Portugal: Amendment to the scope of the reduced VAT rate applicable to refurbishment works

Law no. 56/2023, of 6 October, which came into force on the following day and approved the so-called More Housing Program, proposed a myriad of law changes on tax matters, including the following:

• Limitation of the application of the reduced VAT rate to the rehabilitation of buildings located in urban rehabilitation areas;
• Reduction of the deadline from three to one year on the acquisition of real estate assets for resale, which is necessary to meet for the applicable exemption and consequent cancellation of the Municipal Property Transfer Tax previously paid;
• Creation of an extraordinary contribution on local accommodation.

Regarding the application of the reduced VAT rate to refurbishment works, and as confirmed by the Tax Authority in Circular Letter no. 25003, of 2023-10-30 recently approved:

• Public contracts for the construction or rehabilitation of collective-use facilities succeed the previous urban rehabilitation contracts carried out in public spaces then subject to the reduced rate;
• This rate is now limited to the rehabilitation of buildings, thus excluding the construction of new buildings;
• And it is no longer necessary for its application to be an "urban rehabilitation operation" in any particular case.

Finally, it should be noted that the wording in force until 06/10/2023 still applies (i) to requests for licensing, prior communication or prior information regarding urban planning operations submitted until that date to the competent municipality, (ii) as well as to requests for licensing or prior communication submitted after that date, but under a favourable prior information still in force.