Planning to rent your property, but not sure what are the necessary procedures?
We made a complete step-by-step guide for mid and long term rentals, with everything you need to do for your lease to comply with all Portuguese formalities.
If you are considering renting your property as a holiday accommodation for tourism, you can rent your property under the rental lease framework as we will explain below, or eventually under the “Alojamento Local” framework, depending on the services you will provide and which option is the most relevant to your situation.To help you find what suits you best, we recommend that you read our article Local Lodging vs. Traditional Monthly Rentals to understand better the costs and legal process involved in both options.
According to Decree-Law No. 118/2013 of 20th August, the issuance of an energy certificate is mandatory if you intend to rent your property.
If you have bought a Portuguese property, it almost certainly will have come with an energy certificate. If it did, all you have to do is keep it handy, and be prepared to show it if needs be. There is no need to show this information on the rental contract, but it is mandatory that you obtain it and you can be fined if there is an inspection to your rental.
If your property doesn't have an energy certicate, then first check if you are required to, or if your property is exempt. For example, detached buildings with a useful area of 50m2 or less may be in the exception clause. If you are not exempt, then ordering an energy certificate is mandatory.
Based on information relating to the building, the expert will calculate the energy certificate. Once the energy efficiency step of your property has been defined, you will receive the certificate that you will finally have to register through ADENE. Regarding the levels, these can range from A+ (very efficient) to F (inefficient).
The costs associated with issuing the energy certificate for residential buildings vary. In order to guarantee accuracy for the final amount stipulated, it is important to compare values and other aspects proposed by the technician before coming to an agreement. This can be ordered from several shops, including Worten. Request a price estimate from different experts to ensure a better comparison.
Lease for permanent housing is for contracts of one year or more.
For mid term rentals, any contract lasting less than one year, becomes a lease for non-permanent housing or for transitional purposes, namely for professional, education, training and tourist reasons. In these cases minimum duration is not required.
When a rental agreement exceeds six months, a contract is required by law, but our advice is to do it regardless of length of stay, as at many levels, it is important to spell out expectations, rules and requirements during the tenant’s stay in your property. Everyone’s rights need to be protected and a written agreement is a prerequisite to a satisfactory arrangement for all concerned.
With a proper contract, registered with Finanças, tenants should be eligible for a housing tax credit, much the same as they would as if they were paying a mortgage.
The terms that are included in your lease will depend on the terms of the lease. But at least your contract should contain:
You also need to decide whether or not to require a guarantor. If there is a guarantor (third party, three copies signed by the three parties are required with initials on every page.
Tip: If the tenants are not married, adding both separately in the agreement will also give you more guarantees.
When signing the contract, be sure to inspect the house and attach the inventory list to the contract. In that list, don't forget to include the state in which the property and the filling of the house are.
Some other terms and conditions that are important to be included:
The monthly rent can usually be freely agreed between the parties, with the exception of low cost housing (“conditioned rent” and “supported rent”). We advise you to check the rental market on several websites, as in local rental agencies. Set a price that is fair for what you are offering, but also provides a place where tenants can make a real home.
For long term rentals, Rental reviews can also be freely agreed (although they must take place annually). If no specific agreement exists, the rent may be adjusted by the landlord annually according to scales periodically established by law.
Although most of the tenants comply with the contract, we always need to consider that there is a small possibility that this doesn't happen and the tenant may fail to pay the rent, abandon the property ahead of time or cause damage to it. A security deposit is recommendeded and serves as a guarantee to protect the landlord in situations like this and is provided by law.
Legally, for long term rentals the landlord can ask for a maximum 3 month rental payment in advance and it’s standard to ask for the equivalent of 1 or 2 month’s rent as a security deposit before the tenant moves in.
Unlike in some other European countries, there is no set scheme for managing deposits. This means the landlords can hold the deposit themselves for the duration of the tenancy.
It is important to know that the security deposit and advance rental payment are different things.
The advance rental payment is paid at the time of signing the contract and in principle it is not refundable. Good practice may be to ask for the first and last month's rent. In theory, the landlord can hold the tenant to pay until the end of the contract should the tenant leave before the end of the agreed period, in reality a compromise will probably be agreed.
The security deposit is to safeguard situations of non-compliance. Generally is one or two months income and it is refundable at the end of the contract. If the tenant has not fulfilled any of his obligations, the landlord may retain part or all of the security in order to cover the losses resulting from this non-compliance, such as repairs to the property or equipment, or expenses with goods and services.
If such losses do not exceed the value of the deposit, the remainder must be returned to the tenant, together with proof of expenses that the landlord had to bear because of the tenant. Otherwise, if the losses exceed the value of the deposit, the landlord, in addition to retaining it in full, may demand compensation for losses and damages that exceed that amount.
In order to assure the tenant's compliance with the payment of monthly rent, it is advisable to request an additional guarantee, such as the use of a guarantor, income insurance or bank guarantee.
