The four rates, side by side

Rental income is Category F, defined in article 8 of the IRS Code, and is reported on Anexo F of the Modelo 3 return. The rate does not depend on how much you earn: it depends on what you let, to whom, for how much and for how long.

The rule that settles it. Article 45-C(1) applies the 10% "unless a more favourable rate applies". Benefits are not added together: you compare and take the lower. On a 20-year permanent-residence lease, 25% less 20 points is 5%, and 5% is what you pay, not 10%. On a five-year lease with no renewals, 25% less 10 points is 15%, so the 10% wins. And if the contract fits the affordable-rent scheme, zero beats everything.

HVR's rental income tax calculator runs that comparison on your own figures and says which regime wins, after deductible expenses.

The 10% does not come from where everyone says

This is worth getting right, because the first page of Google results attributes the 10% to the 2026 Budget Act and to article 72 of the IRS Code. That is not where the provision lives.

The 10% was created by Decree-Law 97/2026 of 20 May, whose article 9 added article 45-C to the Tax Benefits Statute (EBF). Article 5 of that same decree-law did amend the IRS Code — but articles 10, 43, 78-E and 101. It did not touch article 72, which still sets the 25% and the 28%. Anyone writing "article 72 now says 10%" is citing the wrong provision, and that has practical consequences: the access conditions and the expiry date are in the EBF, not in the Code.

What article 45-C(1) requires:

• a contract intended exclusively for residential letting;
• a monthly rent within the limits of article 2(2) and (3) of the same decree-law;
• income earned up to 31 December 2029;
• unless a more favourable rate applies.

The regime has effect from 1 January 2026 (article 18(2)), so it already covers 2026 income and contracts that were already running.

Where the €2,300 comes from

It is not a round number chosen with a ruler. Article 2(2)(a) defines a moderate monthly rent as 2.5 times the statutory minimum wage set for 2026. With the €920 minimum wage fixed by Decree-Law 139/2025, that is €2,300. Article 2(3) allows the limit to be updated by ministerial order, using the updating factor in article 24 of the Urban Lease Act.

To measure it, article 3 requires the whole amount paid under the contract to be counted, plus movable goods, equipment or accessories permanently attached to the property and any services that add to its value, even where these are the subject of separate agreements. That closes the classic arrangement of splitting the rent from a furniture hire to fit under the limit. Where there are several tenants, the limit is measured against the total (article 3(2)); for lettings, the annual amount is divided by the months elapsed in the year (article 3(3)).

There is also a side effect few people mention: withholding came down in step. Article 101(1)(f) of the IRS Code, added by the same decree-law, sets it at 10% for Category F income covered by article 45-C(1); for everything else it stays at 25% under subparagraph (e).

The long-lease reductions, including the one nobody cites

These live in article 72 and apply only where the property is the tenant's permanent home. The 25% autonomous rate falls by:

• 10 points for contracts of five to under ten years; for each renewal of equal length, a further two points, with the renewal reductions capped at 10 points (paragraph 3). In practice the floor by this route is 5%;
• 15 points for contracts of ten to under twenty years (paragraph 4);
• 20 points for contracts of twenty years or more, and for long-term habitation right contracts as regards the monthly payment (paragraph 5).

And there is paragraph 24, which rarely appears. New contracts benefiting from paragraphs 3 to 5 get a further five-point reduction whenever the rent is at least five percentage points below the rent of the previous contract on the same property. On a twenty-year contract with the rent coming down against the previous one, 25 less 20 less 5 reaches zero by this route alone, without going near the affordable-rent scheme.

Two brakes

Paragraph 23 rules out the reductions in paragraphs 3 to 5 for residential contracts signed from 1 January 2024 whose monthly rent exceeds by 50% the general per-type limits in tables 1 and 2 of annex i to Portaria 176/2019 of 6 June. Note that this order has since been revoked by Portaria 454/2026/1, leaving paragraph 23 pointing at an instrument no longer in force — something to confirm case by case before counting on the reduction.

Paragraph 20 is the costliest to ignore: if the contract ends before its term for a reason attributable to the landlord, the reductions are extinguished from the start of the contract, and the landlord must declare it in the year it ends and settle the difference in tax for every year, plus compensatory interest. The 20-point reduction on a twenty-year lease is not a discount already earned: it is an advance against a promise of duration.

