Renting a house to tourists can be a very profitable activity for those who have an available property.
In November 2014, new regulation regarding holiday rental properties in Portugal (alojamento local) (abbreviated to “AL”) paved the way to regulating a business activity that was, in many cases, conducted informally. Since then more than 10,000 new local lodgings have been registered *.
One of the main questions for many who wanted to start up this activity relates to tax obligations, or rather, whether the income is taxed under category F (as rental income) or category B (as self-employment income).
So what are the tax obligations of those who want to rent their homes out to tourists?
With the new framework, introduced in 2014, “alojamento local” (AL) came to be classified as an “activity of providing accommodation services” (atividade de prestação de serviços de alojamento), since, in addition to the space itself being leased, it might include additional services such as concierge and cleaning services. This means that those who have a house they rent to tourists will be taxed in category B; that is, as an independent worker.
Therefore, after giving formal “prior notice” (mera comunicação prévia), done via the “alojamento local” register, at the “Balcão do Empreendedor“, you must register your activity or business as “atividade de prestação de serviços de alojamento” at your local finance department. If the expected value of income does not exceed 200,000 euros it can be filed under the simplified tax return scheme, unless you opt for the organised accounting. When the annual income is in excess of 200,000 euros it falls into a compulsory taxation regime of organised accounting.
In the case of being filed under the simplified scheme, the applied coefficient is 0.15, i.e. you only pay tax on 15% of income. This means that 85% of the amount gained through the activity is considered as an expense, so is not subject to taxation. If you choose the proper (organised) accounting scheme, then you may deduct all expenses related to the property and only then is the amount to attributable to tax is determined.
Read the article: About Green Receipts and IRS – What you should know.
Read the article: Reduced VAT on alojamento local – What you should know
*Figures from the Department for Tourism, according to “Journal de Notiçias” newspaper.
Do I have to charge VAT on my rental income?
Yes. Since this activity is considered “provision of services”, those who rent their homes to local tourists will have to pay VAT, (at the reduced rate of 6%), in accordance with Article 18 of the Tax Code.
The code stipulates that the reduced VAT rate is applied to the price of accommodation, including breakfast, if it is not billed separately. VAT must be declared and paid over via a periodic VAT return, which can be quarterly as long as the turnover is not greater than 650,000 euros, (Article 41 of the VAT Code).
The periodic VAT return (monthly or quarterly) must be remitted via the Portal of Finance, declaring the amount of VAT charged to customers. A document is then automatically issued by the authority for the subsequent payment of VAT.
Those who opt for the simplified scheme and have annual incomes below 10,000 euros can ask for VAT exemption, but are still obliged to issue invoice-receipt or invoice in the official way.