This is the sixth in a seven- part series on the Self-Employed in Portugal
If you let out furnished accommodations to holidaymakers on a short-term basis, you are engaged in tourist-related services (Category B) and should have already registered for Local Lodging. This type of business activity receives special treatment under the Simplified Regime and is handled in the same way as Sales. In other words, you are only taxable on 15% of your invoiced income.
Before You start
Before you start your independent business activity in Portugal, you must first register with the Portuguese tax authority. This can be done electronically over the internet, on paper forms or directly at your local Finanças office.
You will also need to register with Social Security. Contributions only begin in the 13th month of your activity. Those receiving an old age pension or contributing to a Social Security system anywhere within the EU can apply for exemption from contributions.
New requirements regarding energy efficiency certification for new, renovated and existing properties came into effect in 2013. Any building sold or rented must have an Energy Efficiency Certificate. Compliance is key for those exercising this activity. Failure to meet the above norms is subject to severe penalties.
Letting to holidaymakers
Non-residents normally report income both in Portugal as well as in their home jurisdiction. Regardless of where you are paid and in what currency, your primary responsibility is to report the activity in Portugal because 1) this is where the activity (tourism) takes place and 2) where the property to be commercialised is located. Double taxation is normally eliminated via international tax credits.
Electronic green receipts
As in all business activities in Portugal, you are required to issue invoices to your clients. Because these invoices are done electronically via the internet, the tax authorities have an ongoing record of your income.
Portuguese Income Tax
An IRS declaration must be filed in April-May following the fiscal year. Most find the Simplified Regime to be both simple and economical when compared to standard accounting practices. Under current legislation, 85% of Local Lodging income is excluded to account for operating expenses that no longer need to be reported. This equates to an effective tax rate of 3¾% on your invoiced income.
NALLE – the National Association of Local Lodging Establishments
NALLE has as its mission to provide essential information and support to its members regarding Local Lodging in Portugal; enhance security for holidaymakers; strengthen compliance in Local Lodging operations; and provide a collective voice, representing all of those engaged in the activity of Local Lodging in Portugal. To become a member or obtain more information about NALLE, please consult the association’s website: www.nalle.pt
By Dennis Swing Greene
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Dennis Swing Greene is Chairman and International Tax Consultant for euroFINESCO s.a.