By: DENNIS SWING-GREENE
International Fiscal Consultant for euroFINESCO
Short term lets to holiday makers: Misinterpreted legislation – Part Two: When renting becomes a business
This is the first 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 ACTIVITY of part-time letting of furnished accommodations to holidaymakers is contemplated from two different perspectives in Portuguese legislation.
On the one hand, it is viewed as a commercial activity, regulated by article 79º of Decree Law 197/97, which governs the licensing and operating parameters of tourist developments. On the other hand, it may also be considered a short-term residential rental activity, regulated under art. 1096º of the Civil Code as contemplated under the Novo Regime de Arrendamento Urbano of 2006, when exercised by an individual landlord who rents a property on an occasional basis within a fiscal year.
Unfortunately, Portuguese legislation fails to sort out clearly the obvious quandary of 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 of the spectrum, a tourist accommodation agency must itself be licensed through the Instituto Mercados de Obras Públicas e Particulares e Imobiliário (IMOPPI), the building and real estate institute, to conduct its business and should offer authorised properties because of the commercial nature of this business activity.
Therefore, if you use such an agency to market your property, you too may be seen to be conducting a commercial activity and will need either a moradia turística licence within tourist developments or one of the hospedagem (guest house) designations in other circumstances.
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 falls easily into the residential rental category.
Letting agent vs. villa manager
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 obvious 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. We will explore these implications in greater depth in part four of this series.
What happens in the broad grey area in between? Since objective criteria exist to readily delineate the difference, it is crucial not to overstep your bounds. In essence, through knowledgeable choices, it is up to the property owners to define for themselves how they contemplate their activity.
If commercial, you should obviously get a hospedagem licence. When this option is not readily available in a given council, you will need to make certain adjustments to keep the activity legal. If seen as a residential let, 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: Commercial vs. residential lets
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.