If you purchase a house in Portugal that you’re not going to use as your main residency, at least not in the short term, you may want to grab the chance of getting a return on your investment by renting it out to tourists. This activity is called in Portugal “alojamento local”.
Portugal is one of the most sought-after tourism destinations in Europe, generating many business opportunities. Its diversified landscape ranges from the mountainous north to the warm, plain south lined with long golden beaches in the Algarve and includes the paradisiac, unspoiled islands of the Azores archipelago and the sunny, colorful Madeira islands. In its cities, among the safest to visit, tourists can feel the Portuguese genuine hospitality and experience the taste of delicious gastronomy and surprisingly unique wines.
An important information upfront. The Supreme Court of Justice (STJ) ruled in April 2022 that multi-family houses can not have alojamento local (local accommodation), which could lead to the disappearance of part of the existing activity. There is also doubt whether the local authorities will continue to be able to grant new residential building permits in buildings where the building title is that of a permanent dwelling.
From now on, according to the ruling, any condominium owner can demand an end to this type of activity in the building where he or she lives, regardless of whether the local accommodation has been operating for years. It is expected that there will be many lawsuits requesting the illegality of the practice in so-called horizontal properties (multi-family homes) and the Government is already analyzing the impact of this ruling in the sector as the current laws are not clear and there is a need for clarification. So if you are considering buying a single apartment for alojamento local purposes you should check the condominium ruling as well as the local city hall practice in passing out new licenses.
Alojamento Local or AL (that translates literally to “Local Accommodation”) establishments in Portugal are those that provide temporary accommodation services, namely to tourists, for remuneration, as long as they don’t meet the requirements to be considered tourist resorts. In simple terms, it corresponds to the commercial use of a small property for short-term rentals to tourists, mostly by people natural to the region.
When you purchase a property in Portugal in order to rent it to tourists, there are many options, as tourism is well established in most parts of the country. The Atlantic coast, Porto, Lisbon, or the Algarve are always good choices.
In order to get a better feeling for the entire country, we analyzed current offers for short-term renting on platforms like Airbnb, Booking, etc. We did not analyze hotel capacities and ratings. The analysis took two factors into consideration:
The hypothesis behind the second factor is that the actual number of bookings correlates with the number of ratings. Almost half (47 percent) of all internet users worldwide say they post reviews about a product, company, or service each month (GlobalWebIndex, 2019). We created a matrix based on the BCG concept with 9 fields. Each factor was separated into 3 sections based on statistical cut-off points.
We believe the matrix is a good tool to help evaluate areas that are strong in demand and supply of short-term offers, as well as identifying areas that have demand but are still less developed in offers. The analysis is backward-oriented as the offers are already on the market and the ratings have been done. Demand and supply could change in all areas, which is the information we will also include in the upcoming works.
If you have any questions, doubts, or remarks please let us know. Please note that the matrix is a part of the full picture and should not be considered the only source of information. We always recommend a more detailed analysis of the market before you make an investment decision. We are happy to help in this step as well.
With this dynamic map, we provide you with an overview of how all the areas in Portugal rate when it comes to lucrative rentals. This is to say, we measure the most sought-after destinations, as well as the least explored areas, where you can find a high supply of rental properties and where to find a low supply.
What’s the point? Well, every year Portugal receives a lot of tourists looking for local accommodation or specific short-term rentals. The search tends to be around the biggest cities, where the supply of property and accommodation is higher. There has been a strong increase in the search for rentals in the countryside or inland, where the supply of properties is still lower.
So, depending on your goal, there’s a lot of room to invest here. If you hover over Lisbon, you’ll notice it’s colored in dark blue, which signals that the city has both a high demand for rentals and a high supply of rental properties. On the other hand, if you hover over Miranda do Douro (North of Portugal) you’ll notice the lightest blue, which means the area has both low supply and demand when it comes to renting.
Tourists coming to Portugal choose a specific type of AL to be accommodated in depending on their vacation goals: it might be the destination as a whole, the proximity to the historic center and most appetizing restaurants and foodie spots, a comfortable and spacious place to stay, services and amenities or privacy, among other things. Portuguese offer is vast and contemplates all sorts of needs and tastes.
The AL establishments are categorized according to the types of units of accommodation and include:
AL establishments may have a maximum capacity of 9 rooms and 30 users, with the exception of hostels, which have no capacity limit, and rooms, that can only be 3 in the owner’s residence.
