Reduction of VAT to 6% on construction in Portugal: what does this mean for you?

Current Situation: What's Happening?

The Government of Portugal announced its intention to reduce the VAT rate on construction works from 23% to 6%. This measure is part of the new “Build Portugal” program, which aims to stimulate housing construction and the renovation of the existing housing stock. However, as of the date of writing this article, this measure It has not yet entered into force. It is under discussion and development, and the exact implementation date has not yet been defined.

Even so, it is now possible to consider the potential benefits and risks associated with this reduction in VAT.

Potential benefits for customers

1. Reduction of construction costs: If the VAT rate is reduced to 6%, this can significantly decrease overall housing construction or renovation costs. For most projects, reducing the tax burden can mean savings of several thousand euros.
2. Increased accessibility to housing: The reduction in taxes can lead to lower the prices of new homes and renovated properties, making them more accessible to a wider audience. This is especially important for young families and those looking for their first home.
3. Support for the real estate market: This measure may also stimulate activity in the real estate market, attracting more investors and buyers. The increase in demand for housing and construction services can support the economy and create new jobs.

‍Important conditions and requirements

Project certification

For your project to benefit from the reduced VAT rate of 6%, it must meet a series of strict requirements and undergo certification by the competent bodies. It is important to understand that, at this time, some details are still under discussion, but there are already main guidelines that can be highlighted:

• Housing destination: The project must be aimed at the construction or renovation of housing intended for permanent residence. This may include social housing, affordable housing with controlled costs, or properties intended for affordable rental.
  
• Certification bodies:
  • Institute for Housing and Urban Rehabilitation (IHRU): This body is responsible for certifying that the project meets the criteria for affordable housing. IHRU certification is required to obtain the reduced VAT benefit.
  • City Councils: Depending on the type of project and its location, it may be necessary to obtain approval from local authorities, such as city councils, who are responsible for zoning and the compliance of project documentation with local building rules and regulations.
  • Urban rehabilitation bodies: If the project is located in an Urban Rehabilitation Area (ARU), it will be necessary to obtain appropriate authorization to take advantage of the reduced VAT rate of 6%.
• Technical requirements:
  • The project must comply with all established building rules and regulations at the national and local levels.
  • In the case of renovation, the project must provide for the improvement of the building's energy efficiency, which may also require additional certification and inspections.
    

Exclusions: which jobs are not covered by the reduced VAT rate?

Not all types of construction work can be carried out with the application of the reduced VAT rate. It is important to know which jobs are not covered by this benefit scheme to avoid misunderstandings and unexpected expenses.

• Outdoor arrangements: Works related to gardening, creating green spaces, landscape design, and the organization of outdoor spaces are not included in the category of beneficial services and are taxed at the standard rate of 23%.
• Leisure and sports facilities: The construction and installation of swimming pools, saunas, tennis courts, golf courses and similar facilities are also not covered by the reduced VAT rate.
• Partial renovations: Works that cover only part of the elements of a building may not be included in the benefits scheme if they are not associated with the improvement of the main housing characteristics, such as energy efficiency, structure, or public utility systems.
• Cleaning and regular maintenance: Jobs that include cleaning, technical maintenance, or cosmetic repairs are not considered significant enough to be covered by the reduced VAT rate.

Administrative costs

Preparing and obtaining the necessary documents for certification may require additional time and resources. That's why it's important to plan these processes in advance and consider possible delays.

Potential pitfalls

1. Implementation Delays: As the VAT reduction has not yet taken effect, you may have to wait for the final decision, which may affect the deadlines for starting your project.
2. The need for strict compliance with the conditions: Any deviation from the established rules may result in the loss of the right to use the reduced VAT rate. This requires strict compliance with all legal and administrative requirements.

How to prepare?

If you are planning to build or renovate a home soon, you should start by consulting with experts and lawyers to ensure that your project meets all the requirements for applying the reduced VAT rate. It's also important to keep up with legislative updates and be prepared to react quickly to any changes.

The reduction of VAT to 6% on housing construction and renovation in Portugal can be a significant incentive for the development of the real estate market and for increasing housing accessibility. However, the successful implementation of this measure requires careful preparation and compliance with all established conditions. If you want to benefit from this incentive, start preparing now and seek professional help to make your project a success.

Casa Nova is always available to help you with all questions related to construction and renovation and to offer the best solutions for your future home. Contact us to learn more and get a consultation with our specialists.