Law 56/2023 was published in the Official Journal today and comes into force on October 7th 2023, approving a set of initiatives proposed under the Mais Habitação (More Housing) program. The law was signed by the President after being subject to a veto and a new assessment and vote by the Portuguese Parliament.
Among the amendments and new provisions included in the law, the following stand out:
I. Lease regime
1. Setting rent limits
- A limit of 2 per cent is set on the increase in the initial rent of new residential lease agreements in reference to the last rent charged on the same property, when such property has been subject to lease agreements in the preceding five years.
- Nevertheless, the initial rent may also be increased by the annual coefficients, when the immediately preceding lease has not been subject to any rent adjustments and provided that no more than three years have elapsed since the date on which the coefficients would have been applicable.
- It is also foreseen that the initial rent may be increased by the amount of work costs borne by the landlord, up to the annual limit of 15 per cent.
2. Forced lease of vacant houses
- It is foreseen that municipalities will be entitled to rent, on a forced basis, independent units and parts of urban buildings that have been classified as vacant for more than 2 years.
- In fact, Article 108-B of the Legal Regime for Urbanisation and Building (RJUE) already foresaw this possibility, albeit only in terms of compensating the municipality for the costs incurred in carrying out compulsory works on properties, whenever the respective owner failed to do so, this being an alternative to the judicial enforcement of debts resulting from such work.
- As the Law 56/2023 enters into force, the article 108-C of the RJUE is introduced, providing that once the aforementioned two-year period has elapsed, the municipalities shall notify the respective owner, depending on the case: 1) of the maintenance obligation, promoting the execution of the necessary works if the owner fails to do so; or 2) of the obligation to use the independent unit and, at the municipality's discretion, submitting a rental proposal. In the latter case, once 90 days have elapsed without the owner having replied to the rental proposal, the municipality may proceed with the forced rental of the property on a supplementary and exceptional basis.
3. Unseizability of Extraordinary Support
- Article 5-A is inserted into Decree-Law no. 20-B/2023, of 22 March, which creates the system of extraordinary support for families for the payment of rent and the instalment of credit agreements, establishing the unseizability of the support provided therein.
4. Lease agreements signed before 1990
- Lease agreements signed before the Urban Lease Regime (RAU) entered into force and which are covered by articles 35 and 36 of the New Urban Lease Regime (NRAU) - also known as binding leases - are not transferred to this regime.
- The rent amount shall be updated based on the legal coefficient annually published by INE, under the terms set forth in Article 24 of NRAU.
- Due to the non-transition of binding leases to NRAU, the law foresees the application of IRS (personal income tax) and IMI (property tax) exemptions, as well as other compensations and benefits to be granted to landlords.
5. Introduction of the Tenant and Landlord Desk (Balcão do Arrendatário e do Senhorio)
- The Tenant and Landlord Desk (BAS) is created to replace the National Lease Desk (Balcão Nacional do Arrendamento - BNA). The special eviction procedure and the injunction procedure in rental matters will now be handled by the BAS.
- Several changes have also been made to the special eviction procedure based on non-payment of rent.
- The amendments made by Law 56/2023 are essentially aimed at simplifying and improving the aforementioned procedures, as well as strengthening the guarantees for the parties involved, especially those applicable to tenants, who will now be informed of the public services to which they can resort if they have no housing alternative.
6. Payment of late rents default covered by the State
- Another new feature of the Mais Habitação package is the guarantee given by the government regarding the payment of late rents, which can be paid upon fulfilment of a set of circumstance.
- Thus, this mechanism applies if: 1) the eviction procedure is motivated by the termination of the residential lease agreement based on the tenant's default; 2) the applicant (landlord) has submitted the eviction request simultaneously with the request for rents payment, charges or expenses; 3) the tenant has not ceased the default within 1 month and 4) the tenant still occupies the leased premises.
- By covering the payment of the rent owed by the tenant, the state is automatically subrogated to the landlord’s rights. On the other hand, in the event of a situation of lack of means on the part of the tenant, the case will be monitored by Social Security, following the terms of a procedure to be defined by joint order.
7. Lease agreements may be reported to the tax authorities by the tenant
- In case landlords and sub-landlords do not notify the Tax Authority regarding lease and sub-lease agreements or respective promises, amendments and terminations, under the terms of Article 60(1) of the Stamp Duty Code, tenants and sub-tenants are entitled to do so in their place.
- Before this law entered into force, the reporting of lease agreements could only be carried out by lessors or sub-lessors.
8. Incentives for the transfer to the lease regime of properties operating under the Local Accommodation (Alojamento Local - AL) regime
- In order to encourage and increase supply in the lease market and discourage the resort to the Local Accommodation (AL) regime, Law 56/2023 foresees the granting of some tax benefits to individuals who opt for renting - namely exemption from IRS (personal income tax) and IRC (corporate income tax) taxation of property income arising from lease agreements for permanent housing. The granting of such benefits is subject to the cumulative fulfilment of the following conditions:
1) The income shall arise from a property previously used for the operation of a local accommodation which was transferred to permanent housing lease
2) The local accommodation has been registered and used for this purpose until December 31st 2022; and
3) the lease agreement is executed and registered on the Finance Website by December 31st 2024
II. Tax Incentives
1. Reduction in the IRS rate on property income
- Property income arising from housing leases will be taxed at a 25% autonomous rate, instead of the 28% rate previously provided for in Article 72(2) of the Personal Income Tax Code (CIRS).
- For lease agreements with a term equal to or greater than 5 years and less than 10 years, a 10-percentage point reduction in the respective rate will apply, with a 2-percentage point reduction being applied for each renewal of equal duration, up to a limit of 10 percentage points.
