: the reverse-charge mechanism for construction services has been broadened, transferring the responsibility for correct application of the VAT rate to the promoter. This means the promoter controls and validates the applicable rate through its registration with the Portuguese tax authorities, simplifying the compliance chain.
Outlook
The Construir Portugal programme represents a significant overhaul of Portugal’s tax environment for housing investment in recent years. By combining direct tax reductions on rental income, tailored incentives for collective investment vehicles, long-duration contractual frameworks with built-in tax stability, and a reduced VAT rate on construction, Portugal has assembled a toolkit that addresses the priorities of domestic and international investors.
The programme is designed to be modular: each benefit stands on its own, but the full potential is realised when the measures are combined and structured in a coherent way from the outset, aligned with the investor’s commercial objectives and the characteristics of each project. For investors already familiar with Portugal’s competitive real estate market, these developments are a clear signal that the country is committed to deepening its attractiveness and providing a tax-efficient environment for long-term housing investment.
