Planning on starting to rent out your property as a short and mid-term rental, but not sure which is the best framework to do it?
Should you get the “Alojamento Local” license for Local Accommodation, or do it as a Traditional Monthly Rental?
In this article we will compare costs and legal processes involved in both options, so you can decide which option suits you best.
Both traditional leasing and local accommodation are based on offering accommodation to third parties in exchange of money. However, these two concepts are different in several factors. As a starting point, we could say that traditional leasing is for relatively long periods of time in which the tenant leases a property in order to make his life there for an indefinite or determined period, although generally a long term rule. Local accommodation is strongly associated with tourists who wish to spend a short period of time in a home for holiday.
So, how do these two types of accommodation offers differ in terms of legislation?
The big difference between a traditional lease and the operation of a local accommodation establishment (under the terms of Decree-Law No. 128/2014, of 29 August) is on the way they are operated. In the first case - traditional leasing - there is just a real estate lease (which may be temporary and have as object a holiday home) in the second case - local accommodation - there is a provision of accommodation services; ie, in addition to the accommodation itself, there are complementary services, such as cleaning, reception or other support services. In this more personalized case of service provision, the DL No. 128/2014, of 29 August, applies, being necessary to register the property as a “Alojamento Local” establishment.
Typically, Local Lodging is for short-term rentals: periods of less than 30 days. These individuals are guests, not real renters protected by tenants' rights.
Stays from 1 to 12 months are considered mid term stays. However, it often refers to stays of 3 to 9 months. If a tenant stays on a property for more than 12 months, it is considered a long-term rental.
However, due to the coronavirus pandemic in 2020, and with the increasing number of people traveling for longer periods while working online, several Local Lodgings have started accepting mid term rentals too, especially to cover the winter months.
The "Alojamento Local" has some apparent advantages: the potential to maximize occupancy at high prices, while reducing, on the other hand, the possibility of disputes with tenants in comparison with a traditional rental. It requires more availability of time, since you’ll receive tourists and manage the properties and that you study the competition and adapt the price to demand, in addition to having to comply with legal requirements, so you don't have to pay fines.
Also be aware that the new “Alojamento Local” law has imposed measures such as limiting the number of establishments that an owner can have in his name, especially in areas where there is already a high number of local accommodations, such as some specific areas of Lisbon.
The costs that “Alojamento Local” and traditional landlords have in common are essentially with IMI (municipal property tax), condominium, insurance and construction works or maintenance charges. The difference is mainly in terms of operating costs.
In the “Alojamento Local”, the owners might have to pay reservation fees (charged by international sites and which can go up to 15%); the 6% VAT; do the check-in whenever guests arrive and check-out and inspection when they leave; cleaning and preparing the house; advertise the place, usually more frequently than a traditional rental.
To legalize a traditional lease, the law says that landlords must communicate to the Portal das Finanças the lease agreements in relation to properties they own. For each contract concluded there is a Stamp Duty to be paid by the landlord: 10% of one month's income.
As for “Alojamento Local”, the owner of the property must register the leased property in the Local Accommodation Registry (RNAL) through a simple prior communication made at the Balcão Único Eletrónico.
All owners who operate local accommodation are required to register their property in the National Tourism Register.
In addition, unlike traditional leasing, all local accommodation establishments must have a complaints book in accordance with DL No. 156/2005.
In the specific case of local accommodation, as it is a recurring and short-term activity, the owner of the establishment is not obliged to communicate to the Finanças each time he receives tenants. This control is being made later through taxation in Finanças as well as a communication to the Foreigners and Borders Service (if receiving foreigners at the local accommodation).
Landlords can choose “Englobamento” (taxation by all global income) or "Tributação Autónoma” (autonomous taxation). The best tax model for you will depend on the global income in all the categories you have. You must simulate both ways, to see which one brings more advantage to your specific case.
For "Tributação Autónoma" the rate will be 28% for rental contracts up to 2 years, being variable depending on the duration of the rental contract, and may reach a minimum of 10% for contracts with a duration of 20 years or more.
Net rental income earned by nonresidents is taxed at a flat rate of 28%.
Taxable income is gross income less maintenance costs, repairs, and other related expenses (such as insurance and municipal tax). Mortgage interest costs incurred when the property was purchased are not deductible.
The general rule is that real estate rents are property income included in category F of the IRS. However, with the recognition of leasing as a business activity, some landlords have opted for category B (business and professional income). Although some doubts persist regarding the best option between the two categories, everything depends on the total income of the taxpayer, and a simulation can be done in order to confirm which is the most advantageous alternative.To find more information regarding Traditional Rentals Taxes, please check our Step-by-step guide for Landlord’s Lease in Portugal.
The income from the Local Accommodation must be registered in Finanças, declaring the beginning of a service provision activity. For annual income of less than 200 thousand euros, the taxpayer who owns a local accommodation business can opt for the simplified regime or the general regime. Organized accounting is mandatory for general regime or if the annual income is more than 200 thousand euros.
With the simplified regime, in the case of the IRS, the tax rate is levied on 35% of income in the case of housing and apartment types and on 15% of income in the case of accommodation establishments, which include hostels.
In the case of IRC, also under a simplified regime, the tax rate is levied on 35% of the revenue (housing and apartment types) or 4% (accommodation establishment type).
Owners, on the other hand, who earn more than 200 thousand euros per year, which therefore automatically fall into organized accounting. One of the obligations is to have to hire a Certified Accountant.
It should also be noted that the owners are obliged to charge the tourist overnight rate, usually around €1, as in traditional accommodation in the hotel business.
The answer is not simple and you need to study your specific situation to better understand what option suits you best.If you need help with this subject, we recommend you to ask advise to the Finanças, or to our specialized partners at EuroFinesco.Find out more information on Traditional Mid and Long Term Rentals in Portugal, and know everything you need to do to legalize your lease at our Step-by-step guide for Landlord’s Lease in Portugal.
NOTE: The information provided in this article is subject to changes by law and context. Prospective landlords and tenants are advised to perform all due diligence before entering into a contract to rent a property, and, as emphasized above, all parties are advised to seek professional guidance.
Most of all, we always recommend common sense as one of the best practices for any good business relationship.