Airbnb in Portugal:
A Timed (Tax) Bomb
Short-term rentals in Portugal have become an attractive investment, with many property owners leveraging platforms like Airbnb to generate income. However, what many don’t realize is that operating an Alojamento Local (AL) under personal ownership can create significant tax consequences—particularly when the time comes to sell the property.
The Hidden Tax Risk
In Portugal, if a property is used for an AL business under personal ownership, it is considered a business asset rather than a private investment. As a result, upon sale, the gain is taxed as business income rather than a capital gain.
The key difference?
Capital gains tax (CGT) benefits from a 50% exemption, meaning only half of the gain is subject to tax.Business income tax applies to 95% of the gain, leading to a much higher tax burden.
The "Three-Year Rule"
There is a potential way to mitigate this issue: if the AL activity is terminated at least three years before the sale, the property can regain its private asset status, making it eligible for the more favorable capital gains tax treatment. However, this requires careful planning and may not be practical for many investors who wish to continue generating rental income.Strategic AlternativesTo avoid this tax pitfall, investors should consider structuring their rental business differently:
1 Lend the Property to a Company: Instead of running the AL activity personally, the owner can lease the property to a company that manages the rental business. This way, the asset remains a private investment.
2 Acquire the Property Through a Company: If purchasing a new property for short-term rentals, acquiring it through a corporate structure can offer more tax-efficient options when exiting the investment.
Key Takeaway
While short-term rentals can be highly profitable, failing to structure the business correctly may lead to unexpected tax liabilities. Investors should carefully assess their options and, where necessary, seek professional advice to optimize their tax position before committing to an Airbnb business in Portugal.
Have you considered the tax implications of your short-term rental business? Let’s discuss.
