RENTAL CONTRACT, CHANGES LINKED TO IRS

You own a accommodation in Portugal that you rent out to supplement your income. Did you know that renewals of your rental contracts will have an impact on your IRS returns?

Rental contract in Portugal and income tax

You rent a flat or house in Portugal on a long-term rental contract. You should be aware that the amount of IHT you have to pay on your rental income will change.

From 2020, your lease renewals will determine each time they take place. The rate of personal income tax (PIT). By order of the Secretary of State for Finance. This is one of the rules that the tax authorities will have to apply when assessing income tax on property under long-term leases.

The new staggered tax rate based on the length of lease contracts. It came into force in January 2019. It will now be taken into account, for the first time, in IRS 2020 returns said the newspaper Jornal de Negócios.

What are the changes

The standard rate of income tax is 28 %. It is reduced for longer-term leases (between 2 and 5 years). For those offering leases of between 5 and 10 yearsthe rate will rise to 26 %. For leases in Portugal of 10 years or more the rate will be halved, i.e. 14 %. While those over 20 years old will only pay 10 % tax.

Who can benefit from this reform

This new tax scale applies to new and renewed rental contracts in Portugal. This decision had already been approved by the government. It remains to be seen how the new rate will be determined in the case of renewals.

How does this work in practice? A six-year contract renewed for a further three years will already benefit from a rate of 23 %, and would then be entitled to a further reduction of 2 %, giving a rate of 21 %.

An initial four-year contract renewed for a further five years would pay 26 % and be entitled to a reduction of 5 %, giving a rate of 21 %.