| Buying to Let
Tax Benefits of Letting by Residents
Tax on Rental Income for Non-Residents
Legislation on Rentals
The Portuguese property market is currently strong and showing a healthy growth rate, whilst prices remain lower than you would expect to pay in say France or Spain . Combined with a relatively low cost of living, the Algarve thus offers great property investment opportunities. There is a high demand for holiday rentals, which means your property can give a good return on investment.
Tax Benefits of Letting by Residents.
As a resident renting out a furnished property to tourists for short-term holiday lets, you are eligible for privileged treatment under the "Simplified Regime", under which you are taxed on only 20% of your invoiced income, with 80% exclusion.
It should be borne in mind that IVA (the equivalent of VAT) reporting becomes obligatory when income exceeds €610,000 per annum and social security deductions must be made from the second year of business.
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Tax on Rental Income for Non-Residents.
If you rent out your property in Portugal , it is necessary to declare the income on a Portuguese income tax return. The income must still be declared to the Portuguese Tax Office even if your clients were foreign holiday makers and you were paid outside Portugal .
As a non-resident, rental income in Portugal is declared under Category F: Rental Income. With effect from 2005, non-residents benefit from a special tax rate of 15% on rental income. When this tax has been paid in Portugal , you should be eligible for a foreign tax credit in your country of residence, therefore you are recommended to consult the Double Taxation Treaty.
It may be useful to seek advice on this matter from a local financial/tax consultant - there are several British consultants here offering advice for expatriates.
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Legislation on Rentals
Recent legislation requires a Rental Licence to be held for anyone earning income from rented property. Licence types vary according to the property size, number of rooms and type of occupation, i.e. whether the property is rented on a long-term basis, is in a tourist complex for short-term rentals, or is a guest house. Obtaining this licence entails a one-off payment.
This law is in its infancy and not without teething problems, as many the local town halls do not yet have the procedures in place to issue licences, however it is anticipated that this will soon come into effect.
If you are renting out, ensure that your property meets all the current legal requirements and is correctly registered and licensed for this activity. |
