Short-term Rental in Portugal - Taxes and Benefits

In recent years, the short-term rental market has become an important global tourism sector. Owners of properties used for short-term rental in Portugal are liable to pay taxes. Still, they can also count on some tax benefits.

The globalisation of tourism and the growth of platforms such as Airbnb and Booking.com have created real estate investment opportunities for residents and foreign investors in Portugal.

The tax framework for short-term rental has existed in Portugal since 2008, with successive changes. In Portugal, short-term rentals are called “Alojamento Local” or simply “AL”.

Are there any tax benefits for short-term rental in Portugal?

Yes, there are specific benefits and tax regimes for short-term rental in Portugal. Still, the answer depends on several factors, such as the short-term rental category, the holder’s tax status and the property’s location.

1. Short-term rentals can be taxed in two ways: through the simplified IRS or IRC regime or the organised accounting regime. If they fall under the simplified regime, only 35 per cent of income is taxed, reducing effective taxation.
2. Short-term rental owners under the quarterly VAT regime can benefit from the reduced rate for tourist accommodation services instead of the standard rate.
3. If the property is withdrawn from the short-term rental regime and used for permanent residence for 5 years, it may benefit from exemption from capital gains tax.
4. If the property is located in autonomous regions, such as Madeira or the Azores, there is a reduction in IRS and IRC rates, as well as VAT, which can be as little as 5%.
5. If the short-term rental is operated through a company, there may be benefits in terms of Autonomous Taxation and Corporate Income Tax, particularly in the first year of activity.

We will explore the tax framework for Short-term rental throughout this article. For more information on taking advantage of Portugal’s tax benefits, please contact us.

What is the fiscal framework for Short-term rental?

Before starting to operate a property as short-term rental, the first step is to understand the correct tax framework.

Starting a professional activity - choosing a CAE

To operate a property as a short-term rental, you must register with the Tax Office as a natural person (individual) or as a legal person (company).

If you choose the second option, you can obtain one of the following three Classification of Economic Activities (CAE) codes: 55201 (Furnished accommodation for tourists), 55202 (Rural tourism) and 55204 (Other short-stay accommodation).

Income tax - IRS and IRC

If you choose to operate your Short-term rental as an individual, you will be taxed on Personal Income Tax (IRS).

In this case, you can opt for the simplified accounting system (if you make up to €200,000/year) or the organised accounting system.

Under the simplified regime, taxable income is calculated by applying a coefficient. This coefficient is 0.35 in the case of houses and flats (or 0.15 in the case of hostels). As a result, only 35% (or 15%) of the gross income obtained is taxable for IRS purposes. Please note that if you are taxed under the simplified IRS regime and exceed the €27,360 gross income limit, you must present expenses related to the activity representing at least 15% of the turnover obtained. Otherwise, the tax base and the tax payable will be higher.

By opting for the organised accounting system, taxable income is calculated based on the rules of the Corporate Income Tax Code (IRC). This option can be more advantageous if the costs of the activity are more than 65% of the income obtained (if you apply the 0.35 coefficient) or more than 85% (if you apply the 0.15 coefficient). Another advantage is that you can deduct losses from previous years, provided specific rules are met.

Alternatively, you can include your income in category F of the IRS. In this category, you can choose to have your income taxed as a lump sum, or through autonomous taxation at a rate of 28 per cent.

If you have chosen to manage your short-term rental by setting up a company, you will always be taxed through IRC. Please note that when you advertise your property on platforms such as Booking.com or Airbnb, you will have to pay the platform a commission. This commission must be communicated to the tax office monthly via a tax document known as “Modelo 30”. Portuguese companies are (as a general rule) exempt from withholding tax when paying income to non-residents.

Capital gains

Capital gains are calculated when you sell your property. If, after having allocated your property to short-term rental, you decide to de-list it and sell it, the capital gains can be calculated in category B or category G of the IRS, depending on the time of sale.

The tie-breaker criterion is the number of years that have elapsed between the date the property was de-listed for short-term rental and the date it was sold.

If up to three years have elapsed between these two dates, capital gains will be taxed under Category B (95 per cent included); otherwise, they will be taxed under Category G (50 per cent included).

If you sell your property while it is still used for short-term rental, the capital gains will be calculated and taxed under category B.

Consumption taxes - VAT

Like any service provision, short-term rental is subject to Value Added Tax (VAT). If your turnover is less than €12,500 per year, you can opt for VAT exemption, so you are not obliged to charge VAT to your customers. However, if you opt for the exemption, bear in mind that you won’t be able to deduct the VAT incurred on your expenses either. 

Property taxes - IMI and IMT

You must also pay Municipal Property Tax (IMT) on your property, according to its taxable value (VPT). The rate charged varies according to the municipality in which the property is located.

If you’re buying a property to use as a short-term rental, you’ll have to pay Municipal Property Transfer Tax (IMT) when you buy it. Please note that even if you already own the property, when you use it for short-term rental, you may have to pay IMT.

If you were exempt from IMT when you bought your property for your own permanent home, this exemption expires if, within six years, you use the property for something other than the purpose on which the exemption was based.

NEWCO has a real estate department that can help you find a property to operate as a short-term rental. Find out more.

FAQs - Frequently Asked Questions about Short-term rental in Portugal

Our experienced team has compiled some frequently asked questions about short-term rentals in Portugal. If you have any other questions you’d like answered, please contact us.