Below is a response from euroFINESCO to an article by Sovereign, 'Tax Issues when Renting out your Property' which can be found at:
http://www.algarvedailynews.com/property-news/2868-tax-issues-when-renting-out-your-property
euroFINESCO, "It should not come as a surprise that how income is declared is not a personal preference but rather a matter of law.
There have been several rulings by Finanças stating categorically (Circular nº5/2013 and others) that Owners letting to holidaymakers (less than 30 days) is viewed as a tourist business activity and must be reported in Category B.
Category F is reserved for “long-term” rentals to residents (more than 30 days) or “locação turística”, the ceding of the property to an agent for ongoing letting to holidaymakers.
As to the “costly implications”:
Sovereign:
“Social Security payments based on previous years’ income – €145 minimum PER MONTH”
euroFINESCO:
a) most people are eligible for full Social Security exemption if they already contribute to or are beneficiaries of a National Insurance system anywhere in the EU;
b) those earning less than €16,768.80 in Local Lodging income are also fully exempt;
c) those who earn more have contributions based taxable income (15% of gross Local Lodging invoices) and may be eligible for partial reductions from the normal amount.
1) Sovereign: Preparation and submission of full accounting and document control
euroFINESCO: Unless income Local Lodging income surpasses €200,000 p.a. (unfortunately not a likely event), most Owners will fall into the “Simplified Regime” and are assessed after an 85% reduction exclusion of their gross invoicing.
Suffice it to say that the “Simplified Regime” is one of the few things in Portugal that truly lives up to its name. 99% of Sole Traders in Portugal elect to operate under the Simplified Regime when opening their business activity.
2) Sovereign: Issuing of invoices via the online tax department for every rental
euroFINESCO: Yes, this is required. However, a good service provider, like euroFINESCO, can carry out this inexpensive service as well as include simultaneous mandatory reporting of arrivals and departures to “SEF" (Serviços de Estrangeiros e Fronteiras) at no additional cost.
3) Sovereign: Registration for VAT returns for income in excess of €10,000 per year
euroFINESCO: As a tourist activity, the VAT charged to holidaymakers is just 6%. Most operating expenses pay VAT at 23%. Due to this 4-fold difference, refunds are the norm.
4) Sovereign: Submission of ongoing reports to Social Security and other entities that regulate all business activities
euroFINESCO: Once again, these are included services at no extra charge in our Local Lodging Plan.
TAXATION
Now to the crux of the matter, let us compare taxation of income under the two categories:
Under Category B, a non-resident Property Owner with earnings of €10,000 in Category B, after the 85% exclusion, has a taxable income of €375, less than 4%.
Under Category F, on the same income taxed autonomously at 28%, the assessment is €2,800, an increase of 750%.
COMPLIANCE
In conclusion, recent changes in legislation have helped to remove the impediments of old style bureaucracy, streamlining procedures and focusing on what is truly important: Growth via Compliance. They assure that all players follow the same rules.
The Simplified Regime tax savings are designed, in part, to encourage and stimulate this newly recognised and important segment of the tourist industry.
Creating a reasonable compliance environment with sensible taxation levels may come as common sense to some and revolutionary to others. Whatever your perspective, this is the system in place and compliance is a must.
