Types of taxation on holiday rentals in Portugal

May 2025

Portugal, like other countries, has specific tax regimes applicable to owners who rent out their holiday apartments. When you decide to rent out your property for this purpose in Portugal, or to acquire a second property to start renting it out, keep in mind that the national Tax and Customs Authority (AT) will expect you to pay tax on the rental of your holiday home.

So that you’re aware of exactly what you have to pay and can aptly set the prices for your holiday rental, this article will cover the different types of taxes that holiday home owners must pay on the rental of their holiday apartment in Portugal. Not only are there income taxes on your holiday rental income, but there are also other taxes to consider such as property taxes and VAT (Value Added Tax).

You can learn more about each of them below.

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Types of income taxes on your holiday rental income

The tax on the rental of a holiday home can be based on Personal Income Tax (IRS) or Corporate Income Tax (IRC), with the first being for individuals and the second for legal entities (companies). Therefore, the payment of tax will differ depending on whether you have your own company or register the property as an Alojamento Local (AL) in your own name.

If you do it in your own name, you will be subject to IRS, and you may fall under Category B or F, with the following variations:

Category B of IRS

• Taxation of 35% on income
• Deduction of all costs through organized accounting
• It is recommended to hire a certified accountant

Category F of IRS

• Taxed independently at 28% or added to other income
• Allows for the deduction of expenses

In terms of taxation, IRC may be more advantageous. However, if you rent your property through the creation of a company, it is important to understand the specific rules. This means that the assistance of an accountant is highly recommended, as the legislation is broad and complex.

How does VAT on the rental of holiday homes work?

VAT (Value Added Tax) is another type of tax to consider for your holiday rental. The VAT rate on the rental of a holiday apartment or other Alojamento Local (AL) properties is 6% on the mainland and 5% in Madeira or 4% in the Azores.

In the case of ALs, it is possible to request exemption if the annual income of the owner does not exceed 15,500 euros. However, under the exemption regime, VAT deductions for expenses incurred will not be possible.

It is also worth noting that all holiday rental businesses must issue invoices/receipts through the Tax Portal, even if they are under the exemption regime. The periodic VAT declaration is also mandatory on a monthly or quarterly basis, depending on the regularity of the annual income of the business (whether it exceeds or is less than 650,000 euros).

Property taxes on your holiday rental

Anyone buying a holiday home in Portugal must understand that their holiday rentals are also subject to property taxes, including Property Transfer Tax (IMT), Property Tax (IMI), and Stamp Duty (IS).

Can I get a deduction/exemption of Property Transfer Tax (IMT) for my holiday home?

According to article 4 of the Municipal Property Transfer Tax Code (CIMT), the payment of IMT is the responsibility of the new owner at the time of the property’s acquisition.

If you purchase a holiday rental property, you should note that a deduction/exemption of the property transfer tax will not apply in your case, and the deductions here differ from those in other taxes like Personal Income Tax. For Property Transfer Tax, it is not possible to subtract specific amounts from the taxable value, and deductions of the payable tax are only possible in cases of exemption (total or partial). 

A Property Tax exemption is only available when the property is intended for permanent residence by the owner (for properties with a deed registered up to 97,064 euros on the mainland or 121,330 euros in the Azores and Madeira). Exemptions may also apply when the property is bought for resale or purchased by the government and municipal entities. Therefore, Property Tax exemptions do not apply for those wishing to rent a second property in the holiday rental market.

It is important to highlight that, based on criteria such as the buyer’s tax bracket, the location of the property, its type, and purpose (in this case, temporary rental), the taxable amount will change, based on a calculation carried out by the National Tax Authority.

What should I know about Property Tax on my holiday rental?

When buying a holiday home in Portugal, you must also pay Property Tax, and this amount will depend on municipal rates (ranging from 0.3% to 0.45%) and the Property Tax Value (VPT) of the property. Payment can be made in a single installment (up to 100 euros), in two installments (between 100 and 500 euros), or in three installments (over 500 euros). Payment periods are in May, August, and November.

Luxury properties with a VPT over 600,000 euros will also have to pay AIMI, or Additional Property Tax.

Other taxes to consider on your holiday home

Holiday home owners may, in some Portuguese municipalities, be subject to local or tourism fees, which should be considered when setting the rental price. This fee typically applies to stays by guests over the age of 13, with the amount varying depending on the municipality where the holiday rental is located.

Now that you know more about the taxation of vacation rentals in Portugal, you can explore the possibility of advertising your holiday home on a holiday rental portal such as Holidu to start renting out your property.

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