Under the AL apartment modality, each owner or alojamento local operation holder may operate more than 9 units per building if they do not exceed 75% of the number of its existing fractions or independent parts
For the purpose of calculating the number of units, apartments registered in the name of the spouse, descendants, and ascendants of the owner or operation holder are considered, as well as those registered in the name of different legal entities, where there are common shareholders.
Once you have concluded your initial research, you will have a general idea of the price to charge for your alojamento local. The value you establish should take into account two important factors:
Calculate an average price per night that takes into account fixed costs. Setting up a pricing strategy assures your alojamento local won’t be out on the market at a rate that’s lower than it should.
Establish which will be the high and the low season, according to the calendar and the demand for your specific alojamento local location characteristics (for instance, in the mountains of Serra da Estrela, winter is considered a high season because Serra is a snow destination). Don’t forget to check out all the festive days and holidays, not only in Portugal but also in your international client’s country of origin. Adjust your rates according to these factors.
Step1: Confirm if the building/house is in an AL authorized zone
While AL has benefited Portugal by boosting the renovation of the historical center of the cities, it has also contributed to pushing away many of the inhabitants of the traditional neighborhood to the outskirts in order to replace traditional rented houses for alojamento local accommodations.
To preserve the social reality of the neighborhoods and favor affordable rent and neighborhood commerce, Portuguese municipalities can define containment zones (zonas de contenção), which are all those that exceed 25% of the available housing allocated to alojamento local. There are also temporary suspension zones for areas between 10% and 20% of the available housing related to this activity.
In these zones a limit is set on the number of alojamento local establishments – a single owner can only operate a maximum of 7 lodgings and the corresponding licenses are personal and non-transferable.
There are also forbidden areas, meaning that certain neighborhoods are not granting any more licenses for new alojamento local businesses. If your goal is to buy a house in Portugal in order to set up an AL, you really must go to the City Hall to check the license granting situation.
Step 2: Know that the condominium board has decision-making power
If you want to open a hostel AL in a building on horizontal property with autonomous fractions, with several owners, you can only do so with the authorization of the other condominium owners. Due to the recent court ruling in 2022 you should also ask the city hall if they pass an AL license for the respective apartment. However, if more than half of the condominium owners (taking into account the per mileage) oppose the accommodation, it will be closed even later on. This can happen if there is proof of “repeated and proven practice of acts that disturb the normal use of the building, as well as acts that cause nuisance and affect the rest of the condominium” to the municipal council.
After having obtained your Portuguese tax identification number (NIF), you have to go to the Portuguese Tax and Customs Authority (AT) portal or to a tax office to declare the opening of your activity as an independent contractor (Atividade Independente). Although you can do that online, we recommend registering on-site, as the online process isn’t that simple and most probably you’ll have doubts that can be answered on-site.
You have two options regarding your income declarations and taxation:
Depending on your specific situation, the best option may not be obvious. We suggest seeking professionAL advice from an accountant for this decision since it will have an impact on your finances.
Step 4: Register the alojamento local
The registration of alojamento local establishments is a necessary and compulsory condition for their operation. The registry process starts with prior communication with a deadline addressed to the mayor of the municipality in which administrative area your alojamento local is located.
This prior notice must include information such as the valid title of use of the property, the name adopted by the alojamento local establishment, its modality, and the capacity of rooms, beds, and users. It has to include several documents, among which are a term of responsibility, copies of the urban land register, copies of the declaration of commencement of activity of the holder, and minutes of the assembly of condominium owners testifying that they authorize the installation (for hostels).
You can proceed to the registry by accessing the Balcão do Empreendedor (BdE – meaning “Entrepreneurs’ Counter”), accessible through the EPortugal Portal, through the Tourism of Portugal Portal at the Registo Nacional de Turismo ,or even by accessing the websites of the municipalities.
At the BdE, which has an English language version, you will find a list of online services to facilitate the whole process:
By clicking on “Alojamento local – registo da atividade” , you’ll access a webpage on which you can perform the registry of your AL, starting by choosing its location by region and municipality on the map that appears. Then, the page will present information about:
From there, you can go through the procedure of registry in an entirely electronic way, with digital certification by, for example, the citizen card or a lawyer, solicitor or notary digital certificate, among other forms available. You’ll need the following documents:
The registry procedure gives each request the registration number of the AL establishment if the competent city council doesn’t object to it (within 10 days or, in the case of a hostel, 20 days). The registry number acts as the valid title. With it, you are allowed to begin your AL operation and advertise it, including on platforms like Airbnb and Booking, which require that number.