Affordable rent: zero, on three conditions

The simplified affordable-rent scheme (RSAA) was approved as annex iii to the same Decree-Law 97/2026 and has effect from 1 September 2026. Article 6(1) exempts qualifying rental income from both IRS and IRC. Zero is the most favourable rate of all, so it absorbs both the 10% and the duration reductions.

The three conditions that rarely travel with the headline:

1. Rent limit. Article 4(1) refers to a maximum per property type set by ministerial order, based on 80% of the INE median rent per square metre for the municipality. Those figures are in the annex to Portaria 454/2026/1 of 13 October, in force since 14 October: 308 municipalities, T0 to T5. A two-bedroom flat in Lisbon is €1,309; the national ceiling is €2,066 for a five-bedroom flat in Lisbon. Article 2(4) of that order allows two cumulative 10% uplifts, one for private parking and one for energy class A or above.
2. A minimum three-year term for a permanent residence (article 5(1)); three months for the temporary residence of article 3(1)(b).
3. Filing with IHRU. The landlord must file on the IHRU platform, by 15 January of the year after signing, a copy of the contract and proof that it was reported on the tax portal (article 6(3)). Without that filing there is no exemption, however well the rent fits the limit.

Later non-compliance forfeits the benefit from that moment, with compensatory interest (article 7). And note article 6(2): if the taxpayer opts for aggregation, the exempt income is still mandatorily aggregated to determine the rate applied to other income — the exemption does not remove it from the rate calculation.

Two points that help the decision. First, no figure in the annex to the order reaches €2,300 — that cap belongs to the 10% rate, not to the RSAA, and confusing the two leads to setting ineligible rents. Second, anyone who signed between 1 September and 13 October 2026 measures eligibility against the old Portaria 176/2019 limits, under article 7(3) of the new order. For the whole package, see our article on Decree-Law 97/2026.

Expenses come off before the rate

The rate does not apply to gross rent. Article 41(1) of the IRS Code allows the deduction, for each property or part of a property, of all costs actually incurred and paid to earn or secure the income, rent-guarantee insurance included. The exclusion list is short and worth memorising:

• costs of a financial nature — mortgage interest is not deductible, and this is the single most common mistake;
• depreciation;
• furniture, appliances and items of comfort or decoration;
• AIMI, the additional property tax — IMI is deductible, AIMI is not.

Four application rules that change the result:

• Condominium fees (paragraphs 2 to 4): for units under horizontal property, charges the owner is legally obliged to bear and has actually paid are deductible; where you hold several units in the same building, they are allocated by the permillage in the constitutive title.
• IMI and stamp duty (paragraph 5): deductible only where they relate to a property whose income is taxed in that same tax year. Paying IMI on a property left empty all year earns no deduction.
• Works done before letting (paragraph 7): conservation and maintenance costs incurred and paid in the 24 months before the letting starts are deductible, provided the property was not meanwhile used for any purpose other than letting. This is the provision that pays for doing the place up before putting it on the market.
• Sub-letting (paragraph 6): the difference between the rent the sub-landlord receives and the rent they pay gets no deduction at all.

When the year runs at a loss

A negative Category F result cannot be set against other income. It carries forward for six years against positive results in the same category (article 55(1)(b)). But paragraph 8 adds a condition many people miss: the carry-forward lapses if the properties the costs relate to do not generate Category F income for at least 36 months, consecutive or not, in the five years following the year the costs were incurred. Doing major works and then leaving the property closed loses the deduction.

Aggregation, and what changes for non-residents

The article 72 rates are autonomous: they apply to the rental income on its own, without pushing you into a higher bracket because of your salary. Residents may opt for aggregation on the income in paragraphs 2 to 5, under paragraph 13, and pay the progressive rates of article 68 instead. It tends to pay off in the lower brackets and where there are other tax credits to use — but it is an option for the whole category, not property by property, and it should be modelled rather than assumed.

For non-residents there is a distinction that is usually told wrongly. Paragraph 15 lets residents of another EU or EEA state, where information exchange exists, opt for the progressive rates of article 68 — but only for the income in paragraph 1(b) and (e) and paragraph 6. Residential letting is taxed under paragraph 2, which is not on that list: a non-resident landlord letting residential property does not have this option, although they do have it for non-residential letting. And where it is used, paragraph 16 requires all income, including income earned outside Portugal, to be taken into account in setting the rate.

