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IRS 2009 Income Nº 5 – RENTAL INCOME

By DENNIS SWING GREENE [email protected]

Dennis Swing Greene is Senior Partner and International Fiscal Consultant for euroFINESCO s.a.

In this series of articles, we examine different forms of income that must be reported on IRS tax declarations: 1. Income from Salaries, 2. Self-Employment – the Simplified Regime, 3. Income from Capital – Bank Interest, 4. Income from Capital – Dividends, 5. Rental Income, 6. Capital Gains on Investment Portfolios, 7. Capital Gains on Real Estate

If you rented out a house or an apartment in Portugal in 2009, you will need to declare the income on your Portuguese income tax return. Undeclared property rentals figure high on the list of crackdown targets by Finanças enforcement teams.  Not only is the tax man concerned about loss of revenues but also the powerful Portuguese hotel lobby has turned up the pressure, viewing “black market” rentals as unfair competition.  

Questions & Answers:

I rent out a property on a long-term basis.  Is a contract required with the tenant?

It is customary to have a formal rental agreement. There should be three copies: one for the landlord, one for the tenant, and one registered with Finanças.  In this manner, the tenant can receive a tax credit for rent paid just the same as if he were paying a mortgage.

I rented to foreigners and the income never came into Portugal.  Do I still have to declare this income?

Yes.  You must declare the income on Annex F.  Even if your “renters” were foreign holiday makers and you were paid outside of Portugal, it is always the nature of the income (i.e. lets of Portuguese property), not where or how payment was made, which determines tax liability.  

What expenses can I deduct from my rental income?

There are three broad categories of operating expenses that may be deducted, thereby reducing taxable income:

1) Maintenance (such as painting, insurance, etc.)

2) Repairs

3) Rates / Property Tax (IMI)

Also, in apartment buildings, collectively shared expenses:

• doorman and common area cleaning costs

• building security

• energy and maintenance of elevators

• condominium expenses

What expenses are not allowed?

The following expenses are examples of expenditures which are not deductible:

• construction which alters the structure of the building

• building acquisition

• maid service and other services relating to the usage, rather than the maintenance, of the property;

• services such as utilities, garden or pool maintenance;

• capital improvements (such as air conditioning, automatic irrigation system, etc.).

Some of the tradespeople who have worked for me did not give me a receipt.  How do I document expenses?

To be deductible, all expenses must be documented by proper facturas (formal receipts stating the name, fiscal number of both the entity providing the goods or services as well as that of the taxpayer).  Value Added Tax (IVA) paid must also be included.

What about Capital Improvements to the property?  Can these be deducted?

No, not on an annual basis. However, when properly documented, capital improvements made in the 5 years prior to sale are deductible from the taxable base of the building when the property is eventually sold.

Next: Capital Gains – Investment Portfolios

  

Dennis Swing Greene is Chairman of the Board and International Fiscal Consultant for euroFINESCO s.a. Private consultations can be scheduled in Guia (Albufeira) on 289 561 333 or by email [email protected]. Alternatively, please visit www.eurofinesco.com

Dennis Swing Greene is Chairman and International Fiscal Consultant for euroFINESCO s.a. Consultations can be scheduled in Guia (Albufeira) 289561333, Lisbon (Chiado) 21342421 and in Funchal (Sé), Madeira 291221095.