IRS INCOME TAX RATES FOR LONG-TERM RENTALS IN PORTUGAL

by | Oct 27, 2023 | Fiscal, Mais Habitação, Owners, Rentals

Long-term Rentals Income Tax

The Mais Habitação housing law, Lei N.º 56/2023 de 6 de outubro, wrought major changes in the housing market, especially concerning Alojamento Local and long-term rentals.

One of the biggest changes is in the tax rates for individual owners (not companies) applied to long-term rentals, and we’ll detail here the appropriate rates according to the length of rental contracts.

The flat rate tax applied to rentals is called a “taxa autónoma” (autonomous tax), because it is normally taxed independently of other income. However, tax payers in Portugal do have the option to have all income taxed together (both rental and other income) according to the standard IRS progressive tax brackets. This is called “englobamento” and may be worth doing when rentals are the only source of income, or the rental income is relatively low. It is highly recommended to do a simulation of both methods first to make the best choice. 

Therefore, if the option of “englobamento” is NOT used, the IRS income tax rates, or the “taxa autónoma“, below now apply to long-term rental income according to the following contract lengths:

  • up to (but not including) 5 years: 25%
  • 5 years or more, up to (but not including) 10 years: 15%
  • 10 years or more, up to (but not including) 20 years: 10%
  • 20 years or more: 5%

Note that these discount rates will not be applied if the owner terminates the rental agreement before the agreed duration, and in this case the owner is liable to return the amount of the discounted rates with interest.

Long-term rental income for individuals is declared to the authorities by issuing official rental receipts, and is taxed at the time of the IRS income tax declaration the following year.

Deductions on these taxes include:

  • Rental insurance against non-payment by the tenant
  • Council tax (IMI)
  • Condominium fees
  • Cost of works undertaken to improve the property
  • Estate agent fees
  • Stamp tax (Imposto de Selo)
  • Municipal taxes for sewage, etc.

Note that the Mais Habitação law also implements a small discount in these rates. After deductions, an “aid coefficient” of 0.9 is applied to the rental amount that is taxable. This means that effectively the above tax rates are applied to 90% of the taxable income.