The Portuguese real estate marketing is attracting many foreign investors and many of these investors are looking for good rental yelds, but before investing on your rental property or renting out your property in Portugal you should plan ahead and find out the best way to structure your real estate investment, in order to be as tax efficient as possible and also to minimise any future capital gain tax.
Individual ownership of Portuguese rental real estate is taxed at 28%, but you can structure your investment and plan ahead, adopting a fully compliant strategy that can dramatically reduce tax assessment on short-term lets (holliday rentals) and also mitigate the tax you currently pay, to as low as rates between 3,75% and 8.75%
In fact if you let out furnished accommodation to holidaymakers on a short term basis, you are engaged in tourist related services and should declare your rental income under category B and apply for a Local Lodging License.
This type of activity receives a special treatment under the ‘IRS – Simplified Regime’ and tax is calculated on sales, in other words you are only taxable on 15% or 35% of your invoiced income, depending on the way your business is structured.
How can you find out whether you may benefit from this tax regime?
If you send us an email with the details of your rentals, we can show you how much tax you can save and inform you of the best tax regime applicable to your personal circumstances.
Do I need to be registered as a business?
In most cases yes, when applying for your local lodging license (also known as AL License) you need to be registered under category B.
As a business, will there be complicated accounting/reporting requirements?
No, unless your income is over €200,000 per year, we will class you on the “Simplified Regime” and as the name says, everything will be simple.
Do I need to pay Social Security?
If registered as a business, registration at the Social Security is needed but there are various full and partial exemptions that apply in most cases.
What about the VAT implications?
Just like any other business you will register for VAT and if your business exceeds € 10,000 you must collect VAT from your customers. Tourist related activities, currently charge 6% VAT, however as most of the business expenses include VAT at 23% is possible that you may have a VAT credit, which can be refundable.
Any related business costs can be used on your VAT declaration to reduce your VAT bill or make it a credit, such as:
- Telephone, internet and, tv
- Laundry and other Hospitality services
- Condominium expenses
- Maintenance, refurbishment or repairs of the property
- Cleaning, gardening, accountancy fees, etc
If the above situation appeals to you, please contact us, this suggested structure is very tax efficient and is very popular amongst our foreign investor clients, however it’s not the only available solution and others may be more appropriate. We aim our expertise and know-how to work in your benefit, keeping you tax compliant while paying only the legal minimum.
Please feel free to visit us for a friendly chat and find out more about the tax strategy that might be more effective on your specific situation.