Step 5: Subscribe to compulsory civil liability insurance
The Portuguese law states that whoever operates a alojamento local unit is “jointly and severally liable with guests for damage caused by the latter to the building in which the unit is installed”. Thus, the person in charge of the establishment is obliged to take out an insurance policy that covers fire risks and property and non-property damage caused to guests and third parties.
The insurance must be contracted immediately and its non-existence may lead to the cancellation of the registration, meaning that your alojamento local license will be revoked.
At the end of the 30-day period following the prior notice with a deadline to the municipAL council, there’s a mandatory inspection of the alojamento local to verify its compliance with all the requirements. The competent entity to do so is the municipal council. It is also responsible, together with the Autoridade de Segurança Alimentar e Económica (ASAE, meaning Food and Economic Security Authority) for supervising compliance with the entire legal regime. If requested by ASAE, Turismo de Portugal may also carry out inspections.
Here are the legal obligations that the alojamento local must provide its guests on every visit, whose compliance the inspection will verify:
If the inspection finds that any of these requirements are missing, the registration number may not be assigned.
AL establishments must comply with certain legal requirements:
AL establishments with a capacity of 10 people or less, must also meet safety requirements, but simpler ones:
If the capacity exceeds 10 people, the alojamento local must comply with the rules against fire according to legislation: DL N.º 220/2008 and Portaria N.º 1532/2008.
Communicate the entry and exit of foreigners to SEF
The Portuguese Foreigners and Borders Service (Serviço de Estrangeiros e Fronteiras – SEF) require that the responsible for AL national apartments and hotels communicate the data of all foreigners that use them – the person who makes the reservation and the other guests. The demanded data is:
This information must be provided within 3 working days of entering and leaving the accommodation and sent through the Accommodation Bulletin Information System. It can also be delivered in person at the locAL SEF services or, in locALities where they don’t exist, delivered to the National Republican Guard (GNR) or the Public Security Police (PSP).
It is mandatory that the accommodation establishment collects and communicates the data of all its guests and not only of the person who made the reservation.
Charge City Taxes
Some Portuguese municipALities have implemented the Municipal Tourist Tax (Taxa Municipal Turística) on overnight stays. It’s a fee charged to all guests staying in tourist or alojamento local developments in cities where the tax is in effect. Adding to the room rate, an extra amount is charged, per night and per person. The municipality is free to stipulate the amount to pay, who pays, who is exempt, and what is the limit on nights. Therefore, the unit value varies and can be consulted in the regulations of each municipality.
For instance, in Lisbon, it’s mandatory to charge a nightly occupancy tax of €2 per person and stay, excluding children under 13, for a maximum of 7 nights.
If the property is only partially used as an AL, only 25% of the expenses will be considered as deductions. The deductible expenses include:
As tax legislation is frequently subject to changes in Portugal, please do check all the updated relevant information at the time you decide to go forwards with your alojamento local business.
An AL whose establishment is situated in a horizontal property like an apartment condominium may have to pay an increased condo fee. This is due to the fact that the alojamento local, with its guests, contributes to the wear and tear of the building in common areas. The condominium board may charge you an increase on your annual fees that ranges from 15% to a maximum of 30%. If you pay 100€ in condo fees, with an increase of 30% your new fee will be 130€. Don’t take the condominium support for granted. Take the necessary measures so that your guests don’t disturb the other condominium residents. If there are frequent disruptions to them the board can take a vote to close your alojamento local and send the decision to the mayor and the municipality, resulting in the shutdown of your listing for a year.
From the moment you start operating your alojamento local services, these are the tax obligations you’ll have to fulfill:
On short-term leases, 65% of income is considered an expense, resulting in taxation of only 35% of the invoiced amounts. The IRS rate varies according to the monthly income and is tabulated by income ranks.
To be sure you have all the correct information for your specific situation and are compliant with all the legal obligations, we advise you to consult a specialized accountant. We at Pearls of Portugal can assist you in this demand by counseling you to our trusted, experienced professional partners.