Be Compliant and still cut your taxes to under 9%
While Portuguese tax rates have increased on many forms of income, our fiscal partner euroFINESCO has unlocked a fully compliant strategy that can dramatically reduce tax assessment on short-term lets to holidaymakers.
Letting to Holidaymakers
Regardless of where you come from, if you let to holidaymakers in Portugal, your primary tax obligation is to Finanças, both to report income and pay any tax due. If resident abroad, double taxation is eliminated via international credits for tax paid in Portugal. For those engaged in short-term tourist lets, euroFINESCO Local Lodging Plan means a substantial reduction in your income tax assessment. Rather than pay 28% as in long-term rentals, your tax under Local Lodging is less than 9%.
(If you do not have as yet a Local Lodging (Alojamento Local) Licence or an Energy Certificate, euroFINESCO can help you obtain these necessary permits as part of their many services.)
What is the Plan?
The Local Lodging Plan allows you to operate as a Portuguese commercial tourist sole trader business, with all of the associated benefits, rather than as a landlord on a long-term rental basis. After mandatory one-off registrations, there are regular reporting prerequisites as well as basic administration to be completed. For non-residents, Fiscal Representation is included at no extra charge. Our full-service plan fulfills all of these requirements on your behalf, keeping you compliant for a modest annual charge.
What are the tax advantages?
Only a small portion of Local Lodging earnings is taxable when declared as a business income. This equates to an effective tax rate of under 9% versus 28% for long-term rentals. When declared correctly, there should be no withholding tax at source. With international tax credits on any assessment in Portugal, you can benefit from all business deductions available in your resident country to further reduce or eliminate your final tax levy.
Example: With this plan, Portuguese tax on Local Lodging income of € 10,000 would be only €875. In 2017, if reported as conventional rental income, the levy would be €2,800. That’s more than a 3-fold difference in your favour!
Are there other benefits?
Benefits include simplified procedures for owners, elimination of ever-changing criteria on deductible expenses as well as the possibility to recover part if not all of VAT paid on your operating expenses.
If your income is under €13.500 p.a., you are exempt from VAT. While you still pay “IVA” on expenses, you cannot charge this tax to your customers nor do you present regular declarations. If your income is exceeds €13.500 per annum, you must file regular VAT returns. You will be eligible to recover part of the VAT paid on expenses. While paying full rate Value Added Tax on expenses, the tax that you collect from holidaymakers is at the lowest reduced rate for VAT, a 4-fold difference. Legitimate business expenses related to your activity should qualify. Refunds are the rule.
“SEF” (“Serviço de Estrangeiros e Fronteiras”)
When foreign guests stay in commercial accommodations such as a hotel or Local Lodging, their arrival and departure must be reported to “SEF” via “SIBA” (Accommodation Bulletin Information System”). Once again, this service is included in euroFINESCO’s Plan.
What about costs?
There is a one-off charge to cover initial mandatory steps necessary to enable you to open your business and benefit from the tax savings. The full-service package includes on-going annual fees falling into two bands (with and without VAT), depending on your level of Local Lodging income and other compulsory requirements.
Our charges are largely fixed. This means the more you earn, the better value you get. With euroFINESCO at your side, you can focus your time and effort on what is key to making your business a success: maximising bookings. We will confirm our fees and an estimate of anticipated tax savings via a free initial meeting or phone consultation.
What else should I know?
Keep in mind that Local Lodging reporting has been mandatory since 2008. The period of adaptation is drawing to a close. Compliance is not a question of choice but rather a matter of law.
Excellence in Fiscal Representation
EuroFINESCO’s Local Lodging Plan is just another example of how our partners experience, expertise and know-how can work for you by keeping you fully tax compliant while helping to pay only the legal minimum.