The Local Accommodation activity and the fiscal implications
Local accommodation establishments (AL) are those which provide temporary accommodation services, namely to tourists, against remuneration.
Due to the growth in the number of tourists there has also been an increase in short-term rental activity better known as “Alojamento local” (local accommodation establishment).
However, such activity brings obligations to the owners of the local accommodation establishment (Alojamento Local) regarding the payment of taxes in Portugal.
Independently of the taxes calculated on the income from the renting of our villa or apartment, there is another tax that is often forgotten: the capital gains arising from the local accommodation activity.
In fact, until 2020, the allocation of the property to a business or commercial activity (in the case of local accommodation) was similar to a transfer capable of generating capital gains, although the taxation of such capital gains was deferred to the moment when the property was no longer used for local accommodation.
In addition to this taxation, there was also taxation of capital gains arising from the sale of the property. This regime was excessively burdensome for the owners, who ended up being taxed in three different ways.
First, capital gains were calculated by the difference between the market value of the property at the date of its allocation to local accommodation and its acquisition value.
Second, capital gains calculated by the difference between the market value of the property on the date of its allocation to local accommodation and the market value of the property on the date of the cancellation of such the local accommodation activity.
Third, capital gain from the sale of the property, calculated by the difference between the sale value and the market value of the property on the date of cancellation of the local accommodation activity.
With the entry into force of the State Budget for 2021 (Law no. 75-B/2020, of 31st December), capital gains will no longer be calculated at the time of allocation of the property for local accommodation and the time of its cancellation and taxation will only occur when the property is actually sold to a third party.
Accordingly, capital gains will be taxed as follows:
If the property is sold to a third party in the three years following the cancellation of the activity of local accommodation the capital gains will be calculated considering the value of the property at the date of acquisition and at the date of sale to a third party and taxed according to category B of the Personal Income Tax (IRS), with a tax rate of 28% after the applications of the coefficient determined by Law.
If the property is sold to a third party after the first three years following the cancellation of the activity of local accommodation, the capital gain will be calculated according to category G rules of the Personal Income Tax (IRS) with a tax rate of 28% for non-residents.
This alteration to the taxation regime benefits the property owners who need to use the property for their own use or that of a family member.
I started my activity as a lawyer in 2001 in the Algarve.
I was always fascinated with the fact that such activity would give the special skills to help others achieve their goals and dreams and such a purpose is achieved each time I assist and help a client.
My areas of practice are mainly real estate law, fiscal law and immigration law with a relevant emphasis in the Golden Visa and Visa D-7 further to the alterations that arose with Brexit.
My office is located in Almancil, but I cooperate with offices in Lisbon, Porto and Coimbra for at least 4 years, assisting clients all over the country.