Editor’s note: We received this letter, whose author’s name we have chosen to withhold, with questions for Algarve Resident contributor, Dennis Swing Greene, Chairman of eurofinesco. It relates to his article on the 2013 State Budget last week.
Dear Mr Greene,
We have read your article with interest. Would you be so kind to explain the following:
We have just completed the construction of a villa for short-term holiday rentals and we are non residents in Portugal.
According to your information, the tax for short-term holiday lets is 5% or less?
It would be great if the information was not in a sharp contrast with the information that we have received from different sources including our tax representative in Loulé, lawyers office dealing with taxes in Lagos and even tax office in one of the Câmaras here in the western Algarve.
Our confusion has grown even bigger as there are no two identical interpretations of that matter.
Would you be so nice to clarify that or just tell us where can we find a reliable source of information?
Further, it is also not clear if the so called “Non-Habitual Residents” status has any impact on the taxation of the income from short term holiday lets. Thank you for your help in advance!
NAME AND ADDRESS WITHHELD
Dennis Swing Greene responds: Dear Algarve Resident Reader, It is no surprise that you receive conflicting information on the subject. Hopefully, the following explanation will set the record straight:
Local lodging – Holiday lets in Portugal are regulated by Decree-Law nº 39/2008 of March 7. If you let out furnished accommodations to holidaymakers on a short-term basis, you are engaged in tourist-related services called Local Lodging (Category B) and must obtain a licence via the local council (a relatively simple process).
This type of activity receives favourable tax treatment. Under the simplified regime, you are only taxable on 20% of your invoiced income. As non-residents, your tax rate is 25%, resulting in the 5% final assessment mentioned in the article. As a Portuguese business, this form of income should be taxed exclusively in Portugal and is not subject to further assessment in your home jurisdiction in accordance with most bilateral tax treaties.
Long-term renting – If you rent on a long-term basis, you must report the activity in Category F (Rendimentos Prediais or Income from Property). In 2012, assessment is 16.5%. In 2013, the tax rate will increase to 28%. Unlike business income, rental Income is a) first taxed in Portugal, b) then, to eliminate double taxation, receives an international tax credit in the home jurisdiction, c) and finally assessed according to local tax rules.
Non-habitual resident status – to make a long (very long) story short: No, I doubt that it will help. At best, I would take a wait and see approach.
Reliable information – As to reliable information, we have a variety of thoroughly researched publications on this and other tax subjects available on our website.
