After the heavily criticised proposal of the State Budget for 2018, presented on the 13th of October 2017, which aimed to drastically change the Simplified Tax Regime (Regime Simplificado), the government has now presented a milder version.
Nevertheless, the new rules will affect most of the self-employed professionals such as lawyers, architects, doctors, journalists and owners of holiday rental properties, with an annual invoiced income over 27,360€.
As per the Local Lodging (Alojamento Local – AL) legislation – Decree Law 128/2014, published on the 29th of August 2014, several owners have registered their property as short term rental accommodation at the town hall and started a business activity in Category B of the IRS.
After altering the cost/profit ratio for this year from 85%/15% to 65%/35%, i.e. after increasing the taxable profit from 15% to 35% of the annual turnover for the Alojamento Local activity (CAE 55201 and 55204), the government has now decided to keep the ratio 65%/35% but to reduce the automatic deduction (costs) from 65% to 50%. The remaining 15% of the allowed costs need to be documented through invoices, although this is not entirely correct since 4,104€ (dedução específica) will be automatically considered within the 15%, so only the remaining amount (between 4,104€ and 15%) needs to be documented through invoices.
Since 15% of 27.360€ is 4,104€, only self-employed professionals with an annual turnover that supersedes that amount need to take action in order to obtain the full deduction of 65%, i.e. register part of their expenses on the e-fatura, an online platform created by the tax office.
Let’s illustrate the above through an example:
In 2017, on an annual invoiced rental income of 30,000€, 65% (19,500€) would be automatically considered costs whereas in 2018 this amount will be reduced to 15,000€ (50%). The remaining costs within the 65%, i.e. 396€ (4,500€ – 4,104€) need to be documented through registered invoices in order to be considered.