LOCAL ACCOMMODATION
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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
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.
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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.
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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.
Photo by Patrick Perkins on Unsplash
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.
- Issue invoice receipts relating to local accommodation services. The issue can be made online, on the Portal das Finanças. If you do not do so, you must submit the ones from the previous month to the Finance Department by sending SAF-T by the 20th of each month. In the exemption regime, you are also obliged to issue an invoice, simplified invoice or receipt with the mention "VAT - exemption regime";
- Declare the VAT amounts received through the periodic VAT declaration. You can do this monthly or quarterly, depending on whether your income is above or below EUR 650,000 respectively.
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.
Commission
If you want to advertise your local accommodation on online platforms such as Airbnb or Booking, you should:
- Submit to the Tax Authorities the Model 30 (income paid to non-residents) until the second month following that in which the payment of commissions to the companies managing the platforms occurs;
- Request the companies that manage the platforms to send you the Model 21- RFI. This is a request for total or partial exemption from withholding tax on commissions, under the terms of the convention to avoid double taxation between Portugal and the country in which the company managing the platform resides. If you do not have this document, you must withhold commissions at the source at the rate of 25%.
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!
