Local Lodging – Operating as a Sole Trader

“Holiday lets” as a business
If you let out furnished accommodations directly to holidaymakers on a short term basis, you are engaged in tourist related services (Category B) and are required by law to have a Local Lodging Licence (see Chapter nº 1). While this type of activity has more checks and balances than conventional renting, it also receives special tax treatment under the “Simplified Regime”. In other words, you are only taxable on 15% of your invoiced income with the other 85% being automatically excluded to cover business overheads.
Normally final tax rates are below 4%. REQUIREMENTS Before you start your holiday let business activity in Portugal, you must first register with the tax authority (Finanças) via an Início de Actividade (business activity registration). This can be done online or at the local tax office. Running your business…
You are required to keep books to track your income and expenses. While oldfashioned ledgers still exist for this purpose, most people opt for a computer bookkeeping programme to track their business income and expenses on a regular basis.
There are over 100 such programmes that Finanças has approved. VAT Like any business, you must register for VAT. If you are letting directly to holidaymakers under a Local Lodging Licence, you lose VAT exemption when your annual income exceeds €10,000 in a given year. Tourist related activities charge the lowest rate (currently 6%). Business expenses normally pay 23% (in Madeira, 5% and 22% respectively).
The difference between the two is either paid to the State or credited and refunded to you. Quarterly declarations are made electronically via internet and are in Portuguese only. If your activity is via a tourist development, your activity is classified in Category F and is VAT exempt whatever the volume of business. NON-RESIDENTS Non-residents need to appoint a fiscal representative specifically to meet VAT obligations.
In addition to the normal appointment procedures, a non-resident must issue a power of attorney to the representative to answer any fiscal matters directly with Finanças. “RECIBOS VERDES ELECTRÓNICOS” (GREEN RECEIPTS) As in all business activities in Portugal, you are required to issue invoices to your customers. Mandatory receipts (“Recibos Verdes electrónicos”) must be issued electronically via the internet (Sistema de Emissão de Recibos Electrónicos – SERE).
PORTUGUESE INDIVIDUAL INCOME TAX An “IRS” declaration must be filed in April/May in the following fiscal year. Most will find the Simplified Regime to be both simple and economical when compared to standard accounting practices. Gross income is reported on Anexo B. In 2014, Local Lodging activities enjoy an exclusion of 85% to cover business overhead. This means you are taxed on only 15% of your invoiced income.
It is essential that owners invoice holidaymakers directly and not through holiday management companies. If the latter were the case, the exclusion drops to only 25%. On an income of €10,000, this equates to an assessment of over €3,000 as opposed to under €220.
Next: 2. Social Security for sole traders property
Dennis Swing Greene FISCAL MATTERS
[email protected]
Dennis Swing Greene is Chairman and International Tax Consultant for euroFINESCO s.a. www.eurofi