--- title: "VAT on property leasing: when does the exemption apply?" description: "VAT on property leasing in Portugal - when does the exemption apply? Leasing vs. business transfer, bare walls criterion and the new tax authority posit..." lang: en json-ld: | [ { "@context": "https://schema.org", "@type": "Article", "headline": "VAT on property leasing: when does the exemption apply?", "description": "VAT on property leasing in Portugal - when does the exemption apply? 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[Back to blog](/en/blog) [fiscal](/en/blog?tag=fiscal)[iva](/en/blog?tag=iva)[arrendamento](/en/blog?tag=arrendamento)[imoveis](/en/blog?tag=imoveis)[isencao](/en/blog?tag=isencao) # VAT on property leasing: when does the exemption apply? ![Bruno Rodrigues](/images/authors/bruno-rodrigues.png) [Bruno Rodrigues](/en/blog/author/bruno-rodrigues)[](https://pt.linkedin.com/in/bruno-rodrigues-47283713) 13 April 2026· 4 min read Share ![VAT on property leasing: when does the exemption apply? por Bruno Rodrigues - Grupo Your Contabilidade](https://xmvtahclopqwmxwnbimy.supabase.co/storage/v1/object/public/blog-images/grupo-your-iva-arrendamento-imoveis-2026.jpg "VAT on property leasing: when does the exemption apply? por Bruno Rodrigues - Grupo Your Contabilidade") ## In this article - [Lease vs. business transfer](#lease-vs-business-transfer) - [The exemption on leasing: general rule](#the-exemption-on-leasing-general-rule) - [The "bare walls" criterion and the new tax authority position](#the-bare-walls-criterion-and-the-new-tax-authority-position) - [What can lose the exemption](#what-can-lose-the-exemption) - [VAT deduction on works carried out by the landlord](#vat-deduction-on-works-carried-out-by-the-landlord) Not all property leasing is the same for VAT purposes. The distinction between a lease agreement and a business transfer has very different tax consequences - and it is a common mistake that can be costly. ## Lease vs. business transfer Before any tax analysis, it is essential to understand the type of contract involved. The Civil Code clearly distinguishes between the two concepts, and this distinction is decisive for VAT purposes. Lease (rental) Transfer of the property The object is the real estate asset. May benefit from VAT exemption art. 9 CIVA Business transfer Transfer of the establishment The object is the business as a whole. Taxed at the standard VAT rate (23%) In a business transfer, what is transferred is not the property itself, but the commercial establishment as a unitary asset - including tangible and intangible goods and the installed activity. Therefore, it does not benefit from any VAT exemption or rate reduction. ## The exemption on leasing: general rule Article 9 of the VAT Code exempts the leasing of immovable property from tax. However, this exemption has exceptions. It does not apply to: - ❌ Hotel or similar accommodation services (including campsites) - ❌ Rental of collective parking spaces - ❌ Rental of fixed installation machinery that implies onerous transfer of establishment - ❌ Rental of safes - ❌ Rental of spaces for exhibitions or advertising **Important note:** VAT exemptions must be interpreted strictly - never broadly. When the requirements are met, their application is mandatory. ## The "bare walls" criterion and the new tax authority position For many years, the Portuguese Tax Authority (AT) understood that only leases reduced to the passive placement of the property at the tenant's disposal - the so-called "bare walls" concept - could benefit from exemption, excluding movable goods and equipment that were part of the property. This understanding changed with Binding Information no. 19426 (January 2021), in which the AT aligned with the case law of the Court of Justice of the European Union (CJEU). The new criterion is broader and clearer: - ✅ The lease must consist of the passive placement of the property at the tenant's disposal, linked to the passage of time and without generating significant added value - ✅ Movable goods or equipment materially integrated into the property do not disqualify the exemption - they are considered accessories to the main service - ✅ Custom construction works preceding the lease also do not remove the exemption - ✅ Charges such as water, electricity and internet borne by the landlord do not, in themselves, remove the principal character of the lease ## What can lose the exemption The exemption ceases to apply when the contract goes beyond the simple passive transfer of the property and includes a set of services that alter the nature of the operation. Supervision, management, constant maintenance or cleaning services by the owner generally remove the preponderance of the lease and may even disqualify it as such. **Decisive criterion:** In each case, it is necessary to determine whether the additional service is merely ancillary - a means for the tenant to better enjoy the property - or whether it constitutes an independent purpose for the client. ## VAT deduction on works carried out by the landlord Another frequent question relates to the right to deduct VAT on works carried out on the leased property. The general rule is clear: those who carry out exempt operations under Article 9 of CIVA are not entitled to deduct VAT incurred. However, there is an alternative: Decree-Law no. 21/2007, of January 29, allows, under certain requirements, the waiver of the VAT exemption. This option opens the door to deducting the tax incurred, but requires compliance with specific conditions that must be analysed on a case-by-case basis. **Sources:** VAT Code (CIVA), art. 9 - Decree-Law no. 21/2007 - Binding Information no. 19426 (2021) - CJEU case law. The information in this article is for informational purposes and does not replace specialised legal or tax advice. 0 0 Share ### Get the latest tax news Subscribe to our newsletter and receive articles, tax alerts and tips directly in your inbox. Subscribe I agree to receive email communications from Grupo Your. I can unsubscribe at any time. My data will be processed according to the [privacy policy](/en/privacy-policy). ### Need help with your company? Talk to us and receive a proposal tailored to your business. 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