Local Lodging Questions and Answers

What you need to know, if you want to rent your property to tourists

The number of tourists visiting Portugal continues to increase and for some property owners, renting their property is a way of reducing the annual costs of owning a holiday home. The number of rental licenses registered in the Portuguese Portal of Tourism is growing and it has increased by nearly seven thousand new licenses, during the pandemic years of 2020/21.

If you are considering renting your property, there are several questions that you need to be aware of in order to avoid any problems with the Portuguese licensing and tax departments.

First of all, you need to bear in mind when you rent your property in Portugal, that irrespective if you are a tax resident or not, the rental income will always need to be declared in Portugal.

Secondly, the Tax Authorities (Finanças) state categorically that Property Owners letting directly to holidaymakers (less than 30 days) are viewed as business activity and must be reported in Category B.

Despite several taxpayers have been declaring rentals on Category F, this should be reserved for “long-term” rentals (more than 30 days). Only the “locação turística”, when the property owner makes a contract ceding the property to an agent for ongoing letting to tourists, may be taxed under category B or F.

The main reasons for you to comply with this new law, are:

  1. ASAE and the tax authorities are checking the rental portals (air bnb, hollidaylettings, etc), to make sure that the properties advertised are all legal and the owners are fully compliant. Fines are considerably high for those not advertising the AL license number;
  2. Tax is considerably low if you are on this scheme, as a non-resident you pay as little as 8.75% tax, instead of being taxed at 28% (this is not a typing error you read it correctly, 8.75% opposed to 28%). The tax is even lower, for hostels, guesthouses and other properties where you can rent a single room, instead of the whole property: 3.75%.

So why take unnecessary risks and not obey the law? Please find below some questions and answers, to help you understand a bit more about the local lodging:

1) As a business, will there be complicated accounting/reporting requirements?

No, unless your income is over €200,000 per year, we will class you on the “Simplified Regime” and as the name says, everything will be simple.

2) What is the simplified regime and what expenses can I offset against my rentals?

Most of the Sole Traders in Portugal elect to operate under the Simplified Regime when opening their business activity.  Under the simplified regime taxpayers cannot deduct professional and business expenses against their annual gross income. The taxable income of this category will be computed automatically, based on their income.

3) What is the tax payable on the simplified regime on my rentals?

The effective tax rate on Category B, in the simplified regime, for a non-resident Property Owner will be 8.75%, for apartments and villas and 3.75% for hostels, etc. So, for earnings of €10,000 the taxable income, equates to €875 in a villa or apartment. Please note that under Category F, on the same income taxed autonomously at 28%, the tax liability would be €2,800, 3 times more!

4) Do I have to issue invoices to holidaymakers?

Yes, you need to issue invoices, however this is a service included on our package, so we will do this for you. We will also simultaneous report the arrivals and departures to the Immigration and Borders Service (SEF) at no additional cost. This is also mandatory under the new law.

5) Will I need to be VAT registered?

You will be VAT registered, but you will benefit from a VAT exemption unless you chose not to be exempt, or if your income exceeds €12,500 per year. Please note that as the VAT you will charge to holidaymakers is 6% and as most of your operating expenses has VAT at 23% rate, normally you should be in credit in terms of VAT or have a very little VAT liability.

6) Do I have to pay Social Security contributions?

The Local Lodging activity is exempt of Social Security contributions, but please note that this only applies to the cases where this is your only activity registered with the tax office. If you have carry other activities, please contact us as there are various full and partial exemptions that apply in most cases. The exemption also doesn’t apply, in case your license is for hostel.

7) How long does it take to get this rental license?

Depending on your urgency, we can complete the registration at the tax office and the application to the tourism office in a week, and you should have your AL number up to 10 days after the application is submitted! The AL license it’s valid until you close your activity or sell your property.

8) Do I pay capital gains if I decide to stop renting?

In most cases you won’t have a problem with the capital gains. However is advisable to seek personal advice, so you can plan ahead a future sale of the property.

9) What do I need to report to SEF?

All property owners need to report to the SEF (Emigration Office) the entry and exit of all guests with non-Portuguese nationality.

If you have any other questions, please feel free to contact us, we aim our expertise and know-how to work in your benefit, keeping you tax compliant while paying only the legal minimum.

Contact our office and book an appointment to find out more about the tax strategy that might be more effective on your specific situation.