Local Lodging has finally come into its own. Known internationally as “self-catering accommodations”, new statutes regulating this business are solely dedicated to the activity in its own right, rather than being seen as an afterthought to general tourism as in the past.
The initial legislative goal was to simplify, an end admirably achieved. In the past, a “licence” was required, issued by the local municipality. Although neither difficult nor demanding, there was still a substantial amount of paperwork to collect and submit. No more.
Rather than presenting a raft of documents, the owner (or designated operator) presents a declaration (Terms of Responsibility), stating that all standards have been met and accepting full responsibility. In other words, if there is an electrical problem, it’s the fault of the owner, not the electrician.
Registration is no longer a licence but rather a simple notification (“mera comunicação prévia”) from the owner (or operator) addressed to the mayor of the local municipality, providing basic information, proof of business registration with the tax authorities (AT) and terms of responsibility.
In turn, the local council communicates with the “one-stop internet clearinghouse” (Balcão Único Electrónico) that acts as the go-between, linking respective government entities such as the national tourism board, tax authorities (Finanças), etc.
The internet clearinghouse is responsible for issuing the Local Lodging establishment’s identification number. With this ID number (within 30 days), the process is complete and the Local Lodging establishment can be opened for business. Keep in mind that, in the interim, the local council may inspect your property to verify the points presented in your notification.
Together with the ‘AL’ symbol, this identification number must be displayed in advertising to show that the offering is fully compliant. Failure to use the number and symbol can lead to a fine as high as €35,000.
Accumulated with other offences, penalties can surpass €270,000. ASAE (authority for food and economic security) is the official body responsible for oversight and enforcement. Needless to say, an inquisitive inspector can spot a missing ‘AL + number’ on a web listing just as easily as perspective holidaymakers looking to reserve a leisure apartment or villa. Even the holiday websites could potentially face fines and legal action.
In the past, many owners letting to holidaymakers failed to declare their income. With business registration to Finanças now compulsory from the start, tax fraud should be curbed.
In addition, with favourable assessment for this tourist activity under the Simplified Regime, most owners will find themselves taxed at less than 4%. With tax rates so reasonable, it no longer pays to cheat. In addition, there are no charges for the entire registration process.
Nevertheless, some bad habits die hard. All bureaucracy has not disappeared. There are still some auxiliary requirements. Invoices must be issued by owner/operators to holidaymakers that must obey Finanças’ guidelines.
In addition, when guests are foreigners, arrivals and departures to and from the Local Lodging establishment must also be reported to SEF (Immigration and Borders Service). Like other associated areas, those who fail to comply face steep fines.
The carrot and the stick
The message is clear. On the one hand, owners/operators find greatly simplified registration procedures, little tax to pay and no user fees for the set-up process. Most importantly, the business opportunity could not be better. The holiday season is rapidly expanding from a few, short summer months to 52 weeks per year.
On the other hand, enforcement has also become more effective than ever before. Fines are staggering and, once the new legislation has taken effect, few tourists or local lodging websites will accept non-compliant offerings.
With the new legislation coming into full force in January 2015, the coming months will provide the last chance to sort out any necessary actions to take full advantage of the promising opportunities and avoid the pitfalls of non-compliance.
By Dennis Swing Greene
Dennis Swing Greene is Chairman and International Tax Consultant for euroFINESCO s.a.