Taxation: business vs rental income
In this series, we examine implementation issues surrounding the new Holiday Let Licensing legislation
-
Taxation: business vs rental income
-
Lawyers and contracts
-
“Simplex and property problems
-
Rental agent v property manager
As you have previously read (short term letting in 2008 – new legislation), how you set up your contracts defines the nature of your activity and how your income will be treated for tax purposes.
This is one of many reasons why clear contracts are essential to a successful and trouble-free operation. Equally important are the implications inherent in each solution. Let us examine the characteristics of each and the subsequent pros and cons to help you determine which is right for you.
Category F - Rental Income
Renting out self-catering accommodations under Category F is a ‘simple’ solution and should be relatively straightforward from a tax point of view:
Obligations:
-
No prior tax registration is required.
-
Accounting and tax reporting are relatively simple and inexpensive.
Advantages:
-
Low accounting charges.
-
Portugal offers non-residents an attractive flat tax rate (15 per cent).
-
Any taxes as well as expenses for Fiscal Representation and Property Management normally serve as tax credits or tax deductions in the home jurisdiction.
-
No special operating licence is required that might impact the Habitation Licence of your property.
Drawbacks:
-
Mortgage interest is not deductible in most cases.
-
Expenses for services such as regular maid service, food packs and owner inspections are not allowable.
-
No depreciation allowance.
-
Limited deductions.
Category B - Business Income
If you organise as a business, you face a more ‘complicated’ solution with many tax advantages yet more requirements, implying greater complexity but greater potential long-term savings.
Standard Accounting (Non-Residents: mandatory; Residents: optional)
Obligations:
-
Tax registration as a sole trader.
-
When income exceeds 10,000 euros, VAT must be charged.
-
Charted Accountant required.
Advantages:
-
Mortgage interest is deductible.
-
Many business expenses become allowable.
Contact me
191-E
rental income taxation, rental agent, property manager, portugal