Did you pay 23% VAT on rehab work in an ARU? A new law says it should have been 6%
Law 48/2026 reinterprets the reduced VAT rule for urban rehabilitation works back to 2009. Portugal's certified accountants warn that a four-year assessment window means only VAT due from 2022 onwards can realistically be recovered.
For fifteen years there was a trap buried in the VAT rules on urban rehabilitation. The building sat inside a properly delimited urban rehabilitation area, the contractor charged 6%, and then the tax authority disagreed: the council had never approved a rehabilitation operation for that area, so the rate was 23%.
Law 48/2026 has now decided the contractors were right all along.
What the law actually does
It is an authentic interpretation of item 2.23 of List I of the VAT Code, the list of services carrying the reduced rate. It says a property or public space simply has to sit inside a legally delimited ARU for the 6% rate to apply, whether or not a rehabilitation operation was ever approved by the municipality.
Its effects run from the date the 2009 state budget law took force, meaning 1 January 2009, and cover everything up to 7 October 2023, when a separate amendment had already fixed the point going forward. For projects filed after that date, none of this matters.
The catch almost nobody read
Backdating to 2009 sounds generous until you open the opinion Portugal’s certified accountants published the same day. Their reading is that the clarification only bites for tax periods caught by an ongoing inspection or court case, and for periods where the four-year assessment window is still open. That window puts the practical cut-off at 1 January 2022.
So if the VAT fell due before then and nobody contested it, the money stays where it is. The same goes for pre-2022 periods with inspections already closed and unchallenged, and for challenges already rejected or lost in court.
Who refunds whom
Where contractors charged the standard rate, it falls to them to correct the invoices and hand back the difference between 23% and 6% to their clients. Where the buyer self-assessed at the standard rate, the buyer makes the correction and no credit note is issued.
If your project is only starting now, the live headache is a different one: Portugal’s new building permit regime does not take full effect until later.
Photo: Dale Cruse / Wikimedia Commons (CC BY 4.0)
