Local accommodation: the new rules
Recent changes to Local Accommodation legislation in Portugal are changing the landscape of this sector, affecting owners and investors across the country. With the approval of Law 56/2023, which is part of the More Housing package, the Portuguese government introduced several significant changes that aim to restrict and regulate the activity of Local Accommodation.
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Suspension of new licenses in strategic locations
One of the most impactful changes is the suspension of issuing new licenses for AL, with a particular focus on coastal areas and the Algarve. It is worth noting that this suspension does not apply to the Autonomous Regions nor to 165 municipalities on the continent classified as low density. Additionally, 73 parishes in municipalities with high population density are exempt. This measure was designed to avoid excess AL units in areas already overloaded with tourism.
Existing licenses
In order not to make an abrupt transition, the legislation provides that the AL licenses currently in force will remain valid and will be reevaluated throughout 2030. The majority of these licenses can be renewed for another five years. However, an important exception applies to owners who purchased properties for AL with financing until February 16, 2023. In these cases, the license renewal will follow the term of the home loan agreement.
Expiry of the license is a possibility in situations of property transfer, unless the transfer is by succession. AL owners who are not using their properties must submit income declarations within two months after the new law comes into force, if they want to avoid canceling their license.
Impact on low-density regions
An important aspect of the new AL rules in Portugal is the focus on regions with low population density. In these locations, restrictions on issuing new licenses are more flexible, recognizing the importance of tourism to the local economy. This measure could open up opportunities for investors and property owners interested in exploring the potential of these regions, where tourism can be a lever for economic development.
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Rental incentive
A measure designed to encourage the transition of AL units to housing rental is the IRS or IRC exemption on rents until the end of 2029. This exemption applies to properties removed from AL by the end of 2024 and that make the transition for housing rental. There are no limits on rental values, as long as rental contracts are signed and registered with Finance by December 31, 2024.
Extraordinary contribution on local accommodation (CEAL)
The creation of the Extraordinary Contribution on Local Accommodation (CEAL) is a significant financial change introduced by the new legislation. With a fixed rate of 15%, this contribution is applied only to apartments used for AL and is not deductible when determining taxable income in IRC. However, it is worth noting that CEAL does not apply to properties located in the interior of the country, which may encourage investment in less explored regions. This fee can impact the returns of AL owners and is an element that needs to be considered when assessing the viability of this type of investment under the new rules.
Intervention by municipalities and condominium assemblies
Municipalities, responsible for issuing AL licenses, must now create a Municipal Housing Charter. This letter aims to balance the supply of housing, AL, student accommodation and other activities. If it is determined that there is a housing shortage, the issuance of new AL permits will be prohibited.
The assembly of condominium owners gains a new role in the process, being able, by deliberation of at least two thirds of the building’s permilage, to oppose the AL activity in an autonomous fraction. However, this opposition is not possible if the constitutive title or a previous deliberation of the assembly allows the use of the fraction for AL. If the assembly’s decision is to cancel the AL registration, the municipal council must be informed, and the activity will cease within 60 days.
Conclusion
In summary, the new Local Accommodation rules in Portugal aim to balance the market, reduce excess tourism in certain areas and ensure that properties are used efficiently. These changes have a significant impact on owners, investors and the tourism industry in Portugal, and it is important to stay aware of these changes and adapt to them as necessary.
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