Portugal: The reduced VAT rate on urban rehabilitation works in Portugal: An update

Prior to October 7 2023, the existing legal framework raised considerable uncertainty regarding the conditions under which the reduced rate could be applied. In particular, two issues were frequently debated: (i) whether the mere inclusion of a property within an Urban Rehabilitation Area (“ARU”) was sufficient to trigger the reduced rate or, whether it was also necessary for the works to be carried out within the scope of a formally approved Urban Rehabilitation Operation (“ORU”) – an issue recently clarified by a decision to unify case law (the “Decision”) of the Portuguese Supreme Administrative Court (“STA”) – and (ii) whether the reduced rate could be applied to new construction works undertaken within these areas.

This legislative framework had already undergone significant reform with the entry into force of Law No. 56/2023, of October 6 (commonly referred to as the “Mais Habitação Law”).

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