Portuguese Prowess

Tax Incentives

The government has created tax incentives for landlords to optimise the letting market by reducing the personal income tax rate applicable for long-term rental contracts: the longer the contract, the lower the tax on rental income (between 25% and 5%). In addition, capital gains will be exempted for those (1) selling real estate to the State and Municipalities, and also (2) selling secondary housing and applying the sales proceedings reedemable against an existing mortgage on a taxpayers’ or descendants’ primary residence. There are also new tax incentives, such as a VAT reduction on construction projects, property transfer tax, annual property tax and rental income tax exemption.

Short-Term Rental Scheme

In this sector, the plan is to balance the need for increased housing with short-term rental demand, which contributes significantly to the Portuguese tourism industry. An extra tax contribution will now therefore be payable by property owners conducting short-term rentals in sought-after regions. Also, municipalities will have the right to suspend the issue of new short-term rental licenses in relation to apartments in high demographic areas (except from the Azores and Madeira). By contrast, villa licences for short- term rentals will continue, which is still a good opportunity for those who already have or wish to start a new rental business and invest in a higher value property.