VAT refund opportunity for those who renovate their homes in Portugal: Some people who paid 23 percent may request the difference back

In Portugal, it may be possible to correct overpaid VAT for some construction works carried out in urban renewal areas. According to the new legal assessment examining the effects of Law No. 48/2026, which came into force in August, tax correction can be requested for transactions where 23% VAT has been applied instead of 6% under certain conditions. However, this opportunity does not cover all home renovations and legal application periods are especially important.

What VAT difference is there?

The standard VAT rate in Portugal is 23% in the mainland area.

A reduced rate of 6% can be applied to certain urban renewal activities.

The difference between these two rates is 17 percentage points.

For example, if a 23% tax is applied to a construction job worth 20 thousand euros, excluding VAT, a VAT of 4,600 euros is calculated.

If the same job is subject to a 6% rate, VAT is 1,200 euros.

The difference is 3,400 euros.

However, this example assumes that the work performed actually meets the reduced rate requirements. The same calculation cannot be applied to every residential renovation.

What did law 48/2026 change?

The new law aims to resolve the legal uncertainty that has arisen in the past regarding the application of a reduced VAT rate on certain works in urban renewal areas.

There are two concepts at the center of the debate:

ARU (Área de Reabilitação Urbana): Urban renewal area designated by the municipality.

ORU (Operação de Reabilitação Urbana): For this area approved urban renewal operation.

In the past, there have been disputes between the tax administration and taxpayers over whether merely being within the ARU is sufficient for reduced VAT.

Law 48/2026 clarified that being within the ARU may be sufficient in respect of the relevant prior period.

However, this regulation does not mean that all ARU constructions carried out today are automatically subject to 6% VAT.

Which years of work may be affected?

Although the law has retroactive effect, legal time limits apply to tax correction requests.

According to the new evaluation, some studies carried out especially from 2022 to October 2023 may be important.

Mais Habitação regulations, which came into force in October 2023, changed the scope of reduced VAT application.

For this reason, the date the work was carried out, the date the invoice was issued and the legislation in force in the relevant period should be examined together.

Why is the four-year period critical?

Tax corrections generally have certain application and statute of limitations periods.

For this reason, the fact that a regulation has retroactive effect does not mean that a refund can be received today for all constructions made since 2009.

Especially for old invoices, the correction period may have expired.

Different legal consequences may also arise in transactions that have previously been the subject of a tax audit or court decision.

So apply Whether it is possible or not should be evaluated separately for each file.

Can anyone renovating their home apply?

No.

First of all, it should be checked whether the real estate is within a valid ARU border on the relevant date.

Then, the nature of the work performed, the invoice layout, the contract with the contractor and the VAT provision to which the transaction is subject should be examined.

Just because a house is old or renovated does not entitle it to reduced VAT.

Additionally, the tax situations of individual homeowners and professional real estate developers may differ.

Can foreign homeowners benefit?

It is also possible for foreigners who own real estate in Portugal to be evaluated within the framework of the relevant tax rules.

The main issue here is the tax nature of the transaction and the availability of the necessary documents, rather than the citizenship of the person.

However, it cannot be said that every foreigner who has bought a house in Portugal can automatically receive a VAT refund.

What documents should be checked before applying?

First of all, the construction contract, invoices, payment documents and ARU decisions of the municipality where the property is located in the relevant period should be examined.

It is also important to determine the applicable legislation according to the date of the work.

How VAT correction is made may depend on the parties to the transaction and the tax record, which may require evaluation with a qualified accountant or tax expert.

When did the new law come into force?

Law No. 48/2026 was passed in August. came into force.

The issue on the agenda on October 17 is not the adoption of a new law, but how the current regulation can be applied to transactions for which excess VAT has been paid in the past.

Therefore, the practical result of the news is that people with appropriate coverage can check their past invoices before the legal period expires.