ALOJAMENTO LOCAL IN PORTUGAL

Alojamento local in Portugal has more than quadrupled in the last three years, from about 13,000 registered establishments in 2014 to more than 55,000 accommodations currently reported throughout the country.

Furnished and seasonal rentals are regularly highlighted in the press and by wealth management professionals. They are attracting more and more individuals looking to build real estate wealth while securing a source of supplemental income. They are also of interest to all property owners of vacation homes who wish to rent them out when they are not living there, in order to reduce their financial burden.

The regulations applicable to Local accommodation in Portugal has changed significantly in recent years, and last year the Portuguese government decided to establish a clearer regulatory framework for this rapidly growing rental market. This growth can be attributed to profound changes in our lifestyles and the diversity of professional and family situations. It is also driven by the use of the internet, which makes it easier to search for and advertise rental listings. 

It is important not to jump into the local lodging business in Portugal blindly without first understanding all the rules and nuances, in order to avoid facing financial penalties. 

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Legislation Governing Vacation Rentals in Portugal

The legislation governing short-term rentals in Portugal was established by Decree-Law No. 39/2008 of March 7. It was intended to regulate the provision of temporary lodging services in establishments that do not meet the legal criteria required to be classified as tourism businesses.

• Ordinance No. 517/2008 of June 25, as amended by Ordinance No. 138/2012 of May 14. Sets forth the minimum requirements that vacation rental establishments in Portugal must meet, as well as the registration procedure for such establishments.

• Decree-Law No. 128/2014 of August 29, which took effect on November 27, 2014, implies recognition of the tourism value of local lodging. 

Indeed, as the decree-law states, market dynamics related to supply and demand have led to a proliferation of short-term rentals in Portugal. This has made it clear that this is not a fleeting phenomenon and, by definition, has necessitated an update to the regulatory and tax framework applicable to vacation rentals in Portugal. As a result, for the first time, Portugal now benefits from a separate legal treatment under national law. 

The need to strengthen the seasonal housing system led to the first amendment to Decree-Law No. 128/2014 of August 29, through Decree-Law No. 63/2015 of April 23. This amendment, which was intended to clarify certain aspects of the legal framework governing the operation of local lodging establishments, took effect on June 22, 2015. 

On October 21, 2018, Law 62/2018, which had entered into force on August 22, introduced the second amendment to Decree-Law No. 128/2014 of August 29.

The main changes introduced by Law No. 62/2018 of August 22 concern the form of the registration procedure; the ability of municipal councils to impose restrictions on the operations of businesses in certain geographic areas; and the ability of municipal councils to revoke the licenses.

This amendment also gives condominium associations the authority to decide whether to allow a unit to be used as seasonal lodging. It also establishes new rules for the operation and management of such units, such as those regarding a unit’s maximum occupancy. The requirement to maintain a complaint book, when the nameplate and to the purchase of a liability insurance. 

Update to the law in 2018

Law No. 71/2018 of December 31 (the 2019 State Budget Law) and its Article 347 amended the wording of Article 13-A of Decree-Law No. 128/2014 of August 29 on mandatory insurance. This introduced the third amendment to the legal framework governing lodging facilities.

Thus, the legal framework governing vacation rental properties in Portugal is currently set forth in Decree-Law No. 128/2014 of August 29. Amended by Decree-Law No. 63/2015 of April 23, by Law No. 62/2018 of August 22, and by Law No. 71/2018 of December 31.

Definition of "alojamento" in Portugal

Seasonal lodging establishments (known as “Alojamento local” in Portugal) are accommodations that provide temporary lodging, particularly for tourists. They operate for a fee and must meet the requirements of Decree-Law No. 128/2014 of August 29. Amended by Decree-Law No. 63/2015 of April 23, Law No. 62/2018 of August 22, and Law No. 71/2018 of December. This means that you will no longer be able to use your residence as a permanent home.

The operation of a seasonal lodging facility involves an individual or an organization providing lodging services.

