Tax liabilities for holiday home owners in Portugal

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Tax Information (AL)

Information on tax liabilities for owners of holiday homes in Portugal

Whether you're a foreign investor or a Portuguese national you will need to pay tax on the income that you generate from your rentals. Here we try to help you navigate the Portuguese tax system so you can be sure that you're declaring your income correctly and you're not leaving yourself vulnerable to unwanted attention from the Portuguese tax services and punitive fines. We would stress that we are not accountants or tax advisors ourselves, so the information here is provided for assistance purposes only and we would urge our owners to seek professional advice themselves or to employ an accountant to handle their tax affairs. We have found that advice in this area can be conflicting at times and we can recommend the accountancy firm that we work with ourselves (Gesconta) for assistance in this respect as they understand holiday rental business well. The contact details for Gesconta are as follows:

Rua Mouzinho de Albuquerque n.º 162 B

2450-240 Nazaré

Tel.: 262 561 230 - Mobile: 934 118 159

Email: gesconta.onm@gmail.com

Starting a business activity

When you make the decision to rent out a holiday home in Portugal you are in effect opening a business. To do this you must visit the financial services offices and ask them to register your new business. This must be done either in person or through a solicitor with power of attorney. You will need to provide your passport, your fiscal number (NIF) and the IBAN (International account number) of your bank. Once you have done this and successfully acquired your AL licence (holiday home rental licence) you will be free to rent out your property and start generating an income.

The tax year

The Portuguese tax year runs from the 1^st of January to the 31^st of December. Income from the tax year should be then be declared by the 30^th of June. The Portuguese tax services should issue their assessment of the tax return by the 31^st of July, informing the amount owed in tax. The payment for the tax owed is then due by the 31^st of August.

Invoices

In Portugal all income generated by a business should declared through invoices that are registered through the Portuguese financial portal (https://www.portaldasfinancas.gov.pt). When you receive income from your bookings you or your accountant should log in to the Portal and issue an invoice for your guest. To register the invoice you will need to provide the guest's name, the dates of their stay, their Passport or ID number if they are from outside of Portugal or their NIF if they are Portuguese nationals. You will also need to register the income. More often than not, guests don't want invoices themselves. Not many of us are lucky enough to have employers that will pay for our holidays so guests don't tend to request invoices. That's not to say however that the payments don't need to be declared and the Portuguese financial portal allows you to declare income even when guests have not provided a NIF. For situations where you don't have the NIF of your guest you can issue the invoice by selecting Consumidor Final and using the NIF: 999999990.

How tax on AL properties is applied in Portugal

There 4 ways of handling taxes on AL income in Portugal:

The simplified regime (Regime simplificado) - provides a solution that is intended to make calculating tax straightforward. The owner of a holiday home declares their gross revenue - essentially this is the amount that guests pay to stay in their property. The tax services then identify 35% of that figure and charge tax on that figure. For non-residents (of Portugal) the tax applied is 25%. For Portuguese residents the tax applied depends on the level of their income tax.
If your property is rented through us at Rental Retreats, the gross income you receive will include our commission. To give you an example of how this would work with the simplified model, imagine we take a booking whereby the guest pays € 1000 for a week in your property. To work out what tax will be due for that booking take the following steps:

Step 1. Identify what 35% of € 1000 is: € 350.

Step 2. Work out what 25% of € 350 is: € 87.50.

The simplified regime with VAT The simplified regime can be used with or without including VAT (IVA) depending on the amounts concerned. See information on VAT declarations below. The drawback of the Simplified Regime is that expenses cannot be deducted, the assumption is that 65% of the gross income is made up of expenses and the remaining 35% is income.

The organized accounting regime (Regime de contabilidade organizada) allows a means of declaring income in which expenses can be declared and deducted. The expenses that you might declare could include examples such as advertising costs, platform fees, energy bills, replacement appliances, repairs, maintenance fees, condominium fees and IMI tax. Unfortunately mortgage interest payments cannot be used as tax deductible expenses. Please note: In Portugal it's essential to ensure that your taxpayer identity number (NIF) is included on any invoices in order to use them as declared expenses.

Through a company (Sociedade). In some cases it may be preferential to open a company to handle the business activities involved in renting a holiday home. This is usually the case when the property is generating more than € 12,500 in income each year. By opening a company there may be benefits in terms of reducing the percentage of tax charged on the income. Furthermore, companies can have more autonomy over the levels of Social Security payments. The benefits of opening a company will vary significantly according to personal income and circumstances. To be sure that it's the right decision for you, we would recommend that you discuss your situation with your accountant.

VAT

If you earn over €13,500 *(2023) gross income from your holiday home, you will need to be registered for VAT (known as IVA in Portuguese). Although any additional tax is not desirable, fortunately the IVA level is not too high on income from holiday homes in Portugal, it is currently 6%. You can apply IVA on top of your rental rates though we wouldn't recommend that approach. Our approach to the rental rates is always to work out the maximum rates according to demand - if we then add 6% to those rates we may find that our occupancy decreases and our income is reduced. In our opinion it's better to absorb the 6% IVA charge. Fortunately owners are able use IVA from expenses as credit to offset what is paid out in IVA charges so the overall impact of being registered for IVA is not normally too significant. Some examples of IVA fees that can be used as credits to offset expenses include replacement furniture, appliances and services such as energy bills, cleaning fees, management fees, cable TV and internet bills.

(*) 2024 - €14.500; 2025 - €15.000

Platform fees

One of the key expenses that you will incur when renting out your holiday home will be related to service fees from booking platforms (such as Booking.com, Airbnb etc.). Rental Retreats absorb the platform fees with our tax return and we provide invoices to guests for those expenses. As such the owners that we work with don't need to include the platform fees in their calculations of their gross income.