The Portuguese Government has recently unveiled a package of measures intended to address persistent difficulties in the housing market. These proposals, framed as a “shock policy,” combine incentives for construction and rental with additional Portugal’s IMT tax changes for non-resident property buyers. Most of the measures are fiscal, and therefore subject to approval in Parliament, likely as part of the 2026 State Budget bill.
For clients of Madeira Corporate Services, including residents, expatriates, and international investors, these proposals raise both practical and legal questions. In particular, the announced increase of the IMT (Property Transfer Tax) for non-resident buyers deserves close attention.
Key Elements of the Government’s Package
The measures announced by Prime Minister Mr. Luís Montenegro on 25 September 2025 cover a wide range of interventions. They include both tax incentives and new obligations for landlords, tenants, and buyers.
Reduced VAT for Construction and Rental Housing
A 6% VAT rate will apply to construction projects up to €648,000. This reduced rate also applies to new rental housing, provided monthly rents do not exceed €2,300. The Government justified this threshold by pointing to average market conditions in Lisbon, Porto, and other high-pressure municipalities.
Duration of the Regime
The incentives are set to run until 2029, at which point a future government will review their effectiveness.
Incentives for Landlords
Rental income derived from leases at “moderate prices” will be subject to a reduced IRS rate, offering landlords some relief.
Tax Benefits for Tenants
Tenants paying “moderate rents” will see higher deductions of rental expenses in IRS. The cap rises to €900 in 2026 and €1,000 in 2027.
Higher IMT for Non-Residents
The most controversial measure is an increase in IMT for non-resident buyers. Portuguese emigrants are excluded from this surcharge.
New Concept of “Moderate Prices”
The Government intends to replace the legal definition of “affordable rent” with “access to housing at moderate prices.” The threshold is €648,000 for purchases and €2,300 per month for rentals.
Why Portugal’s IMT Tax Changes Matter
The IMT (Imposto Municipal sobre Transmissões Onerosas de Imóveis) is a transfer tax levied on real estate transactions. It applies to both residents and non-residents when acquiring property in Portugal.
The Government’s proposal to increase IMT specifically for non-residents represents a clear departure from the principle of equal treatment that has long applied in this area. For international clients seeking to buy property in Madeira or mainland Portugal, this measure would directly increase acquisition costs.
Even though emigrants are excluded, all other non-residents, potentially including EU citizens, would face higher taxation. The measure may therefore have implications under both the Portuguese Constitution and EU law.
Portugal’s IMT Tax Changes and Potential Constitutional Issues
Article 13 of the Portuguese Constitution establishes the principle of equality before the law. It prohibits privileges or disadvantages based on factors such as territory of origin, social condition, or economic situation.
A surcharge that targets non-residents could be challenged on the basis that it creates unequal treatment without sufficient justification. Courts in Portugal have traditionally applied a proportionality test: is the distinction objective, relevant, and necessary to achieve a legitimate goal?
In this case, the Government may argue that non-resident purchases contribute disproportionately to housing price inflation in Lisbon, Porto, and coastal regions. However, opponents could contend that a blanket surcharge penalises all non-residents, regardless of intent or impact, and therefore fails the proportionality test.
EU Law Considerations
At the EU level, the most relevant principle is the free movement of capital under Articles 63–66 of the Treaty on the Functioning of the European Union (TFEU). Capital movements include real estate investments across Member States.
For example, a measure that imposes a heavier capital gains tax on non-residents compared to residents could be viewed as a restriction on capital movement. Indeed, there is precedent: Spain has already been referred by the European Commission to the CJEU over allegedly discriminatory taxation of capital gains for non-residents.
Furthermore, the Court of Justice of the European Union (CJEU) has repeatedly struck down tax measures that discriminate between residents and non-residents.
If Portugal imposes a higher IMT solely on the basis of residence, this could be interpreted as a restriction on capital flows. The Government would then need to justify the measure with overriding reasons of public interest, and prove that it is proportionate and necessary.
Possible justifications include protecting the housing market and ensuring availability for residents. Yet the proportionality question remains: could other, less restrictive tools, such as vacancy taxes or targeted urban planning rules, achieve the same goal without breaching EU principles?
Practical Impact for Investors
For international buyers considering property in Madeira or elsewhere in Portugal, the immediate concern is cost. A higher IMT rate increases the up-front expense of acquisition. This may affect investment decisions, particularly for those comparing Portugal with other European destinations.
Uncertainty is another factor. Even if the measure is introduced in the 2026 State Budget, it could be subject to constitutional review or challenged before EU institutions. Investors may therefore face a period of instability in the rules governing property purchases.
It is also important to distinguish between short-term speculative investors and long-term residents or retirees. A uniform surcharge does not make this distinction, which raises questions about fairness and effectiveness.
Looking Ahead
The proposed IMT changes reflect the Government’s determination to address housing shortages and price pressures. However, they also open a complex legal debate. Constitutional equality, EU non-discrimination rules, and double tax treaties all form part of the legal framework that constrains fiscal policy.
For now, the measures remain proposals. Their definitive shape will emerge only through the legislative process, most likely within the State Budget discussions. Clients should monitor developments closely, as amendments are possible before final approval, namely when it comes to Portugal’s IMT tax changes.
Regardless of the outcome, the debate highlights the importance of understanding not only the financial aspects of property investment in Portugal, but also the legal and constitutional environment in which tax policy operates.
Conclusion
The Government’s housing package combines strong incentives for construction and rental with new burdens for certain buyers. The increase of IMT for non-residents, however, raises significant legal and practical questions.
While the measure may achieve political goals in the short term, it could face challenges under both Portuguese constitutional law and EU law. For investors, this means both higher potential costs and greater uncertainty.
Madeira Corporate Services will continue to monitor the legislative process and any subsequent legal developments, ensuring that our clients remain fully informed of their rights and obligations.
The information provided in this article is for general informational purposes only and does not constitute legal, tax, or investment advice on Portugal’s IMT tax changes. While every effort has been made to ensure accuracy at the time of publication, legislation and policies may change, and their interpretation may vary. Readers should not act upon this information without seeking professional advice specific to their circumstances. Madeira Corporate Services declines any liability arising from reliance on the content herein.
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