There is a presumption of operation and intermediation in the provision of local housing in Portugal (permanent housing) when a property or a portion thereof:

• Is made available or brokered by any means whatsoever. Listed in travel and tourism agencies or on websites, such as tourist accommodations or temporary accommodations; 

or

• If it is furnished and equipped and, in addition to lodging services, offers a cleaning service to the general public.

Definition of “alojamento local” establishments in Portugal

Housing: a seasonal lodging facility where the accommodations consist of a

• single-family home, designed as a single-family home.

• Apartment: a seasonal lodging facility in which each unit consists of a self-contained portion of a building or a part of an urban building that can be used independently.

• Accommodation facilities: A seasonal lodging facility whose lodging units consist of rooms located within a self-contained section of an urban building or a portion of an urban building that can be used independently. 

• Rooms: Operation of a seasonal rental property located in the owner’s residence, which constitutes the owner’s tax residence. This applies if the owner’s intention is to use the rooms of the dwelling or apartment as a residence, rather than the dwelling or apartment itself as a single unit of lodging. The registration category will be that of a hotel establishment or that of guest rooms if, in this case, there are three or fewer guest rooms and the residence or apartment corresponds to the owner’s tax residence.

Vacation rentals in Portugal may use the name «inn» when:

• The housing is a dormitory, and if they meet the other requirements

Capacity of Vacation Rental Properties in Portugal

The maximum capacity of "alojamento local" establishments in Portugal is 9 rooms and 30 beds.

It is important to note that the occupancy capacity of vacation rental properties in Portugal—whether apartments or houses—remains limited in order to comply with fire safety standards. They cannot exceed 2 people per room. 

Each owner or operator of a residential unit may not operate more than 9 establishments per building, provided that the number of residential units does not exceed 75 % of the number of units in the building.

Terms and Conditions for Seasonal Lodging

Seasonal lodging establishments must meet the following requirements:

(a) Ensure appropriate conditions for the maintenance and operation of facilities and equipment;

(b) Are connected to the public water supply system or have a properly monitored water source;

(c) Be connected to the public sewer system or equipped with septic tanks sized to accommodate the facility’s maximum capacity;

d) Have hot and cold running water.

Housing units in "alojamento local" establishments in Portugal must:

a) Have a window or balcony with direct access to the outside that ensures proper ventilation and airflow;

b) Be equipped with the appropriate furniture, equipment, and utensils;

(c) Have a system in place to block out external light;

(d) Doors must be equipped with a security system that ensures user privacy;

(e) Seasonal lodging facilities should always meet hygiene and cleanliness standards.

Security Requirements

Seasonal lodging establishments must comply with safety regulations in accordance with the provisions of Decree-Law No. 220/2008 of November 12. They must also comply with the technical regulations set forth in Administrative Rule No. 1532/2008 of December 29.

Housing must be equipped with the following:

(a) a fire extinguisher and a fire blanket that are accessible to users;

(b) first-aid supplies accessible to users;

c) Display of the national emergency number (112) in a location visible to users. In accordance with the guidelines of the National Civil Protection Authority (ANPC), which is the authority responsible for ensuring compliance with the SCIE (Fire Safety in Buildings) system.

Complaint Log 

All local lodging establishments in Portugal must have a guest complaint book in accordance with the conditions set forth in the Decree-Law No. 156/2005, of September 15, as amended by Decree-Law No. 371/2007, of November 6; Decree-Law No. 118/2009, of May 19; Decree-Law No. 317/2009, of October 30; Decree-Law No. 242/2012, of November 7, and Decree-Law No. 74/2017, of June 21.

Under this policy, the owner or operator of the establishment is required to maintain a complaint logbook and make it available in physical format to anyone who wishes to review it or file a complaint.

Paper complaint book

Landlord's Responsibilities:

• Provide the user with the complaint book immediately and free of charge whenever requested
• Under no circumstances may the business owner justify the absence of a guest complaint book at his or her establishment. 

