Category: IRS

Transitioning from Local Lodging to Rental (AL) to Long Term Rentals: New Procedures

April 26, 2024

By Ricardo Chaves

Housing

The legislative package “Mais Habitação” (introduced by Law No. 56/2023, of October 6) brought new rules and limitations regarding the licensing, operation, and allocation of properties under the Local Lodging regime, making it less appealing.

Aiming to increase the number of properties available for long term rentals, this package has introduced benefits for property owners opting to switch their properties from Local Lodging to the residential rental market.

 

Changes in Local Lodging

The “Mais Habitação” legislative package introduced significant legislative changes across several areas, all aimed at revitalizing the real estate housing market.

While Local Lodging was previously encouraged by the government and various public entities as a valuable tool for property rehabilitation, the new legislation significantly affects the viability of Local Lodging operations, particularly those in autonomous fractions within horizontally owned buildings. “Mais Habitação” has suspended new Local Lodging licenses in the mainland, except in specific rural areas and urban centers without housing pressure, listed in a regulation (Order No. 208/2017, of July 13).

This new regime sets a five-year validity period for existing licenses, renewable for the same period, with renewal requiring explicit approval from the competent municipal chamber. Additionally, the non-transferability rule for Local Lodging licenses has been established, meaning holders cannot transfer the license even when selling the property.

Apart from the expiration of inactive registrations and those failing to provide “proof of activity”, the new regime reassesses Local Lodging registrations issued upon its entry into force during the year 2030, potentially renewing them for five years after the first reassessment.

Furthermore, the government has introduced an Extraordinary Contribution tax on apartments and establishments under Local Lodging (“CEAL”), set at 15%. CEAL applies to residential properties allocated to Local Lodging on December 31 of each year, payable by the establishment’s operators. Property owners where Local Lodging operates, even if not operators, are subsidiarily responsible for this contribution.

 

Transition of Properties Previously Dedicated to Local Lodging to Long-Term Rentals:

Despite acknowledging the constraints on the Local Lodging regime, and to encourage properties previously allocated to Local Lodging into the long-term rental market, “Mais Habitação” offers tax benefits to property owners and Local Lodging license holders transitioning to long-term residential rentals.

Accordingly, properties transferred from Local Lodging to long-term rentals for permanent housing until December 31, 2024, benefit from IRS (Personal Income Tax) and IRC (Corporate Income Tax) exemptions on rental income. Conditions for exemption include:

a) Rental income originates from properties previously allocated to Local Lodging;
b) Local Lodging establishments were registered and allocated for this purpose until December 31, 2022;
c) Rental contracts and registrations with the Tax Authority are completed until December 31, 2024.

This exemption applies to rental income until December 31, 2029.

To benefit from this exemption, property owners must declare the cessation of Local Lodging activity by year-end and notify the Tax Office at the start of the long-term rental. The communication must be made through the Balcão Único eletrónico (Single Electronic Counter) under “Local Lodging”, selecting “Communication of Change of Activity”, and submitting the form provided there.

For further information and assistance, please don’t hesitate to contact us at info@afm.tax

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IRS Personal Income Tax 2023: what you need to know about it this year

April 10, 2024

By Ricardo Chaves

The IRS delivery time begins on the 1st of April and will run until the 30th of June. So now it’s that time of the year when we need to clarify some of your questions concerning this important task.

In which form can I submit my IRS tax return in Portugal?

All IRS tax declarations are exclusively submitted online, so if you don’t yet have a password to access the tax portal, it’s important to request one per taxpayer. As the tax website is only in Portuguese, this may be a difficult task if you don’t understand the language; ask your accountant to get this for you.

When do I need to submit my IRS tax return in Portugal?

All IRS tax returns, independent of the income earned, must be submitted from the 1st of April until the 30th of June.

What is the period covered in my Portuguese IRS tax return?

The tax year in Portugal is the same as the civil year, so you declare the income from the 1st of January 2023, until the 31st of December 2023.

I arrived in Portugal last year. Do I need to submit a return? I don’t have my residency card yet, and I am still waiting for the appointment with AIMA.

In the first year of residency, you must submit a tax return for the period you were in Portugal (from … to 31-12-2023). The same happens to all those who stopped being Portuguese residents in 2023; they need to submit a tax return from 01-01-2023 until the date they left. However, if you have not yet got your residency permit, you are not yet a tax resident as you can only apply for tax residency, once you have the residency permit.

