New law clarifies 6% VAT rules in urban rehabilitation since 2009

O in the past, between January 2009 and October 2013, manufacturers were unable to apply the reduced VAT rate because the rehabilitation works were carried out in an ARU for which the city council where the property was located did not approve an ORU.

The new legislation ensures that all urban rehabilitation projects “realized in buildings or public spaces located in areas of urban rehabilitation defined in legal terms, regardless of the approval of an urban rehabilitation operation”, benefit from the VAT rate of 6%.

The law provides for the authentic interpretation of budget 2.23 of list I of the VAT Code (the list in which services subject to the reduced rate are listed), ensuring that this understanding applies to the period between 1 January 2009 and 7 October 2023, before a legislative amendment that sought to put an end to interpretative doubts, but only from that date.

Today’s diploma “is effective on the date of the entry into force of Law 64-A/2008 of 31 December”, the 2009 State Budget Act, which entered into force on 1 January of that year.

Before the legislative amendment of 2023, the question was raised as to whether a work could benefit from the reduced rate of rehabilitation only if it was located in an ARU or if it was necessary that the chamber had at the same time approved an ORU for that area.

Until 2012 a municipality had to delimit an urban rehabilitation area (ARU) and, at the same time, approve its rehabilitation operation (ORU). From that year on, it was no longer necessary for the two to happen at the same time, which led to differences in the scope of reduced VAT.

Real estate builders and developers applied the reduced VAT rate of 6% to rehabilitation works located in ARU, but the Tax and Customs Authority (AT) began to demand the existence of an ORU approved by the municipalities, resulting in additional VAT charges at the rate of 23% on works already completed and sold.

In the justification of the bill, the PSD explained that the amount existing until October 2023, although no longer in force, “continues to have legal effects and to call for interpretative differences in the application of the reduced VAT rate”.

The authentic interpretation allows the reduced rate to be applied to urban rehabilitation works in an ARU even though there has not been an ORU in the works since 1 January 2009.

The PSD project was approved unanimously on July 3rd and in a final round vote on July 17th.