You must post this notice in your establishment in a conspicuous location, using characters that are easily legible to the reader.

A sign containing the following information must be posted: 

«This establishment has a complaint book; complaints should be directed to the ASAE.».

With regard to local lodging establishments in Portugal that take the form of apartments, when the same operating entity has more than one apartment

The ASAE takes the following situations into account:

1. When there is a single reception desk for the apartment complex, complaints and their acknowledgments must be listed on the same receipt;

2. When there is no acknowledgment of receipt, there are two possible scenarios:

a) When local lodging facilities are located a short distance from the operator and it is possible to provide the guest complaint book immediately upon the guest’s request. It will suffice to post the information sign mentioned above in each apartment, in a conspicuous location and in easily legible lettering. 

(b) Where seasonal lodging facilities are located a considerable distance from the owner’s headquarters—and therefore cannot immediately provide the complaint book—each apartment must have a copy of the book, as well as the information sign mentioned above.

3) Maintain, for a minimum period of three years, a record of the complaints you have handled

4) Provide all the necessary information to complete the fields related to your company's identification.

5) After completing the complaint form, send the original copy directly to the ASAE within 10 business days.

4) Give the user a copy of the claim.

5) If the complaint log is lost, you must immediately notify the ASAE and purchase a new one.

Registering Your Residence with Your City Hall

The first thing you need to do before starting your local lodging business in Portugal is to register your property and, at the same time, your business with the Camara (city hall) in your area. This mandatory step must be accompanied by a declaration of the start of business activities related to the provision of lodging services to the tax authorities. 

License applications must be submitted exclusively through the single electronic portal provided for in Article 6 of Decree-Law No. 92/2010 of July 26. Each application is assigned a unique registration number and is linked to the residence you declare. If you own multiple apartments, for example, you must submit a separate application for each apartment.

Please note: An objection to registration may be filed within 10 days—or, in the case of inns, 20 days—after the notice with a deadline is served, for the following reasons:

a. Incorrect instructions provided when requesting authorization;

b. Violation of established restrictions, in the case of a pre-lockdown zone designated by the city hall, or a temporary ban on registration;

c. Lack of authorization from the building association to use the building.

Application Form for a Local Lodging License

The license application for an Alojamento local may be filed by a third party, provided that the property owner authorizes it. This authorization grants the right to sign the license application and to submit the various declarations related to the business for the entire duration of the business. 

A copy of the power of attorney granting these powers to the applicant must be included with the housing declaration and the license application..

The important elements that must be included in the power of attorney are as follows: 

• With regard to the intended use of a building or portion thereof, it is the responsibility of the relevant municipal council to determine, on a case-by-case basis, whether the occupancy permit or use permit authorizes the provision of lodging services.

Quarantine Zones

In order to preserve the social fabric of neighborhoods and communities, the city council may, through a regulation, approve the establishment of restricted zones. This may apply in whole or in part to the establishment of new local lodging facilities in Portugal. Such regulations may set percentage limits based on the proportion of real estate available for housing. In these zones, limits may be imposed based on the number of establishments, unless new seasonal lodging establishments are established in this territory with express authorization, which, in the event of a postponement, facilitates their registration.

In lockdown areas, the same owner may operate no more than seven “alojamento local” properties in Portugal. License numbers located in restricted areas may not, under any circumstances, be sold or transferred to a third party. Except in the case of inheritance.

Suspension of Licenses

Cities that establish lockdown zones may suspend the issuance of new vacation rental licenses in Portugal for a maximum period of one year.

The nameplate

Once you have obtained your license, you are required to display an identification plaque outside your residence, near the main entrance. 

Model and specifications of the nameplates:

Transparent, extruded, and polished acrylic material, 10 mm thick. Specifications:

• Size: 200 mm x 200 mm;
• Arial 200 font, dark blue (Pantone 280);
• Install 50 mm away from the wall (using stainless steel screws at each corner: 8 mm in diameter and 90 mm long).

