By: DENNIS SWING-GREENE
International Fiscal Consultant for euroFINESCO
Rental Agent vs. Villa Manager
This is the third in a four part series examining issues concerning short-term lets to holiday makers:
Part one – Misinterpreted legislation
Part two – When renting becomes a business
Part three – Commercial vs. residential lets
Part four – Rental agent vs. villa manager
The growth of self-catering apartments and villas has proven a boon to the activity of villa management throughout Portugal. Despite some ups and downs in the past, a combination of ingredients makes this business highly promising in the foreseeable future.
In addition to the traditional factors of climate and political stability, new components such as ever increasing demographic mobility within the EU and the advent of low-cost air travel throughout Europe promise to make tourism a year-round phenomena rather than a 10-week season in the summer.
However, confusion generated around the holiday let licensing issue has led a number of agents to move their business operations outside of Portugal. Even so, the properties themselves cannot be moved and potentially remain vulnerable to attack if not prepared. Smaller operators often cannot afford to take refuge abroad.
How can villa managers protect themselves against the pitfalls of Decree Law nº 167/97?
In addition to the 3 C’s for the individual property owner – clarity, compliance and common Sense – there are additional ways that villa managers can better organise themselves to defend against potential problems associated with tourist developments.
It should be obvious that villa management is one activity, being a rental agent, quite another. The latter requires a real estate operator’s licence issued by IMOPPI. Although not incompatible, the two activities should best be kept separate. In initiating one’s business, the Economic Activity Classification (CAE) would better be described as property management rather than providing furnished accommodations for tourists.
It is essential to be seen as a service provider, merely acting as outsourcing agent on behalf of the owner. Any advertising should make explicitly clear that the rentals are contracted directly between owner and holidaymakers.
The owner may outsource certain services such as marketing, administration, etc. Nevertheless, the purpose and applicable legislation must be clearly stated. In a set of agreed “terms and conditions” for any lets, it is essential to be explicit regarding which legislation should apply. On internet listings, you should have a disclaimer in Portuguese as well as in English to clarify the intended statutory purpose of the listings.
Outsourcing client accounts
Many villa managers run internal client accounts where they collect money from the owners for expenses as well as credit income from rentals.
This in-house arrangement can work when the business is small but often becomes stained as volume grows and eventually can easily spin out of control. More importantly, the practice blurs the essential distinction between villa manager and owner by mixing accounts and moneys together.
If, on the other hand, separate bank accounts were to be used by each owner with the villa manager intervening to make and receive payments on behalf of the owner, the line of demarcation would always be clear.
An owner’s funds go directly in and out of the owner’s bank account; villa managers would reckon separately and be paid accordingly for services rendered. This banking “outsourcing” arrangement can usually be set up without charge to either villa manager or owner.
Villa management compliance
Not only do owners have to be compliant with Fiscal Representation requirements and filing of annual income tax returns, villa managers have their own compliance obligations to meet.
The initial business registration mentioned in section A is only the first of a number of necessary steps when operating a business in Portugal.
If your business is to be a true success, playing by the rules is essential in the long run.
If you act solely as villa manager or merely as an agent for the owner in administering holiday lets, being on solid, defensible ground is all-important when facing a potential challenge from inspectors. As is always the case, clarity, compliance and common sense will provide an excellent foundation for any on-going, successful business.
This is the final article in the series
Dennis Swing Greene is an International Fiscal Consultant and Senior Partner at euroFINESCOsa, with offices in the Algarve and in Lisbon. Appointments may be scheduled in Guia (Albufeira) at 289 561 333 or in Lisbon (Chiado) at 21 3424210.