Following the general approval by the Algarve Mayors’ group, AMAL, the Council of Lagos is moving forward with a €1.5-a-night Tourist Tax. Mayor Maria Joaquina Matos justified the measure, declaring that the tax will help pay for local projects, cover a lack of investment by central government and contribute to making the region more competitive.
Staying in a hotel or local lodging accommodation in Lisbon became more expensive as of the first of the year due to the increase in the Municipal Tourist Tax from one to two Euros. The local municipality estimates additional revenues from the measure of ±_35 million in 2019.
The levy on holidaymakers will be applied to all guests over the age of 13 who stay up to 5 consecutive nights in hotels, apartments, villages and tourist developments, campsites or local lodging establishments in the municipality of Óbidos. The town council hopes to collect ±€200,000 annually in fresh revenues with the new charge.
Despite an increase of three tenths, Portuguese taxation remained below the European average last year. In Portugal, the weight of taxes reached 40.2% of GDP and in the Euro Zone, 41.4%. France had the heaviest load (48.4%) and Ireland the lightest (23.5%).
As a relatively new tax, it is not surprising that many have been caught unaware of their liability to pay AIMI and, more importantly, how they can avoid the disturbing consequences. The additional assessment to IMI (Adicional Imposto Municipal Imobiliário) is sending shock waves to individuals and company owners who unwittingly find themselves under the weight of this added fiscal obligation. Continue reading
If you meet any of the criteria to be considered resident for tax purposes in Portugal, you arew required to register with the tax authorities and submit annual tax declarations. Tax residents are liable to Portuguese taxation on worldwide income. When a taxpayer fails to report income that is the object of information sharing from any number of diverse sources, Finanças moves to coercive settlement of the assessment due. Continue reading
The Tax Authority can now claw back “IMT” tax breaks when owners engage in Local Lodging or letting rooms to students. If you bought your home as your “personal and principal residence”, you paid a lower property transfer tax (“IMT”) at the time of purchase. According to a recent “AT” ruling, if within the following 6 years you practice holiday or student letting, Finanças can rescind the tax break and retroactively reclaim any additional tax due.
Returning ex-residents will benefit from a 50% exclusion on earnings from salaried employment (Category A) and business and professional income (Category B). Only half of the income will be taxed under the proposed changes in IRS rules. According to the State Budget Proposal for 2019, this regime will apply for five years from the year in which the citizen meets the eligibility conditions. Any entity responsible for withholding income earned by returning former residents will be subject to a withholding tax on half of the attributed income, thus ensuring full application of the tax break.
From March to October, tourists will be charged €1.50 per day, up to a maximum of seven consecutive days. Lisbon has also been negotiating to double its Tourist Tax to €2. The Algarve Tourist Tax is expected to yield 20 million euros per year to Algarve municipalities. These revenues are to be used in inter-municipal projects in the areas of tourism promotion, heritage rehabilitation and cultural interventions.
After the hubbub of the summer, many Local Lodging owners wish to book long-term rentals to assure low-season occupancy over the quieter winter months. As always, there are pros and cons, particularly when distinguishing between long and short term lets is not always easy.
Reporting Long-Term Rentals
Under current legislation, bureaucracy has mushroomed in recent years for long-term rentals:
- a) Registration of Rental Contract – Mandatory Rental Contracts must be reported via Modelo 2. This form identifies the parties, the property, the price and the terms of the agreement.
- b) Stamp Duty – Stamp Duty is due on the rental contract at the rate of 10% of one month’s income. Every time there is a change in the contract, Stamp Duty must be paid again so automatic renewals, if appropriate, should be included in the original contract to avoid repetitive payment of tax.
- c) On-going Electronic Rental Receipts – Similar to Electronic Green Receipts, Electronic Rent Receipts must be issued in Portuguese in duplicate on a monthly basis via the Finanças Copies are issued to the tenant with a second copy retained for the landlord’s records.
- d) Annual Rental income summary – In the following January, landlords must declare an annual summary of rents received via Model 44.
- e) “IRS” Declaration – An annual personal income tax declaration will necessitate completion of Annex F. All claimed deductible expenses must be accompanied by original invoices that include both the name of the landlord and the corresponding tax number.
- f) VAT – On the positive side, long-term rentals are VAT exempt and require no VAT reporting, potentially saving time and money.
As a tourist accommodation, a Local Lodging unit must: a) be a furnished and equipped facility, b) be available to the general public, c) meet specific health and safety standards and d) limit stays to less than 30 days.
However, there is nothing improper about a guest checking out after a month, then checking back in for another 30-day period. If this procedure is adopted, the owner can continue the “AL” operation on a year-round basis, avoiding the additional bureaucracy associated with Category F. In addition, the on-going use of the property under Local Lodging avoids the overlap and potential contradictions of property usage in two distinct business categories within the same fiscal year.
Beyond Stamp Duty and VAT, the income tax calculation for each activity is substantially different. In Portugal, rental income is taxed residentially under Category F (Income from Immoveable Property) while Local Lodging is assessed commercially under Category B (Business Income).
For a Local Lodging activity, most owners are assessed under the “Simplified Regime” where they receive a flat exemption of 65% on gross income. Residents then add the remaining 35% to other taxable forms of income and are assessed at marginal rates. Non-Residents have the standard levy of 25%, leaving a final tax to pay of 8.75% of gross business income.
Under Category F (long-term rentals), Non-Residents are taxed at a flat 25%. Residents may elect to be assessed autonomously at a flat 28% or aggregate this income with other sources and be taxed at marginal rates.
There is no “one-size-fits-all” answer. Some owners will find rolling over a one-month winter “AL” let to be a straightforward solution. Others will be willing to endure the doubled-up bureaucracy of opening a new winter long-term lease as a solution that merits the extra time and effort. Faced with a difficult choice, professional guidance is always the order-of-the-day.