Portuguese More Housing program – What It Means?
Law 56/2023 of 6 October 2023 provides for several measures included in the Mais Habitação (More Housing) program. Within this legislation, there are changes to the Portuguese Golden Visa Programme and also some relevant tax changes. This outline provides a recap of key new measures.
Changes to the Portuguese Golden Visa
As from October 2023 onwards, the following eligible Portuguese Golden Visa investments are:
Transfer of capital of at least €500,000 on acquisition of units/shares of non-real estate collective investment vehicles (investment or venture capital funds), in which 60% of the value of the investments is channelled to commercial companies based in Portugal;
Transfer of capital of at least €500,000, intended for the set-up (or reinforce the capital) of a Portuguese based commercial company, combined with the creation of five permanent jobs or maintenance of at least ten jobs (with a minimum of five permanent jobs) for a minimum period of three years.
Direct creation of at least 10 jobs;
Transfer of capital of at least €500,000 to be applied to R&D carried out by public or private scientific research institutions, integrated within the national scientific/technological system; and
Transfer of capital of at least €250,000 to be applied to investment or support for artistic production, recovery or maintenance of national cultural heritage.
None of the types of eligible investment can be used, directly or indirectly, for real estate investment and will be subject to evaluation every two years regarding their impacts on promotion of foreign direct investment and job creation.
This also means some of the prior used formats of golden visa investment were eliminated, notably (a) acquisition of real estate; and (b) deposits in Portuguese bank accounts.
The new law provides, nonetheless, that existing investments made under the prior rules and pending authorizations/family reunifications are not affected, thereby safeguarding processes already submitted, and which are awaiting a decision from the immigration competent authorities.
For more details, see also our Q&A on the new rules by clicking here.
Quasi-abolishment of the RETT Exemption for Resale
This tax incentive was widely used in Portugal either to defer or limit RETT (real estate transfer tax) when an acquisition of property via asset deal was made and the property was resold, or the use of the property changed within a period of 3 years. With the reduction to 1 year (from the prior 3 years to resell property) and inclusion of further limitations for property development cases and charging of interest when the property is not resold, this tax incentive is now effectively limited to punctual situations.
Further restrictions to the main home reinvestment relief
The main home reinvestment relief is an important income tax exemption applicable to the reinvestment of any capital gains generated by a Portuguese resident taxpayer from the sale of the main home. This incentive has been altered several times in the last years and two new additional requirements are now included:
The taxpayer has for at least 24 months before disposal held the property as household main home; and
The taxpayer has not benefited from the same exclusion regime in the last 3 years (unless for exceptional reasons).
The reinvestment period of 36 months is suspended between 1 January 2020 and 31 December 2022.
Elimination or changes to existing tax benefits for rehabilitated buildings
Owners of rehabilitated buildings will no longer benefit from (a) 5% reduced rate on the gains arising from the first transfer following the rehabilitation intervention; (b) 5% on rental income.
For purposes of accessing the 6% reduced VAT rate in building rehabilitations, the concept of “urban rehabilitation construction work” is replaced by a more limitative term of “building rehabilitation construction work”, with the effect of excluding new construction from the sphere of urban rehabilitation. Transitory regime protects ongoing projects dully licensed or with prior information request filled.
Tax reductions or exemptions directed to incentive long term rentals and housing availability
Under certain circumstances and subject to limitations, the following income tax reduced rates instead of the general 28% tax rate may apply to residential rental income derived by resident taxpayers:
Less than 5 years contract (*): 25% tax rate
More than 5 years contract (*): 15% tax rate
More than 10 years contract (*): 10% tax rate
More than 20 years contract (*): 5% tax rate
(*) Terminations for reasons attributable to landlord may trigger claw-back plus interest.
The following are also some of the new income tax exemptions, benefiting both resident individuals and companies:
Sale of residential property to the Portuguese State, Autonomous Regions or Local Authorities (except when exercising pre-emption rights);
Rental until 31 December 2024 of properties previously used for local touristic accommodation, with such exemption applying until FY29.
Sale until 31 December 2024 of construction plots or secondary residential properties provided that the sale price, less any debt amortization, is used to repay the outstanding capital on a mortgage loan intended for the taxpayer's own permanent residence (or of its descendants) and such repayment takes place within 3 months from the sale date.
New Tax on Local Touristic Accommodation
To further disincentivize the allocation of residential property to local touristic accommodation in certain pressure areas of the country, an extraordinary contribution (which is called C.E.A.L.) is put in place targeting certain properties allocated to the so-called “Alojamento Local” (or touristic accommodation) as of 31 December of each year. The contribution is levied at 15% rate and the tax base is calculated based on an economic coefficient for local accommodation and the urban pressure coefficient linked to the gross private area of those residential properties. This new contribution is not deductible for CIT purposes.
© Kore Partners, 2023
This briefing provides for general information and is not intended to be an exhaustive statement of the law. Although we have taken care to provide accurate information, this should not replace legal advice tailored to your specific circumstances. This briefing is intended for the use of clients and selected recipients. Queries or comments regarding this can be directed to kore@korepartners.com