The Landlord is obliged to issue a receipt for the security deposit and must, under normal conditions, be returned to the tenant at the end of the contract, in which case the latter issues a receipt of discharge, which the landlord must later submit as an expense to his IRS. The majority of landlords ask a security deposit from their tenants.
Monthly rentals are paid on the 1st day of each month, except where the parties agree otherwise.
For leases of 6 months or more, tenants should give 60 to 120 days notice to vacate to their landlord, depending on their length of stay. The prior notice required to vacate that is agreed between all parties should be written on the contract.
It’s also possible to end the tenancy if the landlord breaches the contract.
Before moving in, the landlord will usually prepare an inventory, which documents the condition of the home and lists any items included with the property. While the tenant is responsible for leaving the property in the condition in which he found it, general wear and tear is allowed.
We recommend doing an inspection of the property together, when entering and leaving it, and attach the inspection document signed by all parties to the lease.
Depending on how detailed the landlord and tenant want to go, the property's inventory could include everything from sofas to cutlery and the condition of the items. If necessary, photos and / or videos can be added to the inventory list.
The inventory document should be signed by the landlord and tenant. Everyone keeps a signed copy of the document in their possession. Upon departure, you carry out the inspection based on this document.
In case there is a damaged item and the deposit does not cover the total amount required for replacement or repair, then the landlord can send an invoice separately, detailing all additional costs.
Landlords with a rental contract are obliged to communicate lease agreements, or changes and terminations, through the Portal das Finanças. The process for registering the lease is simple and can be done entirely online.
It is important to note that this communication should be made by the end of the month following the start of the lease, sublease, changes, termination or, in the case of a promissory agreement, the provision of leased assets.
When the lease is registered through the Finanças website, it is no longer necessary to present a hard copy of the contract at the local Finanças Office.
If you do this for the first time, request your tax code as soon as possible. On average, you will have to wait a few days / one week.
To register your lease is simple. Just follow the steps:
Next will appear a voucher for payment of Stamp Duty
When you finish registering the contract you will see the Stamp Tax payment slip: 10% of one month's income and it's an invoice issued to be paid by the end of the month following the start of the lease.
This tax can be paid either in person at a finance office, or through the ATM or the respective bank's website.
Every time you change the contract you will pay Stamp Duty, so the best is to include automatic renewals, if applicable, to avoid paying these taxes again.
If you receive monthly rents paid by your tenants, even as a guarantee or advance, and tax your property income in category F of the IRS (and did not choose to tax them by category B - business activity), then you are required to issue a monthly electronic income receipt on the Portal das Finanças. A copy is issued to the tenant with another retained for the landlord's records.
Electronic income receipts will be filled out and issued, in duplicate, through the Portal das Finanças, remaining available for consultation.
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 Autonomous Taxation 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.
Property lets (with a rental contract between landlord and tenant) are included in Category F and are reported on “Anexo F” of the IRS in the second filing period in April/May. Note that the fiscal year in Portugal corresponds to the calendar year. If you do not respect these deadlines, you will be subject to the payment of a fine.
On “Anexo F” of the IRS Individual Income Tax Return, you report your fiscal number, registration details regarding the property, the total amount of invoiced income as well as any deductible expenses. Finanças will add the net to other sources of income, such as pensions, interest, etc.
Rental Income (Category F) is taxable in Portugal based on income made available to the property owner and is not related to where payment may be made nor which currency is used.
Don't forget to include any deductible expenses that you have with original invoices that include the name of the landlord and the corresponding tax number.
Most of the expenses are deductible after the start of the lease, but not all of them!
Expenses with conservation and maintenance, condominium dues, stamp duty, municipal taxes, IMI, energy certificate issuance, housing fire insurance are some of the categories of overhead that reduce tax on rental income for IRS purposes.
On the other hand, expenses of a financial nature, or with furniture, appliances, comfort and decoration items, are not deductible.Please check with the Finanças which are the updated eligible items, as it is always subject to change.
In order for these expenses to be deducted in your IRS, you might need to provide proof of each of the expenses, also demonstrating to which properties the expenses relate.
While you must be able to justify any amounts declared with proper invoices, these documents are not required at the time of submission. Portuguese law stipulates that all documents must be kept for the following 5 years in the event of a tax audit. Allowable invoices (facturas) follow European Union rules. They must: be dated and numerically sequential; state the name and fiscal number of both the provider and the recipient; list the nature and cost of the goods and services provided; specify the rate and amount of any Value Added Tax (IVA) paid.
There are other lodging plans that allow you to operate on a Commercial Basis, with associated benefits, rather than a Rental Basis. Also non-residents may also subsequently need to report this income in their home jurisdiction.If you have any doubts regarding your taxes, we advise you to get an accountant, ask help to the Finanças, or to our specialized partners at EuroFinesco.
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.