“O Arrendamento Urbano”
UP TO this point, we have only discussed options that are considered as being commercial in nature. A completely different vantage point exists with regard to making your property available to holidaymakers: renting to tourists. Simply put, you authorise someone to live in your house for a specific period of time in exchange for an agreed price. No licence is required. No permission needed from the neighbours. No mandatory registration with the câmara or the Tourist Office.
While renting is quite simple and straightforward, there are potential drawbacks. Under the Regime de Arrendamento Urbano, the Portuguese body of law that governs rental activity, the minimum rental period contemplated is normally five years. Where tenants decide to stay on, you may find that you are hard pressed to get rid of them. Historically, legislation and the courts have been heavily slanted in favour of tenants.
Realistically, these circumstances are unlikely to occur in holiday lets (most holidays do come to an end, usually far too soon). In fact, while the five year minimum does exist, the law does allow for three exceptions: professional motives (such as a short-term work contract), education (for example, student accommodation) and finally, tourism. From this point on, the law is ambiguous in its silence, and fails to specify any minimum period of time. So hypothetically, one could rent out for a day, a week, a month or whatever the two parties agreed upon. The law also states that when the period is six months or less, no written contract is necessary. So far, so good.
When does renting become a business?
More importantly, legislation fails to sort out the obvious quandary: how to distinguish between a rental and a commercial activity? To help answer this pivotal question, let us examine the two extremes of a continuum, where little doubt exists. At one end, a tourist accommodation agency can only offer licensed properties because of the legislatively defined commercial nature of this business activity. Therefore, if you use such an agency to market your property, you too will be seen to be conducting a commercial activity.
At the other end of the spectrum, is the situation where the owner might make the house available to friends or acquaintances, for a few weeks in any given year, and they chip in a “little extra” for the inconvenience. Such a practice is unlikely to be construed as a commercial business activity and easily falls into the rental category.
Letting agent vs. villa
If you have an agent, whether in Portugal or abroad, who finds your holidaymakers, fetches them at the airport, hires the maid to make their beds and manages their stay, you are obviously involved in a commercial operation. However, if you simply have a villa manager who takes care of your place while you are away, sorting out maintenance and repairs, this support in itself does not constitute a business activity.
What happens in the broad grey area in between? Few objective criteria exist to readily delineate the difference. Therefore, it is up to the property owners to define for themselves how they contemplate their activity. If commercial, you should obviously get a licence. If seen as a rental, you should take appropriate proactive steps to defend this position. In other words, the nature of the activity needs to be owner defined and defended under the law. In the event of an inspection, the onus will then fall on the inspector to disprove your claim, rather than you merely responding to his accusations.
Next: Compliance – Getting it right
• Dennis Swing Greene is an International Fiscal Consultant for euroFINESCO. Private consultations can be scheduled at our offices in Guia (Albufeira) and Lisbon (Chiado). In the Algarve, call 289 561333 or in Lisbon, 21 342 4210 or e-mail: [email protected], or on the internet at www.eurofinesco.com.