Income is reported in different categories: A) Salaries, B) Sole Traders, E) Capital, F) Property, G) Capital Gains and H) Pensions and is taxable in Portugal regardless of its origin. For non-residents, only income actually arising in Portugal is subject to assessment.
If you let out furnished accommodations to holidaymakers on a short-term basis, you are engaged in tourist services (Category B) and should have already acquired a Local Lodging licence. This type of business activity receives special treatment under the “Simplified Regime”. You are taxable on only 35% of your invoiced income.
Before You Start
Before beginning your independent business in Portugal, you must first register your activity with the Portuguese Tax Authority. This is done a) over the Internet, b) on paper or c) directly at your local Finanças office.
You will also need to register with Social Security. Contributions only begin in the 13th month of your activity. Those receiving an Old Age Pension or contributing to a Social Security system anywhere within the EU can apply for exemption from contributions.
Your property must also be approved for this tourist business activity. Property owners apply for a Local Lodging License either online via the “Balcão do Empreendedor” or through the local Council. Any irregularities in your building must be sorted before permission is granted.
Requirements regarding energy efficiency certification of new, renovated and existing properties have been in effect since 2013. Builds to be available to the public must have an Energy Efficiency Certificate. Compliance is key for those exercising this activity. Failure to meet the above norms is subject to severe penalties.
Letting to Holidaymakers
Non-Residents normally report income both in Portugal as well as in their home jurisdiction. Regardless of where you are paid and in what currency, your primary responsibility is to report the activity in Portugal because 1) this is where the business activity (tourism) takes places and 2) where the property to be commercialised is located. Double taxation is normally eliminated via international tax credits.
Electronic Green Receipts
As in all freelance business activities in Portugal, you are required to issue invoices to your clients. Because these invoices are done electronically via the Internet, the Tax Authorities have an on-going record of your income.
Reporting to “SEF”
Just like any hotel, you will be required to report the arrival and departure of foreign guests. Reporting is done on line to the “Serviço de Estrangeiros e Fronteiras” (Aliens and Border Service) with 3 different programmes available.
Portuguese Income Tax
An “IRS” declaration must be filed in May following the fiscal year. Most find the Simplified Regime to be both simple and economical when compared to standard accounting practices. Under current legislation, 65% of Local Lodging income is excluded to account for operating expenses that no longer need to be reported. This equates to an effective tax rate of <9% on your gross Local Lodging income.
Next: PART 7 - Capital Gains - Investment Portfolios
Dennis Swing Greene is an International Tax Specialist and Chairman of euroFINESCO s.a.
