Taxation of Local Accommodation under IRS (Category B - Simplified Regime and Legal Aggravations)

Taxation of Local Accommodation (AL) in Portugal, for individuals, is mandatorily classified in Category B (business and professional income), since it is legally considered a service provision. Classification in Category F (property income) is not legally admissible. The taxpayer can choose between the Simplified Regime and Organized Accounting, with the following rules (updated by the More Housing Law):

Category B (Business and Professional Income)

• Simplified Regime (General Rule):

  If annual income does not exceed 200,000 euros, the taxpayer can opt for the simplified regime. In this case, the taxation coefficient is, as a rule, 35% (with 65% considered cost). However, the taxpayer must prove expenses of at least 15% of gross income to maintain the benefit of the 65% presumed costs rate (Art. 31, no. 13, of CIRS).

• Organized Accounting:

  For income above 200 thousand euros, it is necessary to adopt organized accounting. In this regime, all actual costs of the activity can be deducted, and taxation is based on actual profit.

• Aggravations in Pressure Zones (More Housing Law):

  The More Housing Law introduced two significant aggravations for AL in areas of high urban pressure:

  1. 50% Coefficient: The taxation coefficient increases to 50% (instead of 35%) for new licenses or licenses active more than 120 days (Art. 31, no. 9, b, of CIRS).
  2. Surtax: A 15% surtax is applied to the autonomous rate of 35% or 50% (Art. 31, no. 10, CIRS).”

Category F (Property Income) - Inapplicable

Local Accommodation (AL) cannot be classified in Category F, since, by legal requirement, the activity of providing temporary accommodation services is exclusive to Category B.

Additional Tax Obligations

• VAT:

  The local accommodation activity may be subject to VAT, depending on turnover. The VAT rate applied is 6% in mainland Portugal, 5% in Madeira, and 4% in the Azores, if there is no exemption.

• Extraordinary Contribution on Local Accommodation (CEAL):

  CEAL, which was in force previously, was revoked and extinguished by Law no. 56/2023 (More Housing), and is therefore not applicable.

In summary, AL is mandatorily taxed in Category B, and the new tax rules introduced by the More Housing Law impose a substantial aggravation of coefficients and the application of surtaxes for activities in areas of high urban pressure. It is essential to consult a specialist to ensure correct application of the rules and optimize the tax burden, given the complexity of the regime.