For years, those who renovated buildings in city centres were faced with a costly uncertainty regarding VAT on urban regeneration: should they apply 6 per cent or 23 per cent? The Tax Authority took the view that the reduced rate only applied if the local council had approved an urban regeneration scheme (ORU) for the area, and the Supreme Administrative Court ruled in its favour in 2025. The result was additional tax assessments being levied on works that had already been completed and sold. Law No. 48/2026 of 17 August put an end to the dispute, and the circular issued by the Tax Authority in October explains how it will be applied. For many property developers and builders, this means money coming in.

What has changed regarding VAT in urban regeneration?

The new law provides an authoritative interpretation of paragraph 2.23 of List I of the VAT Code. It is now clearly stated, leaving no room for interpretation, that all works carried out on properties or public spaces situated within an urban regeneration area (ARU) defined in accordance with the law constitute urban regeneration projects, regardless of whether or not an approved urban regeneration organisation (ORU) exists.

The key issue is retroactivity. The interpretation takes effect from 1 January 2009, the date on which Law No. 64-A/2008 established the fund, and covers, in particular, the period up to October 2023, when the wording of the legislation was amended. The law was passed unanimously in Parliament, following a proposal by the PSD, and has been in force since 18 August.

Who is eligible to reclaim VAT paid at 23 per cent?

In practical terms, there are three distinct situations:

• Anyone who applied the 6 per cent rate and was inspected. Any additional assessments based solely on the lack of an ORU are no longer valid. Ongoing inspections are suspended and any assessments already issued may be contested.
• Those who paid 23 per cent as a precaution. The developer who paid the standard rate because the contractor did not want to take the risk can now reclaim the difference. This is done via the supplier: the invoice is corrected by means of a credit note and the tax is adjusted in favour of the party who paid it.
• Those who self-assessed the tax. In contracts where the tax liability is reversed, the correction is made in the periodic tax return itself, without the need to rely on third parties.

The figures are significant. On a project worth 500,000 euros, the difference between the two rates amounts to 85,000 euros. For a property developer who does not deduct VAT because they sell VAT-exempt properties, this amount represents a pure cost.

Deadlines and methods for claiming a refund

There is no automatic refund. Each case must be assessed on the basis of the date of the transaction, the amount already paid and the current status of the case. The procedures are those set out in the VAT Code and the General Tax Law: rectification by credit note, within the time limits laid down in Article 78 of the VAT Code; an administrative appeal against recent assessments; and a request for an ex officio review, which generally allows for a review of the past four years. In the case of old assessments where a final and binding court decision has been handed down, the law does not reopen the proceedings.

A simple piece of advice: before applying for anything, gather the certificate from the local council confirming the property’s location in the ARU at the time of the building works, along with the invoices and building contracts. That is what the tax office will want to see.

Loose ends: the expiry of the ARUs

The law has closed one door, and the AT seems to want to open another. An ARU does not last forever: if the council does not approve the ORU within the statutory time limit, the zoning designation lapses. The circular makes it clear that the AT will check whether the ARU was in force on the date of each construction project. If it has expired, the standard rate applies.

José Pedro Rua, an indirect tax specialist at Deloitte, summarised the issue to ECO: “It will depend on the local authorities themselves, because there may be cases where the council did not, in fact, renew the ARU, creating a legal situation that the Tax Authority can now capitalise on.” In other words, the dispute may shift focus from the ORU requirement to the validity of the ARU itself. And there are municipalities where the process has moved slowly.

What this means for your business

If you are a property developer, builder or contractor and carried out works in an ARU area between 2009 and 2023, it is worth taking stock: what works were carried out, in which area, at what rate, whether an inspection took place, and what stage the process is at. There is a deadline for each situation, and the four-year period for the ex officio review will not wait. VAT on urban regeneration is no longer a gamble; it has become a bill to be paid.

Na Serro & Andrade acompanhamos empresas de construção e imobiliário há mais de uma década. Podemos analisar os seus contratos, calcular o imposto recuperável e tratar do pedido junto da AT. Find out about our tax services or get in touch with us.

Sources: ECO, Law No. 48/2026 of 17 August, and AICCOPN. Photo: Vitalii Kyktov / Unsplash.