6% VAT on construction: what changes when building your own home

The expression “6% VAT on construction” may lead someone preparing to build a house to think that every construction invoice automatically becomes subject to a reduced rate. The scheme published in 2026 requires an important distinction: building to sell or rent and building your own home are not the same tax situation.

For individuals who contract the construction of their own permanent home outside a business or professional activity, Decree-Law no. 97/2026 provides for a partial VAT refund scheme. Eligibility depends on meeting the legal conditions.

Three essential points

A subsequent refund is not the same as paying the reduced rate directly on the invoice.

The plot, construction costs, dates and use of the home are all part of the assessment.

Contracts and invoices should be organised from the outset.

1. Reduced rate and refund: what is the difference?

The legislation provides for a reduced rate for certain construction contracts involving properties intended for sale as the purchaser’s own permanent home or for residential rental, subject to specific conditions. There is also a separate scheme for rental investment contracts.

Annex II addresses individuals building their own home. In this case, the refund corresponds to the difference between VAT demonstrably paid at the standard rate and the amount that would result from applying the reduced rate to eligible expenses.

This difference affects financial planning: the tax may first have to be paid and the refund requested afterwards. The expected benefit should not be treated as money already available to fund the construction.

2. What is included when assessing the value of the home?

The scheme does not consider only the construction contract budget. Annex II considers the taxable value recorded in the property register or, if higher, the purchase price of the plot plus construction costs excluding VAT, subject to the applicable legal limit.

Certain goods, equipment and services that contribute to the property’s value are included in this assessment under the terms of the legislation. A plot received free of charge also has its own valuation rule.

Therefore, a construction proposal below the limit does not, by itself, prove that the transaction is covered. The assessment should use the values and documents for the complete transaction. The limit refers to the rule in Article 2 of the legislation, and the amount in force and any updates should be confirmed for the relevant date.

3. Which expenses may qualify for a refund?

Annex II covers VAT paid at the standard rate on eligible construction contracts, supported by invoices issued and reported in accordance with the law. The simple purchase of materials incorporated into the property is excluded.

Buying materials directly from a shop should therefore not be confused with engaging a construction contractor. Nor can it be assumed that every service connected with the home receives the same treatment.

This point is particularly important when the owner intends to split purchases and contracts among several suppliers. Before structuring procurement around an expected tax benefit, the effect of that choice should be confirmed for the specific case.

4. An example of the mechanism

Consider an eligible expense of €100,000 excluding VAT in mainland Portugal. If the standard rate of 23% was applied, the tax is €23,000. Applying 6% would correspond to €6,000. The difference is €17,000. This is the calculation example presented in the original document.

The example only explains the calculation and assumes that all conditions are met. It does not prove that a project is eligible or allow the difference to be applied to excluded expenses. The applicable regional rates should be considered in the autonomous regions.

It also does not mean a 17% reduction on the total amount already invoiced including VAT. The difference between rates applies to the eligible taxable amount.

5. Which dates need to be confirmed?

Article 18 covers procedural initiatives started between 25 September 2025 and 31 December 2029, and tax becoming chargeable from 1 January 2026. Annex II additionally sets a chargeability limit of 31 December 2032.

The refund request is submitted electronically to the Portuguese Tax and Customs Authority, generally within 12 months of the issue of the documentation relating to the start of use. A transitional rule applies to requests concerning the first three quarters of 2026, which may be submitted from 1 October 2026.

Use as the owner’s permanent home, evidenced through the tax residence, is also subject to deadlines and maintenance conditions. Annex II provides for allocation within six months and maintenance for at least 12 months, subject to the legal exception for exceptional circumstances.

6. What should you organise now?

Gather the property identification, proof of the plot value, construction contracts and invoices for all construction costs. Where applicable, identify co-owners and their respective shares. The documentation relating to use is also part of the application.

Before finalising the budget, ask the professional advising the transaction to confirm its tax treatment. Architecture, engineering and legal-administrative support can help organise the process and property documents, coordinating this information with the necessary tax advice.

Are you going to build your home? Talk to Escala Absoluta to organise the project and the documents that will need to be coordinated with the tax assessment.

General information as at 24 September 2026, the editorial date of the document provided. Application depends on the specific transaction and the legislation and guidance in force.

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