Holiday lets, from registration to sale

Two registrations, not one

The first is with the municipality: a local accommodation licence, known by its Portuguese initials AL, for the property itself. Councils have their own rules and some areas restrict new licences.

The second is with the tax authority: the opening of an activity, in the owner’s name. This is the one owners most often discover late, usually because the first guest has already been and gone.

The choice made at the start, and why it is usually an easy one

At registration you choose how the income will be taxed. Under the simplified regime, a fixed proportion of what you invoice is treated as taxable and the rest is treated as covering your costs, whatever they actually were. Under organised accounts, real income and real costs are used, and formal accounts are kept.

For holiday letting, the simplified regime treats 35% of your income as taxable. The other 65% is presumed to be the cost of earning it, and no receipts are needed to justify that.

A non-resident pays 25% on the taxable part. Multiply the two and you have the number that actually matters, which is what the letting costs you in tax as a share of everything you invoice.

In the first two years of activity the taxable proportion is reduced further — by half in the first year, by a quarter in the second — which lowers it again at exactly the point when a new letting is least profitable.

On €30,000 of letting income in a settled year, that is €10,500 taxable and €2,625 of tax. In the first year of activity, the same €30,000 produces €1,312.50.

Which is why organised accounts rarely wins

Organised accounts taxes your real profit at the same 25%. So it only produces a better result than the simplified regime when your genuine, documented costs come to more than 65% of everything you invoice.

On €30,000 of income, that means costs above €19,500 before organised accounts begins to pay — and costs that high are usually a sign that the letting is not working, not that the regime is.

There are properties where it happens: heavy finance costs, a major renovation, a management contract that takes a large share. They are the exception. For most non-resident owners of one or two apartments, the simplified regime is both cheaper and considerably less work — and the 65% it presumes is more generous than the costs they actually have.

VAT, and the rule that caught non-residents

Holiday letting is subject to VAT. Small operators have long been able to rely on an exemption below an annual turnover threshold — but since July 2025 that exemption is not available to anyone without a seat or tax domicile in Portugal.

For a non-resident owner with a single apartment, that means VAT applies from the first euro: charged on the letting, declared periodically, with registration to match. It also means VAT on the costs of the activity becomes recoverable, which softens the blow and is worth calculating rather than assuming.

Putting the property in, and taking it out again

A property used for holiday letting is, in tax terms, moved into the activity and — one day — moved back out of it. Those two moments have consequences of their own, separate from the sale.

The moment that matters most is the second one. Where a property is taken out of the letting activity and placed into residential letting instead, the gain arising on that step is not taxed. It is one of the few places in Portuguese property tax where the order in which you do things changes the answer completely, and it is entirely within the owner’s control.

Which makes the sequence worth planning. An owner who intends to stop holiday letting, and who would in any case consider a longer tenancy, is in a materially different position from one who simply closes the activity and puts the property on the market — and the difference is decided in the year before the sale, not in the week of it.

And at the end

A property that has been used in a business activity is not in the same position, at sale, as one that has only ever been a holiday home. The treatment depends on how and when the activity was closed relative to the sale.

Which is the argument for taking advice before closing the activity, rather than after the property is on the market.