Legal alert no. 82

Legal Alert no. 82 – Law No. 3/2019 and Law No. 2/2019

On January 9th, Law No. 3/2019 and Law No. 2/2019 were published in the Portuguese Official Gazette, regarding the current housing legislative package, which aim to enable landlords to benefit from tax incentives.

According to the established in Law No. 3/2019, of January 9th, landlords have access to tax incentives as per the duration of the respective lease agreements. For such purpose, the Code of  Personal Natural Income Tax (“Código do IRS”) has been amended. As far as this Law is concerned, there were also created conditions which make possible the access to tax incentives in programs of housing construction regarding affordable rents.

In what concerns the new landlords’ tax incentives, and even though the maximum values of the rents have not been established, the following is provided:

a. to the property income arising from lease agreements with a duration of at least 2 years and less than 5 years, a reduction of two percentage points of the respective autonomous rate shall be applied; and for each renewal of the same duration, a reduction of two percentage points shall be applied up to a limit of fourteen percentage points;

b. to the property income resulting from lease agreements concluded for a term of 5 years or more but less than 10 years, a reduction of five percentage points of the respective autonomous rate shall be applied; and for each renewal of the same duration, a reduction of five percentage points shall be applied up to a limit of fourteen percentage points;

c. to the property income resulting from tenancy agreements of 10 years or more and less than 20 years, a reduction of fourteen percentage points of the respective autonomous rate shall be applied; and

d. to the property income resulting from leases with a duration of more than 20 years, a reduction of eighteen percentage points of the respective autonomous rate is applied.

Following the above, there is a reduction of the current rate of Personal Income Tax (”IRS”) on property income, which stands at 28%. Thus, for contracts with a duration of at least 2 years, landlords benefit from a reduction of two percentage points (from 28% to 26%). For contracts with a duration of at least 5 years, the reduction is five percentage points (from 28% to 23%). And lastly, regarding the lease contracts with a duration of 10 years or more apply a rate of 14%, a rate that is reduced to 10% in cases of contracts of a duration of 20 years or more.  

The abovementioned Law No. 3/2019 also provides for the creation of programs for the construction of affordable housing for rent, and for this purpose, landlords must guarantee the assignment of real estate for this purpose - housing for affordable rental - for a minimum period of 25 years. The terms and conditions of access to said program shall be defined by the ordinance of the member of the Government responsible for the housing area.

Law No. 3/2019 entered into force on January 10, 2019, effective as of January 1, 2019, and applies to new lease agreements and respective renewals, as well as to the renewals of lease agreements already entered into which will be verified as of January 1, 2019.

On January 9, Law No. 2/2019 was also published, whose purpose is to authorize the Government to approve a special regime for the taxation of property income arising from lease or sublease under the so-calledAffordable Lease Program" (“Programa de Arrendamento Acessível” , with a view to making housing available for low-rent housing with affordable effort rates.

Taking into account the meaning and extent of this legislative authorization, it is verified that it aims to promote the total exemption of taxes from landlords – i.e. in Personal  Income Tax ”IRS”) and on the Collective Persons’ Income Tax (IRC) - with respect to property income resulting from leases or subleases under the "Affordable Lease Program".

The access to the aforementioned tax regime requires the setting up of leases under the "Affordable Lease Program", which will be created by Decree-Law and which will establish certain conditions to be observed, such as: (i) maximum limit for rent amount; (ii) minimum lease terms; (iii) income limit for the purpose of eligibility of housing units; (iv) the rate of effort of housing households; (v) conclusion of compulsory insurance contracts; and (vi) registration of the agreement on the website of the official tax office website.

To access the full text of Law No. 3/2019, please click here and to access the full text of Law No. 2/2019, of January 9, please click here.