Guide to Renting Out Property in Lisbon

Buying a property in Lisbon is not only a fantastic lifestyle investment, but it is also a great opportunity for generating rental income. Our 2024 guide to renting out a property in Lisbon explains how to rent your home, the taxes to be paid, key considerations and how our rental management services at Athena Advisers can help you navigate the Lisbon rental market.

TYPES OF RENTALS IN LISBON

When choosing how you want to rent out your property in Lisbon, you will need to think about how you personally plan on using the residence. Do you want to use your apartment for part of the year and want to generate additional income? Or are you looking for a long-term investment with more stability? If you are considering renting your property out on a short-term basis, you will need to make sure that short-term rentals are allowed in your district.

Short-term rentals

Ranging anywhere from one day through to a year, short-term rentals require owners to have a short-term licence which is also called an AL licence. However, these rentals are heavily restricted throughout the capital.

Mid-term rentals

Bridging the gap between long-term and short-term, mid-term rentals cover between 30 days and one year. Unlike short-term rentals, the owner does not need to have an AL licence and mid-term rentals are covered by the same rental rules in Portugal as long-term rentals.

Long-term rentals

Covering reservations in excess of one year, these rentals do not need an AL licence.

PAYING TAX ON RENTAL INCOME IN PORTUGAL

The amount of total income tax (also called IRS) on rental income will vary according to whether or not the owner is a tax resident in Portugal and the rental basis. Below we have given an indication of the taxes homeowners may pay.

Short-term rentals

• Tax residents in Portugal: IRS up to 16.8% (or 24% in a restricted area)
• Non-residents in Portugal: IRS is fixed at 8.75% of the total income (if within restriction in a restricted area)

For both, VAT is charged at 6%, only for the nightly rate of each booking, which means that homeowners that have a licence under their name will invariably have a VAT credit which, under certain conditions, can be claimed back. It is possible to deduct the direct costs of some rental expenses such as electricity, water, internet, rental management, cleaning, etc.

Long-term rentals

• Residents: IRS up to 28%*
• Non-residents: flat 28% IRS rate

VAT is charged at a flat rate of 23%, regardless of whether or not the owner is a tax resident.

*The tax is covered by the total amount of the rents received deducting IMI, Multi-Risk Insurance, Conservation Maintenance works, Condominium/Maintenance, Stamp Duty.

Mid-term rentals

If the owner has a short-term licence, they will have the same tax rates as short-term rentals which have been outlined above. However, if they do not have an AL licence, they will need to pay tax according to long-term rental regulations.

SHORT-TERM LETS IN LISBON

What is an AL Licence?

Short for Alojamento Local, an AL licence is a tourist rental licence which applies to small rental properties such as apartments and villas. The main differences between a traditional rental property and a property with an AL licence are the rules and a residence with an AL licence must be furnished as these accommodations predominantly cater to tourists.

Short-term rentals also have additional legal obligations such as: communicating to SEF, payment of Tourist Tax, equipping the residence with health and safety items (fire extinguisher, AL sign, fire blanket, complaints book, house manual in four different languages), acquiring an AL licence, furnishing the property and ensuring that all utilities are set up (water, electricity and Wi-Fi).

How to get an AL licence in Portugal

When the short-term is registered in the name of the homeowner, the homeowner needs to invoice their short-term rental services directly to the Guest, with their rental management service invoicing the commission to the homeowner and paying the homeowner rental revenue.

When the licence is registered on behalf of the Homeowner, is necessary to:

Individual homeowner: Open activity with the Tax Authority with CAE 55201, in Category B. Depending on its framework and understanding of the best tax option, it may or not be exempt from VAT. Given the nature of the short-term service, the same is not applicable to Withholding tax.

Company Owner: Must have short-term rental activity defined in the Social Object and activate the CAE 55201 with the TA, always being subject to VAT and not applying Withholding tax.

There is a possibility to register the licence number under the rental management company’s name. We offer this service at Athena Advisers for a fee. The advantage of this is that if you sell on the property in the future and the district no longer grants AL licences, the future owner will still be able to rent out the property on a short-term basis. This will make your property look more attractive when it comes to reselling too.

How much does it cost to rent out your property in Portugal on a short-term basis?

Within the short-term market, there are some costs to consider:

• Insurance (mandatory for AL licence) – Annual Fee
• Utilities (water, electricity and wi-fi) – Monthly Fee
• Accountant/Lawyer fees: Monthly or Adhoc recurring fee
• Condominium costs – Usually quarterly
• Property taxes + income tax – Ongoing fee
• Rental management costs – Ongoing fee

If signing with Athena Advisers, you may select from a menu of services including AL registration, utility set-up, a professional photo shoot, a photoshoot stylist and more.

What happens if my property is still under construction and the zone is about to become a restricted AL area?

You can register a licence under a company’s name, which means that the new homeowner will be able to still operate short-term rentals if you decide to sell in the future. This will make your resale more competitive in the Lisbon property market too. At Athena Advisers, we can help you out with the process of registering a new licence.

PREPARING YOUR PROPERTY FOR RENTALS

One point we would consider to be important is to not over decorate. Each property should have some personality and charm, not to mention good quality furnishings, but offering a home brimming with personal items may not be suitable for the rental market. If you need help finding an interior designer, please do not hesitate to get in touch. Our rental management team can put you in touch with a creative, reliable designer from our little black book.

Short-Term

For this type of rental, we have more flexibility to design a statement wall with funky wallpaper or have an eye-catching patterned armchair because we want people to experience the house as part of their travel, though that’s not to say it can’t also be simple. Keep the items easy to clean and handle, but don’t be afraid to create a unique space – use colours and display statement items rather than small or delicate items that can easily break. Just opt for a few large decor pieces, such as XL jars with some twigs and leaves, or a stand-out piece of furniture. These unique pieces will enhance your property’s image and offer guests something to remember, prompting them to leave rave reviews after their stay.

Mid-Term

Most of the people that are looking for this type of rental, may need a comfortable place to work so it is highly recommended to have comfortable desk space. In terms of decoration, it is good that the property is decorated but more subtly. Think as it should be comfortable to live in, having all essential items, but should not be decorated with your personal stamp.

Long-term

When designing for rental, we should bear in mind that long-term renters will personalise the spaces to make them their own. That being said, furnishes and decor should be kept simple.

Functionality

Another important factor is practicality. We need to have the big picture in mind and not design a space just for ourselves. Properties need to be prepared to accommodate any person and host a group of friends for dinner, or family with young children, so it has to be practical, functional and ergonomic. Offer single beds which can be combined into a double for maximum flexibility, consider storing extra foldable seats in a cabinet and have a couple of blankets in a basket on the balcony, as well as a side table big enough for someone to place their laptop to work on.

Athena Advisers can help you out in all types of rentals – short, mid or long. Since the very beginning when you buy the property, we can help you out with the process of deciding the best interior designer, setting up utilities, making sure we have all keys to facilitate our daily-operations. Whenever your property is ready to receive guests, we will be welcoming them and make sure we are available from the moment that they are interested in booking your property.

We offer various service packages for you to choose from, whether it’s being your “boots on the ground” to take care of anything from acquiring an AL licence to optimising the online commercialisation of your home.

** All the above information should be validated and explained in detail, and personalized to each case, considering the reality of each Owner. Athena Advisers offer broad advice, but each Homeowner should validate with an Accountant