What you should know about Short-term Rentals in Portugal
30 . 8 . 2021 Living in Portugal
In recent years, the short-term rentals sector has gained a great importance in worldwide tourism. The globalisation of tourism and the growth of platforms such as Airbnb and Booking.com has created new opportunities for property investment in Portugal, not only for residents, but also for foreign investors, and those wishing to acquire a Golden Visa or other residence permit.
The fiscal framework of short-term rentals exists in Portugal since 2008, with successive alterations.
The first step before starting to operate a short-term rental is to understand its tax framework. You will have to make some decisions:
The first thing to do is to start your business activity in your local Tax Department as a natural or legal person. If you choose the second option, you must choose between one of the following three CAE: 55201 (Tourist accommodation), 55202 (Tourism in rural areas) and 55204 (Other short-term accommodation).
If you choose to include your income in the IRS category B - find out more here - you can opt for the simplified regime (if you have an income of up to 200,000€/year) or for the organised accounting regime.
Under the simplified regime, the calculation of taxable income is based on the application of a coefficient. This coefficient is 0.35 in the case of houses and flats (or 0.15 in the case of hostels). Therefore, only 35% (or 15%) of the gross income obtained is taxable under IRS. Please note that if you are taxed under the simplified IRS regime and exceed the limit of 27.360€ of gross income, you will have to present expenses related to your activity that represent at least 15% of your turnover. Otherwise, the tax base will be higher, as will be the payable tax. Please refer to our Tax Guide for Freelancers in Portugal (available below) where we explore this issue in more detail.
By opting for organised accounting, the taxable income is calculated based on the rules of the IRC Code. This option can be more advantageous if the costs of the activity are higher than 65% of the income obtained (if you apply the 0.35 coefficient), or higher than 85% (if you apply the 0.15 coefficient). Another advantage is that you can deduct losses from previous years, if certain rules are verified – learn more about this.
Alternatively, you can choose to include your income in IRS category F. In this category, you can choose to have your income encompassed, or through an autonomous taxation at a rate of 28%.
If you have chosen to manage your short-term rental by incorporating a company, you will be taxed through corporate income tax (IRC). Please note that when advertising your property through platforms like Booking.com or AirBNB, you will have to pay commission. This commission must be reported monthly to the Finance Department via a form. Portuguese companies are (generally) exempt from withholding tax when paying income to non-residents. We have already explored how you can benefit from this exemption in our article Tax Withholding - Exemptions for non-residents, which you can read here.
The calculation of capital gains is made at the time of sale of your property. If after allocating your property to short term rentals, you decide to deallocate it and, subsequently, sell it, capital gains can be calculated under IRS category B or category G, depending on the moment of sale. The tie-breaker criterion is the number of years that have elapsed between the date on which the property is no longer allocated to short term rentals and the date on which it is sold. If up to three years have elapsed between these two dates, the capital gains will be taxed under category B (encompassed at 95%), otherwise the capital gains will be taxed under category G (encompassed at 50%). If you decide to sell your property while it is still used for short term rentals, the calculation and taxation of capital gains will be done under IRS category B. For non-residents in Portugal, the IRS taxation in category G will be levied on 100% of the capital gain obtained, subject to an autonomous rate of 28%.
VAT
Like any other service, short term rentals is subject to VAT. If your turnover is less than 12,500€ per year, you can get the VAT exemption, meaning you are not obliged to charge VAT to your customers. However, if you opt for exemption, note that you will also not be able to deduct the input VAT on your expenses. You can find more information about VAT in Portugal and your reporting obligations on our website.
You will also have to pay IMI on your property, according to its taxable patrimonial value (VPT). The rate charged varies depending on the municipality where the property is located. In Madeira, the payment of IMI can be made in up to 5 instalments, when the value is higher than 100€.
If you are buying a property to exploit as a holiday home, you will be liable to pay IMT on the purchase. Be aware that, even if you already own the property, when you allocate it for a short-term rental activity you may be liable to pay IMT. If you benefited from the IMT exemption when buying your property for your own permanent residence, this exemption expires if, within six years, you use that property for another use different from the one on which the exemption was based.
For more information about IMI and IMT in Portugal, check our website.
NEWCO provides full assistance to its clients in all aspects of their investment in Portugal. We have 30 years of experience and are specialists in guaranteeing the security and efficiency of your investments. You can count on us to obtain your residence permit, find a property that suits your needs, and set up or relocate a company. We also provide accounting and tax compliance, fiscal and financial advice, or any other type of assistance you may need when investing in Portugal. Contact us!
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Read our complete Tax Guide for Freelancers in Portugal
Bibliographic References:
SICAE - Portuguese Classification of Economic Activities Information System (www.sicae.pt)
IRS Code (art.3, 8, 31, 41, 55, 72, 101)
IRC Code (art.º 52º)
VAT Code (Article 53)
IMT Code (artº 9, 11)
Law No. 75-B/2020 of 31 December (State Budget 2021)
Resolution of the Legislative Assembly of the Autonomous Region of Madeira (1/2021/M)
