Background – raids on rentals
THIS IS the first in a seven part series
on licensing requirements for
holiday lets.
1) Background – raids on rentals
2) Tourist lodgings – A casa turística
3) Licensing requirements –
presenting a plan
4) The guest house – A hospedagem
5) Renting – o arrendamento urbano
6) Compliance – getting it right
7) Conclusion – not so bad after all
In the summer of 2005, Inspectors
from the Inspecção-Geral das
Actividades Económicas (IGAE) raided
rental agencies in the Algarve, demanding
to see letting permits. These permits/
licences should have been issued
by the local council in order for the accommodation
to be rented to tourists,
as required by law since 1997. Those
practising this letting activity were often
unaware of any such prerequisites
and the inspectors proceeded to fine
both agents (between 2,500 and 30,000
euros per infraction) and owners (from
500 to 3,740.90 euros). One agency
was fined a total of 150,000 euros.
These investigations were part of an
overall strategy to tighten up procedures
and law enforcement. According to the
Direcção Geral de Turismo (Tourism
Bureau), approximately 4,000 notifications
were sent out to update registries,
in addition to parallel inspections like
those that occurred in the Almancil area.
Throughout the 16 councils of the Algarve
– the official entities charged by
law to regulate and license the holiday
letting practice – one would be hardpressed
to count on the fingers of one
hand, the licences actually issued since
the current legislation came into effect
in 1997. Owners and agents now find
themselves penalised for not having a
licence, which, in many câmaras, does
not yet even exist. Given the “Catch 22”
nature of the whole affair, confusion and
consternation abound.
Naturally, these events have brought
an upsurge of alarm to the foreign resident
community in the Algarve, reminiscent
of the shock waves sent out when
property reform legislation attacked offshore
companies several years ago.
Once again, understandable and necessary
changes have been brought into
place in a rather clumsy and poorly
thought out process that rapidly turns into
a nightmare for all concerned.
The industry
Foreign investment in Portuguese
real estate has been both popular and
lucrative in recent decades. Over the
long term, property is almost always an
appreciating asset. Unless you buy at
an overly inflated price, let the place fall
into disrepair, or some
kind of disaster besets
the structure of the property,
then you should
eventually end up with a
property worth considerably
more than your purchase
price. With foreseeable
demographic
pressures in Portugal
over the coming years,
demand for housing is
set to boom. There is no
reason to suggest that
this long-term appreciation
trend will change.
Income
Once purchased,
many people manage to
make a tidy income from
renting out property. In
popular tourist areas
such as the Algarve, one
or two week lets to tourists
during the high season
can prove a profitable
enterprise. Often, it
essentially becomes a
business, and business
activity has different
regulations, as well as a
specific tax regime. Unfortunately,
over the
years, the overwhelming
majority have disregarded
their compliance
obligations. Whether
due to ignorance
(never an excuse) or
greed, most fail to register
their activity, license
their property or declare and
pay tax on the income.
Conflicting legislation
Unfortunately, current legislation
does not contemplate precisely the arrangement
that matches the most common
practice: short-term furnished lets
that occur sporadically during the year,
with private usage during the remaining
months. Nor is it easy to distinguish
clearly the line between what constitutes
a let to holidaymakers, falling into
the category of property rental income,
and tourist activity lets, seen as a commercial
business.
Two sets of legislation overlap to
regulate these intersecting activities. On
the one hand, tourist related business
activities are regulated under Decree
Law nº 167/97, introduced in 1997, shifting
enforcement from the central Tourism
Bureau to local town councils. One
fundamental purpose was to bring order
to an untamed activity with the intention
of safeguarding health and
safety concerns for tourists. Licensing
and regulation were decentralised and
put in the hands of local councils.
On the other hand, property rental activity
is regulated by the Regime de
Arrendamento Urbano. A complete overhaul
of this legal code was recently published
in the Diário da República in February
2006. While normally requiring a
contract for a minimum of five years, letting
to tourists constitutes one of the exceptions
with no stipulated minimum period
under the law. If less than six months
(almost always the case), no written contract
is required either.
However, in neither body of legislation
is there any clear definition to distinguish
the “commercial” practice from
the “rental” process. Needless to say,
in order to get it right, “the line must be
drawn in the sand”.
Algarve councils
To add to the complications, each
câmara appears to be a law unto itself.
On-site visits to each of the council
offices over a two month period in
early 2006 revealed that no two were
alike: each had different statutes, incompatible
attitudes, conflicting rules.
While many have statutes on the
books, most have never implemented
them until now.
Finding a solution
In order to avoid panic and to concentrate
on the heart of the matter, let
us examine the pieces of the puzzle with
the goal of reaching a practicable solution.
As we will see in this series of articles,
while there is genuine reason for
concern, several viable solutions exist
that, in the long run, are surprisingly
beneficial to all concerned.
Next: Tourist lodgings – A casa
turística
• Dennis Swing Greene is an International
Fiscal Consultant for euroFINESCO. Private
consultations can be scheduled at
their offices in Guia (Albufeira) and Lisbon
(Chiado). In the Algarve call 289 561
333, in Lisbon call 213 424 210 or e-mail:
[email protected]. You can also visit
