6 min read
by Francisca Ribeiro, Marketing & Communication
Published March 22, 2023
| PROPERTY MANAGER | SHORT-TERM RENTAL | PARTNERS | TAXES | PORTUGAL |
Great, you successfully registered your “Alojamento Local”, the business is doing well, so now it’s time to do your taxes! If you have decided to operate a property as a local accommodation there are important aspects that you should know, such as the tax and declaration obligations associated with this business
The taxing journey of your local accommodation begins with the opening (or change) of activity in Finance. That is when you must make choices focused on income: IRS or IRC, simplified regime or organised accounting, VAT exemption regime or normal VAT regime. These are some of the tax decisions to be made.
You should also define the CAE - the codes of the areas of activity you intend to carry out. There are three CAE for local accommodation: 55201 (furnished tourist accommodation), 55202 (rural tourism) and 55204 (other short-stay accommodation).
Starting with the IRS (Personal Income Tax), income from local accommodation falls under category B (business and professional income). However, to determine taxable income and the respective taxation, it is possible to opt for category F (property income).
Before opting for either category, simulate the IRS delivery of both.
If you choose Category B, the calculation of the taxable income, the income subject to the IRS, can be calculated according to the simplified regime or organised accounting. If there is an invoicing of less than 200 000€ per year, both choices are valid. However, if above that amount, organised accounting must be applied and a certified accountant must be hired.
Taxation is by aggregation, meaning that the taxable income from local accommodation is added to the income from other categories you may have. Finally, the IRS rate is the one that corresponds to the tax bracket in which you will find yourself after adding up all your income
Adopting Category F, the taxable income corresponds to the difference between the income obtained and the expenses foreseen in this category, including all incurred to obtain or guarantee income, monthly condominium fees, construction works and IMI. Excluded are the ones with bank loans, furniture, household appliances, comfort or decoration items and AIMI.
IRC (Collective Income Tax) is another of the local accommodation income taxes that you should take into account if you choose to set up a company. Take extra care as the rules are more complex and involve higher costs. Before setting up a company to operate local accommodation, you should seek advice from a certified accountant.
VAT (Value Added Tax)
VAT is another tax on local accommodation, subject to a reduced VAT rate of 6% (5% if in Madeira or 4% if in the Azores). However, it is possible to enjoy VAT exemption (you are free to charge VAT to your guests) if you opt for the simplified regime and do not have an income of more than 10 thousand euros per year.
But beware, once you adopt the exemption regime, you also won't be able to deduct VAT on your local accommodation expenses, such as furniture, cleaning products and commissions paid to platforms to advertise local accommodation.
IMI (Municipal Property Tax)
The amount of IMI depends on the Taxable Asset Value (VPT) of the property, and the rate charged by the respective municipality, which varies between 0.3% and 0.45%. The payment can be in a single instalment, up to 100 euros, in May; in two instalments, over 100 euros and less than 500 euros, in May and November; or three instalments, over 500 euros, in May, August and November.
In addition to IMI, you may also have to pay AIMI (Additional Municipal Property Tax) if you have property assets with a PSV exceeding 600 000€ (separate taxation) or 1.2 million € (joint taxation). The AIMI rates vary according to the VPT and by whom they are held - individuals or companies.
IMT (Municipal Property Transfer Tax)
If you buy a property to explore as local accommodation you have to pay IMT at the moment of the acquisition (this value can be calculated by DECO's IMT simulator).
If you want to use as local accommodation a property that you bought less than six years ago from which you benefited from IMT exemption because it is intended for your own and permanent residence (and because it was below the limit of 92 407€) you will have to pay IMT of that property. This is because the exemption lapses when, within six years of the date of purchase, another use is made of the property other than that on which the benefit was based.
If you want to advertise your local accommodation on online platforms such as Airbnb or Booking, you should:
Although the taxing process can be hard to understand, we hope to have enlightened you on how to go about it.
You are almost ready to successfully manage your local accommodation. There is only one more step to go: how to make the business easier to manage. In the next part of this series, we will cover how you can help yourself run your short-term rental!