Comparison of taxation as a property manager vs tourist agent
A property manager/tourist agent handles 20 properties and charges 20% for support services. With an average letting income of €10,000 per unit, total local lodging income comes to €200,000. Gross support services if furnished by the property manager are €40,000.
Tax: Operating as property manager vs as tourist agent
* Companies have additional accounting overhead requirements that are normally between €2,500 – €3,000 p.a.
Comparison of taxation of owners under Category B and F
Working with a property manager:
Property owners’ earnings of €10,000 in Category B, after the 85% exclusion, have a taxable income of €375.
Letting through a tourist agent:
With an average taxable income of €10,000 in Category F, property owners are taxed autonomously at 28% = €2,800. 25% should be withheld by the agent.
an increase of 750%
Category B or F?
The difference between Category B and Category F should now be clear. Some owners may have a choice. If they work with an agent who invoices holiday stays, owners will be treated as suppliers and are taxed in Category F. If the owner invoices the stay directly (with the property manager invoicing support services), then both are assessed respectively in Category B.
When Category B income falls under €10,000 p.a., sole traders are VAT-exempt. You cannot collect IVA from your customers nor do you present VAT declarations to Finanças. If income exceeds €10,000, you must file regular VAT returns. All legitimate expenses from your business activity should qualify. Because VAT is charged at 6% and most business expenses pay 23%, refunds are the norm. In contrast, all Category F is VAT-exempt.
More than nine Local Lodging units
When an owner or agent operates more than nine holiday units, Local Lodging status changes to a ‘tourist development’. However, since there is no restriction preventing an agent to register in both activities (as property manager and as tourist agent), it should be up to the owner to choose which is preferable.
By Dennis Swing Greene
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Dennis Swing Greene is Chairman and International Tax Consultant for euroFINESCO s.a.