Holiday Lettings · Practical Guide
What you need to know
about your Holiday Let.
Holiday lettings (Alojamento Local, or AL) are a vital part of tourism in Portugal. But running one without surprises requires a solid understanding of the key tax and accounting rules. This practical guide covers everything you need to know about declaring income, issuing invoices and staying compliant.
Types of Holiday Letting
The legal framework for holiday lettings is set out in Decree-Law No. 128/2014, of 29 August, with several subsequent amendments. Registration in the National Holiday Letting Register (RNAL) is mandatory before starting the activity. Portuguese law defines four types of AL:
- Villa (Moradia)
- Apartment
- Hostel (Estabelecimento de hospedagem)
- Rooms (in the owner's own home)
Knowing the correct type matters, as it affects how income is taxed and how accounts must be kept.
IRS: how is income taxed?
Holiday letting income falls under Category B of IRS (personal income tax), as it involves the provision of services. Tax is not applied to total revenue but to a percentage defined by coefficients:
| Property Type | IRS Coefficient |
|---|---|
| Hostels and Rooms | 15% |
| Villas and Apartments | 35% |
| Villas/apartments in Containment Areas | 50% |
In the first two years of activity, these coefficients may be lower under certain conditions.
Organised Accounting
With organised accounting, IRS is applied to the actual profit of the activity:
Revenue – Deductible Expenses = Taxable Profit
This is the most advantageous option for owners with significant expenses, renovation costs or investments. It is mandatory when revenue exceeds €200,000 for two consecutive years or €250,000 in a single year.
When is income taxed?
One of the most confusing aspects of holiday lettings is knowing when income is recognised for tax purposes.
IRS is not based on the payment date or the invoice date, but on the moment when the obligation to issue an invoice arises.
Practical examples:
- If a stay ends on 20 December, the income belongs to that tax year, even if payment arrives later.
- If a guest pays before the stay, the income is recognised on the date of payment.
This rule ensures IRS and VAT follow the same principle: the moment the service is provided.
VAT: what you need to know
Reduced rate
Accommodation (the core service) is subject to VAT at the reduced rate of 6% (4% in Madeira and the Azores). Additional services such as breakfast, transfers or extra cleaning are subject to the standard rate of 23% (22% in Madeira; 16% in the Azores).
Standard Regime vs Article 53
- Standard regime: you charge VAT and can reclaim VAT on your expenses.
- Article 53 exemption: applies when annual turnover is below €15,000. No VAT is charged or reclaimed.
Platforms such as Airbnb and Booking
A common misconception is that the platform issues the invoice to the guest. In Portugal, this is not the case:
It is the property owner who must invoice the guest for the full amount of the stay.
The platform (Airbnb, Booking, etc.) issues its own invoice for its commission and transfers the booking amount with that commission already deducted.
Additional obligations to be aware of:
- If the platform is a foreign entity, you may need to self-assess VAT on its commission.
- Commissions may need to be reported in Form 30 (Modelo 30).
- Registration in the VIES (EU VAT information exchange system) may be required.
Tourist Tax (Taxa Municipal Turística)
Several municipalities require AL operators to collect the tourist tax per night per guest. Key points:
- The tourist tax is not your income and must be remitted to the local council.
- It is not subject to IRS or VAT.
- It must be invoiced separately from the accommodation charge.
- In the accounts, it is recorded solely as an amount payable to the municipality.
Social Security
In some cases, holiday letting operators may be exempt from Social Security contributions, particularly where the property is the owner's primary residence, the activity is not the main source of income and no complex services are provided (no employees, no regular additional services).
Exemption depends very much on each individual situation. Always confirm with your accountant before assuming you are exempt from Social Security contributions.
The Importance of Accounting
Even under the simplified regime, accounting is essential and must follow the rules of the SNC (Portuguese Accounting Standards System), accurately reflect the operation (guests, services, platforms) and ensure consistency between IRS, VAT and tax returns.
Regular accounting support is not optional, it is strategic. It prevents discrepancies, penalties and issues with the Tax Authority.
Arco Fiscal specialises in holiday lettings for non-residents in Madeira. We handle all the tax and accounting for your property so you can focus on your guests. Get in touch.