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Tax incentives to rental agreements have been approved

Portugal - 

Tax Alert 3-2019

Law no. 3/2019, of 9 January, was officially published, which amends the Personal Income Tax Code (“PIT”) and establishes conditions of access to tax incentives in programs of affordable rental housing construction.

Amendments to the PIT:

  • The income deriving from compensations legally due by termination of open-ended rental contracts is no longer subject to taxation if the immovable property constitute permanent housing of the taxpayer and the termination is encompassed in the cases set under article 1101.º of the Civil Code (“Contract termination by landlord”);
  • A percentage reduction to the autonomous tax rate is applicable to property income resulting from rental contracts (currently in 28%) depending on the contract term. The tax rate may also change if there is a contract renewal for an equal period of time. The following table summarizes the determination of the percentage reduction:

Under the affordable rentals construction program, the Government will set the maximum rentals to be charged and remaining requirements of the programs of construction to habitation at an affordable rental price which may be considered as habitation at controlled costs for determination of the VAT tax rate applicable. The affordable rentals construction program must guarantee the allocation of the property to that purpose for a period of at least 25 years.The government will regulate, within 60 days counting from the date of entry into force of this law (10/01/2019), the terms in which the said tax rate reductions are considered to be verified.

The law under analysis take effect from 1 January 2019 and applies to new rental contracts and respective contract renewals, as well as to the contract renewals which have taken place from 1 January 2019.