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IMT and Capital Gains on a purchase of an AL property

nalleThe National Association of Local Lodging Establishments has as its mission to provide essential information and support regarding Local Lodging; enhance security for holidaymakers and owner/operators; strengthen compliance and be a collective voice, representing all of those engaged in Local Lodging in Portugal.

One of our members was offered a property already “equipped” with AL license, at a higher price. We asked our President what the advantages are in this purchase.

Your contractor cannot sell an apartment as an “AL” because the business activity is specific to the owner, not the property. When you register your Local Lodging business (“Mera Comunicação Prévia”), you present various facts to achieve approval:

  • Identification of Owner (or necessary authorisation by the Owner in the case of an Operator);:
  • Identification of Property to be used in the LL activity;
  • Terms of Responsibility signed by Owner/Operator taking responsibility for property compliance standards;
  • Business Registration with Finanças (“Início de Actividade”).

Put in simple terms, it is the individual (Owner / Operator) who is licensed and approved, not the property itself (although the property does have to meet basic standards as stipulated in the Owner’s Terms of Responsibility).

In the case of the Owners, they must first purchase the property before registering for Local Lodging. Therefore, at the point in time of property transfer, IMT can only be based on the residential status of the property, not as a business property (because the activity has not as yet been registered and approved).

The same is true at the time of sale of the property with Capital Gains (CGT) assessment. The Owners must first close their business (“Cessação de Actividade”) before selling. Thus, at the time of sale, the property is once again residential, not commercial.

Whether it be IMT at purchase of CGT upon sale, there is no taxable transfer as defined under Art. 1º of the CIMT and Art. 10º Mais Valias) of the IRS code. Rather than a transfer, we have a transformation which does not constitute a chargeable event.

This interpretation also relates to the essential difference between Local Lodging under Category B and long-term rentals under Category F. Category F refers to lease of the space (“paredes nuas”). Under Category B, Local Lodging is a service activity related to Tourism. These tourist services are ephemeral in nature and apply only when holidaymakers occupy the property. They cease to exist as soon as the tourists depart.

In conclusion: your contractor cannot sell you an “AL” property. Even were he to register the property under Local Lodging, he would have to cease the activity prior to selling the property to you. Needless to say, it is the status of the property when the deed takes place that counts, not its past nor any future.

Published with kind permission of NALLE

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