Alternatives to holiday let licensing -
Articles as appeared in Algarve Resident during month of June 2007
Ways of keeping your habitation licence
THIS SPRING, for the third consecutive year, inspectors from Autoridade de Segurança Alimentar e Económica (ASAE) have fined agents and owners for holiday let related activities.
The licensing issue continues to generate controversy and confusion, among owners wanting to rent their properties to holidaymakers and agents wishing to serve this growing need.
Yet most people fail to grasp that the essence of the dispute lies in the type of property usage registration, rather than the actual licensing of the activity itself. The central issue in question is as follows. Is the property registered and authorised for residential (habitation) or commercial purposes (tourism)?
It should come as no surprise that in a country such as Portugal, tourist related activities are normally seen as commercial in nature, particularly when part of a tourist development. In a holiday complex with beach, golf, tennis, and swimming pools surrounded by a hotel, townhouses, apartments and villas, each of these accommodation options has an identical commercial purpose: tourism.
On the other hand, a housing development (urbanização) with a clearly stated purpose of providing living quarters for its residents may also have designated commercial areas for shops, restaurants or cafés.
Nevertheless, the dwellings of the development are clearly zoned as residential and non-permanent inhabitants, such as holidaymakers, are by no means excluded from being considered part-time residents, however short their stay might be.
Options
For a property to be required to have a specific licence when letting to tourists, it must be considered part of a tourist development (empreendimento turístico) and deemed to be a complementary element to tourist lodging, engaged in the activity of providing tourist lodging services as defined in the legislation.
Outside of these parameters, lets to holidaymakers fall under the general renting law (Regime de Arrendamento Urbano – RAU) and follow basic norms of standard rental activities, with the notable exception that no minimum rental period is stipulated in the legislation, nor is a written contract required when lets are for less than six months.
If your letting is more commercial in nature rather than residential, a third option may be appropriate: hospedagem (guest house). In this case, you may need this property licence, which permits both private use as well as commercial tourist lets. The type of property licence is defined in local câmara legislation and will vary from township to township.
None of these three options fully address the actual activity practised by most owners, which is letting self-catering villas and apartments. Given this basic inadequacy in the legislation, it should not come as a surprise that ASAE inspectors have their own narrow reading of legislation, which often disregards the fundamental aspects of the law. It also confuses central licensing issues and the economic activity that they are allegedly trying to regulate. Therein lays the controversy.
However, if owners are guilty of other flagrant compliance violations, such as no Portuguese income tax declaration, IRS, as is sometimes the case, agents and owners may have difficulty mounting a proper defence and refuting the possible misinterpretation of the statutes.
This is the second in a four part series examining different alternatives to Holiday Let Licensing:
1) Keeping your Habitation Licence
2) Organising under “RAU”
3) Hospedagem - the Hybrid Solution
4) Compliance - Getting it Right
ASSUMING you are not part of a Tourist Development (Empreendimento Turístico), let us examine some of the key elements that will assure that your holiday lets will be seen under the rules of the Novo Regime de Arrendamento Urbano.
1) Clarity
Stating your purpose and intentions to potential clients allows you to define what you are doing rather leaving it to others to interpret your activity. In a statement of agreed Terms and Conditions for any lets, it is essential to be explicit regarding which legislation should apply. Likewise, direct reference to statutes should be made on all invoices. Finally, on internet listings, you should have a disclaimer in Portuguese as well as in English to clarify the intended statutory purpose of the listings.
2) Compliance
From a tax point of view, it is essential that the activity fulfills all fiscal requirements, both for property owners as well as any agents involved with the activity. For agents, this means having their business organised on a fully compliant basis. The non-resident owner must have proper fiscal representation as well as file annually an IRS Income Tax Declaration, Modelo 3 and Annex F. Resident owners may report either as a “rental activity” (Category F) or as a “business” (Category B) as a sole trader under the Simplified Regime. The latter has surprisingly favourable tax treatment.
Non-residents need to have a fiscal representative. While easy and painless, it could easily turn into a high risk area if left neglected. Here are three sound reasons why fiscal representation is a must.
a) Legislation
Portuguese Law requires a fiscal representative to meet all accessory tax compliance obligations for the non-resident taxpayer owning property or with income arising in Portugal. Do you have a good reason why not to obey the Law?
b) Nil cost
All taxes paid in Portugal as well as necessary expenses for fiscal representation will serve as either tax credits or deductions in your home jurisdiction. As a result, these fees and costs should be a nil expense at the end of the day.
c) Access to information
Portugal is a difficult country to find sources of reliable, accurate information. Your fiscal representative should be your link to sound information, not only about tax and legal matters but also about how things work in a strange country, putting things across to you in plain English.
Without a qualified fiscal representative, you may be placing your valuable investment in jeopardy and, at the same time, miss out on an invaluable ally to make the most of your life in Portugal.
3) Common Sense
One of the legitimate concerns behind the holiday let controversy is the need to assure the safety and quality of offerings to holidaymakers. The table is a summary of the basic criteria required for guesthouses (Hospedagem) in the Council of Albufeira and is similar in nature to standards in other councils throughout Portugal. Common sense dictates that any offering should at least meet this very basic benchmark.
By customising these three “C’s” to your individual situation, we can help protect you with enhanced Double Shield Representation. Working in conjunction with Portuguese lawyers experienced in this field, our enhanced plan offers you both fiscal representation to meet all of your tax compliance requirements and access to capable legal counsel to assure a protective shield around your rental activity via correct contracts, proper forms, comprehensive Terms and Conditions and Disclaimers.
In the event of an inspection, we can orchestrate a proper defence to avoid fines and avert the inappropriate application of legislation by over-eager inspectors.
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