Mandatory Insurance

You are required to purchase comprehensive liability insurance covering the risks of fire, property damage, and non-property damage to customers and third parties resulting from the provision of lodging services (failure to obtain insurance will result in the cancellation of your registration).

In addition, the property owner is jointly and severally liable with the tenants for any damage caused to the building.

In addition to the mandatory insurance required when you own real estate, properties used as vacation rentals in Portugal must have liability insurance with a minimum coverage of 75,000 euros. This insurance covers any damages incurred by guests during their stay at the property.

Imagine, for example, that part of the ceiling collapses—or, worse yet, that the apartment catches fire.

The insurance may also cover any damage caused by your tenants in the building’s common areas—provided that they do not pay for the damage or that you have not required a security deposit. However, if the insurance coverage is insufficient to cover all the damages, you will be required to cover the remaining costs.

The Condominium Manager and Local Accommodation in Portugal

The law on short-term rentals strengthens the authority of municipalities and condominium associations. If you own an apartment in a building, you’ll be required to request authorization from the property manager. This authorization must explicitly state the request for prior notification. However, if your residence is located in an autonomous unit, it may be used independently.

The association of co-owners may object to the activity, provided that the decision is adopted by a majority; of course, this decision must be supported by a justification (for example, disruptive behavior that affects other owners), and they are also required to notify the city hall.

The property manager may also require payment of an additional fee corresponding to the expenses resulting from increased use of the common areas. This increase may not exceed 30 % of the annual value. Again, this increase must be approved by a two-thirds majority of the owners.

Your Tax Obligations

Income earned from local lodging services in Portugal is considered Category B income and is subject to simplified system.

If you do not exceed. For two consecutive years, your revenue does not exceed 200,000.00 euros. Or if, in a single year, your revenue does not exceed 250,000.00 euros, you will not be required to maintain a organized accounting.

The simplified tax system: Income from local lodging activities in Portugal is taxed at a rate of 35% and must be reported on your IRS tax return. You must also submit the’Include Appendix B with your tax return and fill out field 417 in Table 4A.

Self-employed person, only 17.5% of the income earned in the first year is taxed. In the second year, only 26.5% will be taxed by the IRS.

Taxpayers whose Category B income is less than €27,360.00 do not need to provide proof of their expenses. Taxpayers with higher income must provide proof of their expenses so that only 35% of their earned income is taxed.

4% of your expenses related to your real estate property may be allocated to your local lodging business, including insurance, electricity, water, gas, cleaning, and commissions paid to your partners (Booking, Airbnb, HomeAway). If your short-term rental business in Portugal is only partially associated with your property, you may only allocate 25% of your expenses to it. You may choose to report your income under Category F. In this case, the income will be fully taxed at a rate of 28%, after deducting expenses. This option is available in Appendix B of Appendix 3 of the tax return.

Withdrawal reserve values are also considered income, and the tax authorities tax them at a rate of 10%. They must be reported in field 414 of Schedule 4A of Schedule B of Form 3 of the IRS tax return. Since January 2019, income from local lodging in Portugal is not subject to social security contributions. If this is your sole source of income, you do not need to take any action.

However, if you combine this with another self-employed activity, you must file a quarterly tax return with Social Security. You must also identify the income earned from the local lodging activity so that it is not included in the calculation of your contribution. Those who earn income from seasonal rentals in Portugal, like any other self-employed individual, are exempt from VAT up to €10,000 per year. Once this amount is exceeded, they must file a VAT return. VAT returns are filed quarterly. 

To summarize

The local lodging business in Portugal is taxed at 35% on income received; owners are included in the simplified tax regime, meaning they have annual revenue of up to €250,000 and are not required to maintain formal accounting records.They can choose between two forms of taxation:

• the IRS's simplified tax system (Category B), which taxes 35% of income (the tax authorities automatically assume that 65% of income from vacation rentals in Portugal is used to cover necessary expenses);
• autonomous tax system, which levies a 28% income tax.