IF YOU rented out a house or an apartment in Portugal in 2004, 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 the Finanças enforcement teams. Not only is the tax man concerned about loss of revenue, but also the powerful Portuguese hotel lobby has turned up the pressure, viewing “black market” rentals as unfair competition.
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 the 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 G. 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 four broad categories of expenses that may be deducted, thereby reducing the taxable income from rents:
• Services included in the rent
• Maintenance
• Repairs
• Contribuição Autárquica (Rates)
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 that alters the structure of the building
• building acquisition
• installation of air conditioning
• other capital improvements, such as installation of an 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 and fiscal number of both the entity providing the goods or services, as well as those 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 they can be properly documented, capital improvement expenses may enter into the calculation of the taxable base of the building for capital gains purposes, when the property is eventually sold.
Next Week: Capital gains
• Dennis Swing Greene is an International Fiscal Consultant for EuroFINESCO S.A., with offices in the Algarve and in Lisbon. Appointments may be scheduled in Guia (Albufeira) on 289 561 333 or in Lisbon (Chiado) on 213 424 210.
