Many owners are completely unaware of the correct way to register and return a security deposit for a long-term rental. Many simply accept the stipulated amount without issuing a receipt, and return the amount at the end of rental, again without declaring the payment properly.
The Tax Authorities in Portugal consider the amount received as a deposit as property income (rendimentos prediais) and therefore, when a deposit is paid, a rental receipt should be issued for the corresponding amount. An example of this rental receipt, issued on the Finanças portal, can be seen in the image above. It is basically the same as a normal rental receipt, but note that instead of “Renda“, the option for Caução“, or deposit, is chosen. This is then classified as earnings and should be declared in Annex F in the IRS income tax declaration the year following the one when the money was received.
You’re probably now asking yourself, so does that mean I’m taxed on that income? Even though it is just a deposit and I’ll probably be returning the money to the tenant? Yes, it means exactly that, you’ll be taxed on this income. However, the tax will be returned when the deposit is returned, and we’ll explain how below.
When the deposit is returned, the tenant should sign and date a document saying that they have received the deposit correctly, and the owner then uses this document on Annex F of the IRS declaration the following year, to prove that there was a “gasto suportado e pago” (cost incurred and paid), which will then be deducted from the taxable amount for rental earnings.
This is been confirmed in an official, and binding, note from the fiscal authorities (Processo: 2729/2018), with the following phrase (Item 3 in the note):
“No caso de uma devolução da caução ao locatário, deverá ser emitido um documento comprovativo, pelo montante devolvido, o qual poderá ser inscrito como gasto suportado e pago, para o locador/senhorio, no anexo F da declaração modelo 3 do ano em que ocorreu a devolução.“