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  • Service: Tax, Global Indirect Tax
  • Type: Regulatory update
  • Date: 12/12/2013

Portugal – Rehabilitation of immovable property in urban and applicable benefits 

GITB Portugal
As a result of the financial crisis, the Portuguese Government has put measures in place to help stimulate the housing and construction industry. The urban rehabilitation regime and the related tax benefits outlined below, have allowed several buildings in Portugal to get a face-lift and stimulate growth in a market that has been strongly affected by the economic downturn.

Portugal has over the years approved several measures concerning urban protection. These measures were outlined in the “Soils law”, which took effect in 1976 which created the concept of “urban critical areas of reconversion and recovery”. In 2009, the Soils law was revoked and a new legal urban rehabilitation regime was approved. Particular types of buildings requiring an integrated intervention which are specified in an urban rehabilitation plan are within the scope of the regime.


There has been positive support from municipalities for this regime, as it revives urban centers and consequently attracts people and tourism to these areas.


Notwithstanding the creation of this legal urban rehabilitation regime, for many years there was no connection between this regime and any type of tax benefits. In fact, tax benefits were only introduced with the evolution of the urban rehabilitation market and the redefinition of the urban rehabilitation areas took place.


One of the indirect tax benefits that currently is in force for urban rehabilitation is the application of a VAT reduced rate for construction contracting services provided in respect of properties located in urban rehabilitation areas. It is relevant to note that the VAT reduced rate can be applied to all construction contracting services that are used in developing properties located in urban rehabilitation areas.


This VAT benefit is significant as it can reduce the regeneration costs by 17 percent, since the applicable VAT rate on construction works is, in general, 23 percent and VAT is not recovered on these expenses when the property is designed for housing purposes.


Another tax benefit is the exemption from Municipal Property Tax (MPT) for a 2 year period. The exemption starts the year in which a usage license is issued by the municipality for properties marked for urban rehabilitation or for a 5 year period, starting from the year in which the rehabilitation process is concluded, which can be renewed for an additional 5-year period.


Finally, there is also an exemption from Real Estate Transfer Tax (RETT). This tax is applicable if the acquirer starts the respective construction 2 years after the acquisition of the property or for the acquisition of a property destined exclusively for permanent housing, provided that the property is being sold for the first time.


It is important to note that some of the benefits are not automatic as they depend on the authorization of the local municipality where the property is located and must comply with specific requirements regarding urban rehabilitation


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Global Indirect Tax Brief - December 2013

GITB - December 2013
Global indirect tax brief brief brings together articles on international VAT developments, written by KPMG member firms' VAT professionals worldwide and will be of interest to anyone managing VAT in an international business environment.