- For lease agreements with a term equal to or greater than 10 years and less than 20 years, a 15-percentage point cut in the respective rate will apply.
- For lease agreements with a term equal to or greater than 20 years, this cut corresponds to 20 percentage points in the respective rate.
2. Increase in the family IMI discount
- The amount of the flat-rate Municipal Property Tax deduction, which previously stood at 20, 40 and 70 euros for those with one, two, three or more dependents, respectively, is increased to 30, 70 and 140 euros, under the terms set forth in the new version of Article 112-A
3. Reduction in the exemption period of IMT payment on the property resale
- Article 7 of the CIMT provided for the existence of an exemption regime from the payment of Municipal Property Transfer Tax (IMT), which applies to the acquisition of properties intended for resale, setting a deadline of 3 years to carry out said resale.
- With the entry into force of Law 56/2023, the deadline for resale has been reduced, meaning that the IMT exemption will only apply if the resale takes place within one year as of the acquisition date.
4. Taxation exemption on capital gains arising from property sales to the State and municipalities
- Capital gains arising from property sales to the State, the Autonomous Regions (Madeira and Azores), public housing companies or local authorities are exempt from IRS and IRC taxation.
- Gains earned by residents with tax residence in a country, territory or region subject to a more favorable tax regime (e.g. offshore) or those arising from sales made through the exercise of pre-emptive rights are not eligible for this exemption.
5. Taxation Exemption on capital gains arising from property sales when used to pay off mortgage loans
- Another exemption provided for is the exclusion from IRS taxation of gains arising from the transfer of construction plots or residential properties that are not intended for the taxpayer's own permanent residence (or its household), provided that the sale price, less any amortization, is used to repay the outstanding capital on a mortgage loan intended for the taxpayer's own permanent residence (or of its descendants, and that this repayment takes place within 3 months as of the sale date.
6. Termination of the tax benefits applicable to investment funds focused on urban renewal and redevelopment
- The IRC exemption applicable to income earned by property investment funds established between 2008 and 2013 and dedicated to urban renewal actions has been withdrawn. The tax benefit granted to those who held equity in these investment funds also ceases.
- However, it is provided for a reduction in the taxation applicable to real estate investment funds and real estate investment companies provided that 75% of its assets correspond to real estate intended for affordable housing leases.
7. Tax benefits on properties allocated to the Rental Support Programme (Programa de Apoio ao Arrendamento - PAA)
- In order to expand the number of properties allocated to the Affordable Rent Programme (PAA), it is foreseen to exempt from IMT payment the purchase of land for construction of housing properties mostly allocated to the PAA.
- On the other hand, it is planned to grant IMI and IMT exemptions on the purchase, redevelopment and construction of urban buildings or independent units within the scope of the PAA
- In the case of the IMI exemption, it applies for a three-year period as of the purchase date and can be extended for another five-year period.
III. Local Accommodation
1. Setting a special tax regime applicable to Local Accommodation
- With the entry into force of Law 56/2023, the extraordinary tax regime on flats and lodging establishments that are part of an independent unit under local accommodation regime (CEAL) has been created. The contribution will be levied on the owners of local accommodation establishments and the applicable rate stands at 15 per cent.
- The tax base is calculated based on the application of an economic coefficient for local accommodation and the urban pressure coefficient to the gross private area of residential properties.
2. Expiry of currently inactive permits
- Holders of local accommodation permits are required to provide proof of maintenance of the operating activity, reporting the effectiveness of the operation on the platform of the National Registry of Local Accommodation (Registo Nacional de Alojamento Local). This notice must be filed within two months as of the entering into force of this law, otherwise the local accommodation permit will be canceled.
- This legal framework shall not apply to the operation of local accommodation units under own and permanent housing, provided that such operation does not exceed 120 days per year.
3. Owners can oppose new Local Accommodation registries
- Another relevant development in terms of Local Accommodation concerns the need for condominium owners to give their consent to new Local Accommodation registrations in the respective building. Thus, the new wording of Article 5 of Decree-Law no. 128/2024, of August 29, states that new registrations shall be preceded by a joint condominium assembly decision to approve the exercise of the local accommodation activity in the unit in case, whenever it is intended for residential use.
- Since it entails an amendment to the horizontal property title of the building, the approval of the local accommodation activity requires the agreement of all the condominium owners, under the terms set forth in Article 1419(1) of the Civil Code.
4. Suspension of new Local Accommodation registries
- The issuing of new local accommodation registries is ordered to be suspended. This suspension applies to apartments and lodging establishments and does not cover properties located in the so-called inland territories, as identified in Ministerial Order no. 208/2017
- This suspension may be withdrawn according to the criteria indicated in the Municipal Housing Charts (Cartas Municipais de Habitação), approved by the each of the respective municipalities, under the terms set forth in article 22 of Law no. 83/2019, of September 3rd.
IV. Golden Visa
1. Amendment to the residence acquisition for investment (Golden Visa) regime
- Upon the entry into force of the Mais Habitação program, new applications for residence permits for investment activities will no longer be accepted when based on the transfer of capital in an amount equal to or greater than EUR 1,500,000.00; the acquisition of real estate with a value equal to or greater than EUR 500,000.00 or the acquisition of real estate located in an urban renewal area and the carrying out of renewal works on the real estate acquired, in an overall amount equal to or greater than EUR 350,000.00.
- This amendment does not jeopardize the possibility of renewing residence permits for investment activities when granted under the legal regime applicable until this date, as well as the granting and renewal of residence permits for family re-grouping.
- Regarding applications for residence permits for investment activities that are currently pending decision by the competent authorities, these remain valid, including those that are still pending of prior control procedures at the city halls.
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