In September 2024, the Local Lodging (AL) market in Portugal underwent significant changes, with the repeal of the extraordinary tax that had been applied to the sector. With the entry into force of Decree-Law 57/2024, published in the Official Gazette on September 10, some of the most contested tax measures by AL owners were withdrawn. In addition, the diploma also introduces changes in terms of IRS, which aim to facilitate the geographical mobility of taxpayers.
What Changes with the New Diploma?
The main change introduced by the new diploma is the revocation of the extraordinary contribution on Local Lodging, a measure that was initially approved by the previous Government under the More Housing program. According to the current Executive, these "penalizing" measures limited property rights and restricted private economic initiative, especially in a sector that has great relevance in the real estate market and Portuguese tourism.
Among the main changes, the following stand out:
- End of the extraordinary contribution applied to Local Accommodation establishments.
- Revocation of the age coefficient that affected the valuation of properties in AL for the calculation of IMI (Municipal Property Tax).
- Changes to the IRS that facilitate the geographic mobility of taxpayers and bring new tax deductions for owners who move to distant locations.
Extraordinary contribution: a controversial measure
The extraordinary contribution on Local Lodging, which was part of the More Housing program, has been the target of criticism since its creation. This rate, which applied to properties intended for AL, directly affected the owners of apartments or accommodation establishments integrated in autonomous fractions, located in areas of greater urban pressure. However, regions in the interior or municipalities without this type of pressure were exempt, creating an unequal scenario in the market.
With the new diploma, this contribution was revoked, alleviating the tax burden for AL owners across the country. This measure reflects an effort by the Government to create a more favorable environment for private initiative and real estate investment.
Revocation with Retroactive Effect
Although Decree-Law 57/2024 was published in September 2024, the revocation of the extraordinary contribution and the age coefficient will have retroactive effect to December 31, 2023. This means that, in practice, LA owners are no longer subject to these measures since the end of last year. However, there was a lapse in the publication of the diploma, which mentioned the date of 2024, and the Ministry of Finance has already asked for this information to be corrected.
Impact on IMI: End of the Age Coefficient
Another important change brought about by the decree-law is the end of the age coefficient, used to calculate the value of properties allocated to Local Lodging for the purposes of IMI settlement. This coefficient, which considers the age of the property to determine its taxable value, was seen as an additional way to make the operation of AL establishments more expensive, especially in urban areas.
With the repeal of the age coefficient, it is expected that the tax cost for property owners in LA will be reduced, making this business model more attractive to investors and small owners.
New IRS Rules: Facilitating Geographic Mobility
One of the most relevant novelties for taxpayers is the introduction of measures in the IRS that aim to promote geographical mobility. These changes allow the deduction of expenses related to the rental of a property for own and permanent residence, when the owner changes residence to a distance of more than 100 kilometers from the property generating property income.
This measure is seen as a way to encourage the mobility of workers, facilitating changes of residence in cases of new professional opportunities. In addition, the minimum period to own a permanent residential property, necessary to benefit from the exemption on capital gains, was reduced from 24 to 12 months, except in exceptional circumstances.
Local Accommodation: New Rules and Greater Power for Municipalities
In addition to the tax changes, the new decree-law also reinforces the power of city councils in relation to the management of Local Accommodation. The diploma allows municipalities to have the ability to put an end to AL establishments in residential buildings, based on local criteria and consultation with residents.
Condominiums also start to play a more active role. They may oppose the operation of AL establishments in their building, provided that this opposition is justified by the repeated practice of acts that disturb the normal use of the property, such as noise or nuisance to the condominium owners.
This new attribution of power to city councils and condominiums aims to strike a balance between the right to property and the well-being of residents in residential areas.
Creation of Mediators for Local Accommodation
An interesting proposal introduced by the diploma is the creation of a specific mediator for the Local Accommodation sector. This figure will have the main function of mediating conflicts between LA owners, residents and others involved, in order to reduce tensions and ensure that AL activities do not negatively affect the quality of life in urban areas.
This mediator will also play a key role in promoting good practices among AL operators, aiming to further professionalize the sector and ensure a quality service for both tourists and residents of the affected areas.
Impact for Owners and Investors
With the end of the extraordinary contribution and the introduction of more favorable tax measures, the short-term rental sector in Portugal should once again become attractive to investors and small owners. In recent years, AL has been seen as a lucrative way to monetize real estate, especially in large urban centers such as Lisbon and Porto, which attract millions of tourists annually.
However, increasing regulation of the sector, driven by housing concerns and pressure on property prices, has caused many investors to reconsider their options. The new diploma, by easing some of these restrictions, may signal a new phase of growth for Local Lodging, but with a renewed focus on balance between tourism and quality of life in cities.
Conclusion: An Important Step for the Latin American Sector
The repeal of the extraordinary contribution on Local Accommodation and the changes introduced by Decree-Law 57/2024 represent an important milestone for the real estate and tourism sector in Portugal. These measures, which bring tax relief and more regulatory clarity, allow LA owners to return to operating with greater security and predictability.
At the same time, the strengthening of the role of city councils and condominiums shows that the Government is attentive to the concerns of residents and society in general, seeking a healthy balance between economic development and the preservation of quality of life in urban areas.
If you are a property owner or are thinking of investing in the short-term rental sector, this is a crucial time to be aware of the new opportunities and challenges that the market presents. Are you interested in learning more about how you can benefit from these changes?
Contact one of our experts today and discover the best options for your real estate investment in Portugal!
