New rules regarding short term holiday letting ( alojamento local) are not only a setback for the holiday sector but also for other parts of the economy, as it is adding uncertainty to homeowners and prospective buyers interested in covering some of the expenses by renting out properties. This is an issue which has been highlighted by various property associations like the Association of Hospitality, Restaurant and Related Institutions of Portugal (AHRESP), Associação dos Profissionais e Empresas de Mediação Imobiliária de Portugal (APEMIP) and the
Association of Local Accommodation in Portugal (ALEP).
The Algarve remains one of the most popular holiday destinations in the world. Although only a small percentage of vacationers are home owners, the majority are either staying in hotels or private holiday accommodation. It is worth pointing out that while you are having a good time staying in your rented villa, apartment or village house, you may be putting your family at unnecessary risk. By law, all private short-term holiday accommodation needs to have a rental license also known as licença de Alojamento Local (AL). These properties pass legal and safety requirements to protect you and your family.
Although the number of licensed properties has been increasing since holiday letting portals such as Booking and AirBnb threatened to de-list properties without a license, the odds are that you may be staying in an unlicensed dwelling as out of an estimated 200,000 available accommodations in Portugal only around 25% (51.000 propertiesregistered by year end 2017: source Deloitte) are legal and registered with the correct license.
It is public knowledge that the A.L. legislation is a mess. It resembles the times long gone by, like the wild, wild west. Spaghetti westerns such as The Good, the Bad and the Ugly create an impression of the rough times with
excellent music blended in. Those were the days of God-fearing law-abiding citizens, poorly-drafted laws, weak law enforcement, all varieties of tugs and plenty of violence and gunfights.
Except for the violence and gunfights, the situation regarding short-term holiday letting offers great similarities. For excellent music, blend in some Fado. The Good in this story are the owners of AL licensed properties and their property managers who have gone out of their way to comply with an ever-changing law, arranging for the proper registration of vacationers at SEF (department of boarder control and immigration), who are paying tax over their rental income in Portugal while at the same time having to deal with unfair competition from unlicensed properties and their illegal support teams who are often paid under the table. These holiday homeowners often have gone out of their way to create a home away from home and want to share their little piece of paradise with you. You know that you are staying in a licensed property when:
– It has an AL number
– It has a complaint book, fire and
– You will receive a payment receipt (it must mention the certificate number of AT-authorized billing software); hand-written or self-made receipts are illegal.
The Bad are the politicians and law-enforcement organs. Instead of drafting a comprehensive law that is
practical, enforceable and that has the support of citizens, they have not been able to come up with one since the introduction of AL in 1997. The initial law was so poorly drafted that even if a homeowner wanted to comply, they could not obtain the mandatory rental license from the authorities. This only changed 20 years later when the law was amended with a simplified licensing process. The first licenses were issued in 2008.
Also, the lack of law enforcement is damaging to the sector and is unjust to those who are compliant. Getting away with non-compliance undermines the rule of law in general; why bother if there is only the threat of fines and no enforcement? The current fine for an individual is €4,000 and for a company €40,000. Furthermore, the tax authorities are only occasionally doing inspections. When they do, they check licensed properties and are more concerned about an owner having included in the declared rent the commission paid to the holiday letting portal. This commission can be as high as 10%. The tax revenue from AL was approximately €130 million in 2017. If half of all bookings came from portals, the shortfall of tax by not including the commission in the reported rent could be as high as €6.5 million. Whether this commission should or should not be included (as tax is paid by the portal over this amount, it would be taxed twice which seems incorrect), on paper this is a significant amount.
However, it pales in comparison by the loss of revenue from unlicensed/ untaxed properties, which amounts to a loss of around €390 million. As the tax authorities do not feel they are responsible for checking if a property is licensed, neither ASAE and nor the local council, it comes back to the government. The government could
have shown leadership with the recent change of law. However, the new legislation regarding the AL law and approved by Parliament (and effective 60 days later) passed with favourable votes from the ruling Left Bloc, the Socialist and the Communists has made it Ugly. Councils are from now on allowed to restrict the number of licenses in a neighbourhood. In addition, homeowners with a condominium can also be stopped renting out to vacationers in case a majority of neighbours are against it, for whatever reason. In addition, condominiums can also demand an additional and controversial payment of fees when a property is rented out of up to 30% to cover the increased use of communal areas by holiday makers.
Instead of a national law with clear rules and regulation, decision making has now moved to a local level where subjective reasons can and will come into the equation. Instead of unifying owners at condominium meetings, it will more likely divide them. On a more positive note, the controversial obligation to register at Segurança Social and pay social security will be scrapped starting 2019.
Also, the tourist tax will be scrapped thanks to Brussels. Cities like Lisbon, Porto and Sintra who levy €1-€2 per night will have to stop the practice. There were plans to introduce this tax in the Algarve, too. When introduced in 2014, the current Prime Minister António Costa thought this to be a good idea which could generate between €7 million and €8 million a year. One cannot stop but wonder as to why politicians and tax authorities are fixated on relatively small amounts, when the loss of revenue from undeclared rental income amounts to approximately €390 million.
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