President passes two property rental tax break laws

 In Tax

A new law which will reduce income tax rates for single persons with property to rent, creating tax breaks for those wanting to build housing to rent out at affordable rents, has been passed by the President of the Portuguese Republic.

Without yet defining the maximum rental levels that can be charged, this new law foresees a reduction in the current IRS income tax rate on property revenues which currently stands at 28% for contracts of two years or over to the new rate of 26%.

The bill had been passed in the Portuguese parliament in December with votes in favour from the main PS and PSD parties and abstention from the centre-right CDS-PP and PAN party with votes against from the left-wing parties PCP, BE and PEV.

The two percent reduction in property tax on properties for rent will be applied successively every two years, while for five-year contracts the reduction in taxes will be even greater falling from 28% in 2018 to 23% from next year.

Those offering 10-year contracts will see their property taxes fall to 14% and 10% on homes rented out on 20-year contacts.

In addition to providing tax breaks to landlords depending on the length of rental contracts, the new law “creates the conditions for access to tax incentives governing housing construction programmes for affordable rents” for those landlords who can guarantee the properties will be used for affordable renting for a minimum period of 25 years,” with maximum rents to be defined by the government and a reduced VAT tax rate payment.