What happens if I must submit tax returns in more than one country and the information is not ready before the end of June?

If, for any reason, you don’t have all the information required to submit the tax return in Portugal by the end of June, you may submit a request in the tax portal to allow you to submit the tax return until the end of December of the current year.

I need to submit my taxes in the US in April. Where should I file first?

Your Portuguese accountant must give you an estimate of the tax you pay in Portugal, so you can include in your US tax declaration, the amount of tax you will spend in Portugal. Or you can file for an extension for your US taxes, as you are now a non-resident in the US.

Who needs to fill out an IRS tax return in Portugal?

All the tax residents must submit to declare their worldwide income in Portugal. The non-residents who earned income from Portuguese sources must also submit the IRS tax return. There are exceptions for residents who have earned only salaries or pensions from Portuguese sources lower than 8.500€ per year, and when there wasn’t any tax deducted on the source, and in case they received alimony income up to 4.104€. Also, if you earned income from category B (sole trader) from a unique transaction (ato isolado), this income is lower than 1.921,72€.

Do I fill a joint return with my partner or one each?

The general rule is that married couples are taxed separately, and the personal income tax due will be assessed individually. However, both married couples and living-together couples have the option to be taxed jointly. It’s essential to ask your accountant to simulate the two scenarios and see what is more advantageous.

What happens if I forget to file a return or do it incorrectly?

It’s important to be aware that the fines for non-compliance with the dates can be very high. Fines can go from 37.50€ to 112,50€ for a delay of 30 days. However, depending on the type of misconduct, mainly fraud, fines go from 375€ to 22.500€.

I’m a non-resident. Do I need to submit a return?

Are you sure that you are a non-resident? Do you have a fiscal representative? If not, where do you receive your IMI council tax bills? If you receive them at your property in Portugal, then most likely you are a resident for tax purposes in Portugal. If you are a non-resident, you will only submit an IRS return in Portugal if you have income from a Portuguese source (including property rental or property sale, even if you haven’t made a capital gain).

I sold my property in Portugal last year, but I’m a non-resident. Do I need to submit a tax declaration?

All property transactions in Portugal need to be declared, irrespective of your residency or if you made a gain or not.

What are the tax deductions in Portugal?

Tax deductions are the amount that can be “deducted” from the IRS calculated annually for each household. These deductions are made in relation to the dependents of the household and ascendants who live in common housing with the taxpayer and on the collection of invoices related to General family expenses, Health and health insurance expenses, Education and training expenses, and Property charges. Other deductions relate to alimony pensions paid, International double taxation, and disabilities of any of the members of the household.

Although all these categories fall under tax deductions, there are some categories that largely depend on the requirement for an invoice with each taxpayer’s NIF. However, please note that if you are tax-exempt due to the NHR, for instance, or if your income is taxed at a flat rate (also common with the NHR status), these deductions will not be applicable. Most of these are only applicable to incomes that are taxed at progressive tax rates.

When do I need to pay my IRS?

After submitting your tax return, the tax authorities will validate your declaration, and you will receive a tax bill in July or August by post, giving you 30 days to pay. Please note that if you intend to be away during the warmer months and don’t have a fiscal representative to receive your bills, you will incur monthly interest charges and penalties if paying out of date.

Some suggestions to make your IRS this year a stress-free task

We strongly advise our customers to prepare everything with time, to complete this process smoothly:

PASSWORD: Make sure you and your partner have a password to access the Tax Portal. If you do not have one, request a new one immediately;

COPY OF ID AND NIF: for you, your partner, and any dependents you may have;

DECLARATIONS OF INCOME: gather the statements of income and withholding taxes;

BANK ACCOUNT:  your IBAN will be necessary to include on your IRS return and will make any tax refund much quicker. This also includes the IBANs from any foreign bank accounts opened in your name.

CGT: if you have sold a property in 2023, make copies of the deeds (for purchase and for sale) and gather invoices for the real estate commission and home improvements in the last 12 years. These can be deducted against any capital gain tax.

Remember if you have a resident status but your income was earned abroad, you have to deliver along with the tax return the ‘J’ Annex which discriminates the values received ​​abroad. There are taxation agreements between Portugal and several countries to avoid double taxation, so the impact this will have on your IRS will depend on several factors. If you are registered as a non-habitual resident, don’t forget you must fill in Annex L and include the IBAN information on all your bank accounts abroad.

And remember, we can assist you with all this bureaucracy and avoid late submission fines.

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