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

Taxes on Local Accommodation

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).

IRS/IRC

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.

• Under the simplified regime, taxable income is determined by applying a coefficient. In practice, the coefficient acts as an automatic deduction so that the tax is only deducted on part of the income obtained and not on all of it.
  • In the case of local accommodation in the form of villas and flats, the applicable coefficient is 0.35 (only 35% of the income is taxed). The remaining 65% is considered to be necessary costs for the carrying out of the activity, with part (15%) being conditioned to the presentation of expenses and charges incurred.
  • In the accommodation establishments modality, the coefficient is 0.15. The taxable income thus corresponds to 15% of the income obtained. The remaining 85% is automatically presumed to be the costs of the activity. Here, no expenses need to be justified.
• In the organised accounting system, the taxable income is determined according to the terms and rules of IRC, with the necessary adaptations. Organised accounting may be advantageous compared to the simplified regime if the costs of the activity are higher than 65% of the income obtained since it is possible to deduct all the costs of the activity.
  • You must count the fees of the certified accountant. If a loss is determined, it can be deducted from the profits that you may have in the following 12 years
  • However, in each year, the loss deduction can be at most 70% of the profits. In other words, you always have to pay IRS 30% of the profits.

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.

• The income may be taxed in the aggregate, as referred for category B. If losses are determined, these may be deducted from positive income over the following six years.
• Another possibility is to be taxed autonomously at a rate of 28%. This last option - available for the flat and villa types - compensates if the average IRS rate resulting from aggregation is higher than 28%.

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.