From Short-Term Rental to Long-Term Lease: Why the Switch Makes Sense in 2026

The new tax rule: 10% instead of 25–28%

Since 1 January 2026, Portugal applies a reduced IRS rate of 10% on rental income from residential leases (arrendamento habitacional) — down from the previous standard rate of 25% or 28%. The measure currently runs until the end of 2029 and is part of the government’s “Construir Portugal” (Housing Tax Package), designed to bring more properties back into the regular rental market.

To qualify for the 10% rate, a lease needs to meet a few conditions:

• Moderate rent: the monthly rent currently cannot exceed €2,300.
• Minimum term: the contract must run for at least three years.
• Genuine residential purpose: the property must serve as the tenant’s permanent home, fall under the NRAU framework, and be correctly registered as residential with the tax authority.

One important point for anyone still on the fence: Alojamento Local is explicitly excluded from this benefit. Short-term and touristic rentals continue to fall under the older, considerably higher tax regime. In other words, this reform is a clear policy signal to move properties from the tourist market into the regular housing market.

Why AL often delivers less than it appears to

At first glance, AL’s gross income looks attractive — but it’s worth looking closer.

1. The tax burden depends heavily on tax residency. Owners who are tax residents in Portugal and use the simplified regime (regime simplificado) only pay tax on 35% of their income (the rest is treated as a presumed business expense). At a rate of 28%, that works out to an effective tax burden of roughly 9.8% — on paper, similar to the new long-term rental rate. Owners who are tax resident abroad, however, typically don’t benefit from this reduction to the same extent in practice, and tend to be taxed closer to the full 25–28% rate.

2. Full-service agencies come at a real cost. Anyone who isn’t based locally — which describes most foreign owners — can rarely avoid a management agency. Guest communication, check-in, turnover cleaning and upkeep are usually handled by full-service providers in Portugal for 25 to 30% of gross income. On top of that, owners frequently cover cleaning supplies, linen, furniture wear, municipal charges such as the tourist tax (currently €3 per night in Porto), and insurance separately.

3. The market currently sits at an all-time high. Tourist demand in Portugal — and in Porto in particular — is currently running at record levels, with occupancy rates of around 79–82% in the main cities. Historically, booms like this rarely last indefinitely. A normalisation of 20 to 30% fewer bookings — whether driven by new regulation, changing travel habits, or simple market saturation — would hit AL income hard, while fixed costs (agency fees, upkeep, licensing) largely remain in place.

This is exactly where long-term rental in Portugal has its real advantage: stability. A three-year lease with a reliable tenant means predictable income, no vacancy risk, no ongoing cleaning logistics, and no dependence on booking platforms.

Business case: a T2 apartment in Porto, compared

To make the numbers concrete, let’s work through a realistic example: a T2 apartment (2 bedrooms) in Porto, around 75–80 m², in a solid but non-premium location. All figures are illustrative averages based on current market data (as of mid-2026) and are meant as orientation — actual returns depend heavily on the specific property’s location, condition and finish.

Purchase price: approx. €280,000 (based on a price of roughly €3,700–3,800/m² for T2 apartments in Porto, which can be higher or lower depending on the neighbourhood)

Scenario 1: Short-term rental (AL) — current market peak

Scenario 2: Short-term rental (AL) — after market normalisation (–25% bookings)

Scenario 3: Regular long-term rental (new 10% rule)

Scenario 4: Short-term rental (AL) — non-resident owner, tax on full income (28%)

Many foreign owners don’t benefit from the simplified regime’s 35% coefficient the same way resident owners do, and in practice end up taxed closer to the full rate on their AL income. Using the same current-peak occupancy as Scenario 1:

What the numbers show

In today’s market boom, AL still comes out ahead — the gap to long-term rental is around €3,000 per year. But once the market normalises, the picture flips: long-term rental delivers a more stable and, in relative terms, slightly higher net result — with considerably less effort, no seasonal swings, no round-the-clock guest communication, and no risk of empty weeks during low season.

There’s also a factor that no table can fully capture: three years of planning certainty, a single tenant instead of a constant stream of guests, and noticeably less wear on the property. For owners who don’t want their apartment to become a full-time job, that’s an argument that carries more weight than a few percentage points of return during a boom year.

Note: This calculation is for illustrative purposes only and does not replace individual tax advice. The exact tax burden depends on personal tax status, deductible expenses, and the specific terms of the lease — we recommend clarifying this with a licensed Portuguese accountant (contabilista).

The switch is worth it — and we’re here to help

Switching from AL to a regular long-term lease is administratively manageable, but there are a few things to get right: correctly registering the lease with the tax authority, staying within the rent cap for the 10% rate, finding a reliable tenant, and drafting a legally sound contract under Portuguese tenancy law.

Pearls of Portugal supports owners in Porto and across Portugal through exactly this process — from an initial assessment of whether switching makes sense for your property, through tenant sourcing, to ongoing management of the lease. If you’d like to know how your own apartment compares — AL vs. long-term rental — get in touch, and we’ll be happy to put together an individual calculation for you.