Either way, filing Anexo F is mandatory: the usual filing exemption does not cover rental income. See our tax calendar for non-residents for the deadlines across the year.

Receipts, withholding and the return

Receipts. Article 115(5) requires Category F taxpayers to do one of two things: issue an official-form receipt — the electronic rent receipt — for every amount received from tenants, including deposits, advances and expense reimbursements; or file an official-form declaration itemising that income with the Tax Authority by the end of February each year, for the preceding year.

Withholding at source. This arises only where the tenant keeps, or should keep, organised accounts. In that case they withhold 25%, or 10% where the income falls under article 45-C(1) (article 101(1)(e) and (f)). Withholding is not final: it is an advance, and the actual tax is settled in the return, with expenses deducted.

The return. Rental income goes on Anexo F of the Modelo 3 return, filed between 1 April and 30 June of the following year (article 60(1)). That is where you identify the properties, the rent received and the costs borne, and where you do or do not exercise the aggregation option.

What to do with this

Three concrete decisions come out of this law, and all of them are taken before signing the contract, not in June while filling in the return:

1. The term. Between a three-year contract and a ten-year one, the rate goes from 25% to 10%, and can go further with renewals. But paragraph 20 takes it back, with interest, if it is the landlord who breaks the term.
2. The rent. Two thresholds change the regime: the €2,300 of the 10% rate, and the municipality-and-type limit in Portaria 454/2026/1 for the exemption. Cutting the rent to fit under one of them may pay off — or may not, and the comparison is arithmetic, not instinct.
3. The works. Bringing them into the 24 months before letting makes them deductible (article 41(7)); leaving the property unlet afterwards forfeits the loss carry-forward (article 55(8)).

Run the numbers in the rental income tax calculator, which compares the four regimes on your own figures. To decide the term and the rent with a certified accountant alongside, or to file Anexo F without surprises, talk to HVR.

Frequently asked questions

What is the tax rate on rental income in Portugal in 2026?

It depends on the contract. Residential letting is taxed at 25% and other rental income at 28% (article 72(2) and (1)(e) of the IRS Code). Residential rents up to €2,300 a month pay 10% on income earned up to 31 December 2029 (article 45-C(1) of the Tax Benefits Statute). Permanent-residence contracts of five years or more cut the rate by 10 to 20 points, and the affordable-rent scheme removes it entirely.

Does the 10% rate stack with the long-lease reductions?

No. Article 45-C(1) applies the 10% unless a more favourable rate applies. The lower of the two applies, never the sum. On a twenty-year contract, 25% less 20 points is 5%, and 5% is what you pay.

Did the 10% come from the Budget Act or from article 72?

From neither. It came from article 45-C of the Tax Benefits Statute, added by article 9 of Decree-Law 97/2026 of 20 May, with effect from 1 January 2026. Article 5 of that decree-law did amend the IRS Code, but articles 10, 43, 78-E and 101 — not article 72, which still sets the 25% and the 28%.

Can I deduct mortgage interest from rental income?

No. Article 41(1) expressly excludes costs of a financial nature, which include interest. Depreciation, furniture, appliances, comfort or decoration items and AIMI are also excluded. Deductible items include conservation and maintenance, condominium fees, IMI, stamp duty and insurance, rent-guarantee cover included.

Can I deduct works carried out before letting?

Yes, within a time limit. Article 41(7) allows the deduction of conservation and maintenance costs incurred and paid in the 24 months before the letting begins, provided the property was not meanwhile used for any purpose other than letting.

Does the affordable-rent scheme really mean 0% tax?

It does, on three conditions. The rent must fit the municipality-and-type limit in the annex to Portaria 454/2026/1 of 13 October — €1,309 for a two-bedroom flat in Lisbon, with cumulative 10% uplifts for private parking and for energy class A or above. A permanent-residence contract must run for at least three years. And the landlord must file the contract on the IHRU platform by 15 January of the year after signing. Without that filing there is no exemption.

Does a non-resident landlord pay the same rate?

Yes. The article 72 rates and the 10% of article 45-C do not distinguish residents from non-residents. What differs is aggregation: residents may opt for it under paragraph 13, and EU or EEA residents may opt for the progressive rates of article 68 only for the income in article 72(1)(b) and (e) and paragraph 6 — which leaves out residential letting, taxed under paragraph 2.