The new law for local lodging (Alojamento Local – AL) – Decree Law 128/2014, published on 29th of August 2014 – makes it mandatory for income received from short term property lettings to be declared to the tax department as business activity. This law will come into force next November 27th, adding substantial changes to the existing law from 2008.
If you let out your furnished property (Alojamento Mobilado para Turistas) on a short term basis (less than 30 days) or if it is advertised in any form as tourist accommodation, you will have to:
1. Register your property at the local council in order to obtain the Local Lodging License (Licença de Alojamento Local). Fines for not obtaining this license start at 2,500€ for individuals and 25,000€ for companies. If you already have a license, you have 30 days from the date the new law comes into effect to register with the tax department (AT). Proof of this registration must then be presented to the local council until next December 26th.
2. Start a business activity as self employed person by filing a declaration of commencement of activity (declaração de início de actividade).
2.1. Invoices Once you have initiated your business activity, you are required to issue invoices (Recibos Verdes) via the website of the tax department (AT).
2.2. VAT If the annual income is lower than 10,000€, the activity is exempt from VAT, otherwise a VAT rate of 6% applies. If you are not exempt, monthly or quarter VAT returns are requested. Because of the almost four-fold difference between VAT rates on rental rates (6%) and purchases/contracted services (23%), refunds should be the norm.
2.3. Income Tax Most of the lawyers and accountants who I have contacted believe that this activity can benefit from the simplified regime (regime simplificado), which means that only 15% of your invoiced income will be taxed. The remaining 85% are automatically considered expenses. For most, this reduces the final tax rate to under 4%. A minority of lawyers and accountants recommended to send an information request (Pedido de Informação Vinculativa) to the tax department in order to clarify this matter as they are not certain the simplified regime will be accepted. Alternatively, you can opt for the organised accounts (contabilidade organizada) in which all expenses are taken into account in order to achieve the taxable income. Regardless of the regime, an annual income tax declaration must be filed in April/May of the following fiscal year.
2.4. Social Security This business activity requires payment of social security. Exemptions apply if you are retired or already contributing to an official social institution in another country.
The following documentation/information is required in order to be able to apply for the AL license:
a) Habitation License (Licença de Utilização);
b) Identification of the owner or operator of the property (títular de exploração do estabelecimento);
c) Name of the property and its address;
d) No. of bedrooms, no. of beds and capacity (no. of persons);
e) The date on which the property is intended to open to the public;
f) Name, address and telephone number of the person to be contacted in case of emergency;
g) A formal declaration signed by the operator of the property confirming the suitability of the building or part of the building for the provision of accommodation services, which states that the property complies with the applicable legal and regulatory provisions;
h) Copy of the certificate from the tax department (Caderneta Predial);
i) Copy of the declaration of commencement of the business activity (Declaração de Início de Actividade).
Kaiser Properties can assist you in obtaining the AL license and recommend an accountant. Please contact us for further information.