The Vacation Rental Market in Portugal is Booming but please be aware of the following:
- It is Illegal to contract for short-term rentals in Portugal without having in place a license for the property. The license, known as an “Alojamento Local”, is a straightforward process that involves some basic compliance issues and an inspection by the local Camara. The fines for not having the license can however be substantial and can be applied to the rental agency as well as the property owner.
- As a result many rental agencies and all of the major internet portals, such as Airbnb, Booking.com, Home & Away, etc., from July 2017, no longer list properties that do not have an Alojamento Local.
- In order to avoid being exposed to high rates of local income tax it is essential that property owners establish a “Sole Trader Activity” to account for the rental income. Under the simplified regime 65% of the gross rental income is deemed to be the cost of providing the rentals and income tax is applied to the remaining 35%. Thus, the effective tax rate on rental income is 8.75%.
- Reporting of Rental information and the issuing of receipts is required.
- Reporting to SEF (Border Control) of Passport Information for all paying and non-paying guests (other than the owner) is also required.
- If the annual gross rental income exceeds €10,000.00 then registration for IVA (VAT) is also required but this can be beneficial as the tax rate to the tourist is calculated at 6% and the tax on costs and expenses, currently 23%, can be offset, perhaps generating a reclaim. Early registration for IVA can even be advisable if for example major renovation work is envisaged so that the IVA cost of that work can be recovered.
- An annual Income Tax Return is required and if IVA registration is appropriate quarterly IVA Returns.