Licensing requirements for holiday lets No1.jpg

Licensing requirements for holiday lets No1

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


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.


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


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


• 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