How Mais Habitação Could Affect VAT for AL Investors

by | Sep 7, 2023 | Alojamento Local, Fiscal, Mais Habitação, Owners

The following article explains, in Portuguese, how professional investors in AL could be negatively affected in terms of VAT by the Mais Habitação package, if finally passed in its current form.

An investor with a company (or a VAT registered sole trader) could have renovated one or more properties and benefited from the VAT reverse charge mechanism implemented by construction contractors.

To explain: normally, VAT is charged by the supplier, who has to pay this amount to the state, and the client/investor pays the invoice with VAT included and then deducts that amount from their VAT bill owed to the state, meaning the net gain or loss for the state is zero.

The reverse charge mechanism cuts out the bureaucracy and allows the supplier to invoice without including the VAT amount, as long as reverse charge is indicated, meaning the client pays a lower total and improves their cash flow situation. The VAT is charged and paid in the same act in a simple accounting transaction.

However, to benefit from this situation, the client must maintain a VAT-registered activity (such as AL) for 20 years, otherwise they have to pay the VAT that *would have been* charged by tye supplier.

Now, imagine if the new Mais Habitação program comes into effect and the investor is refused an AL licence, or has the licence revoked in 2030 when it comes up for renewal. They could be obliged to sell the property or place it on the rental market – both of which are VAT-exempt activities – instead of doing AL. In this situation, the state will ask for the VAT that wasn’t paid during the construction, either the full amount in the case of an immediate change of activity, or the proportional amount in the case of changing activity in 2030 – if 7 years have passed, it would be 13/20ths of the full amount.

This situation could already be making investors rethink their strategies, or could be a big financial blow in the future.