When you decide to put your letting income onto a commercial footing, you need to be aware of how the VAT (IVA) system operates in this situation:
The current threshold for IVA is a little under € 12.500,-
Your situation is:
My Local Lodging revenue per year will be less than this
If your revenue is likely to be less than € 12.500,- per year at the outset, you can be exempt from charging IVA. This keeps your administrative costs to a minimum, but does not allow you to claim IVA back on your expenses.
However, you can elect to be IVA registered if you think this would be beneficial. This may be the case if you have a consistently high level of costs. We would not usually recommend it.
My Local Lodging revenue per year is (or is going to be) more than this
If your revenue is over the threshold, you must be registered for IVA at the outset.
IVA on this type of revenue is currently charged at 6%. So, out of every € 100,- charged, € 6,- will be the IVA element. This IVA requires to be reported and paid over to the Tax Office on a regular basis. You may wish to absorb the IVA into your current rental levels, or you may wish to adjust the level to take account of this.
IVA on expenses paid out will usually be at the rate of 23%. As you can offset the IVA paid out on expenses against the IVA you receive as part of your income, you are likely to build up a credit. As part of our ongoing annual service, we would arrange to have this reimbursed to you.
My Local Lodging revenue this year is less than this, but is likely to increase next year
If your rental income increases to over € 12.500,- in a subsequent year, you must be registered for IVA in the following year.
Our partner euroFINESCO
In order that expatriates can handle all of the above matters our partner euroFINESCO, the leading provider of Fiscal Services, has created the “Local Lodging Plan”, a comprehensive program that offers Fiscal Representation, Expert Advice, and Administration of all of the relevant matters as a co-ordinated service for property owners who want to benefit from the booming Portuguese Vacation Rental Market while complying fully with all of the applicable Regulatory and Taxation requirements.