Rental Income Tax Guide for 2025

Investing in Portuguese rental property can be rewarding, but it’s crucial to understand the tax landscape. This article breaks down how rental income is taxed in Portugal as of 2025, comparing personal vs. corporate ownership and short-term vs. mid/long-term rental models. We cover personal taxation (standard progressive rates, Non-Habitual Resident regime, recibo verde for self-employment), corporate taxation (company tax rates and dividend taxes), VAT (IVA) differences between short and long rentals, and provide scenarios with example tax calculations. Finally, we offer guidance on choosing the optimal structure, with summary tables for quick reference.

Personal Taxation on Rental Income

Individuals earning rental income in Portugal can be taxed under the standard personal income tax regime, potentially benefit from the Non-Habitual Resident (NHR) regime (if eligible), or operate their rentals as a self-employed business via recibo verde (either under the simplified regime or real accounting regime). The tax treatment differs for short-term holiday rentals vs. traditional long-term leases, so we examine each scenario:

1.1 Standard Progressive Tax Rates (IRS)

Portuguese tax residents pay progressive income tax on worldwide income, with rates ranging from 12.5% up to 48% in 2025 . Non-residents are only taxed on Portuguese-source income (such as local rental earnings) and generally at flat rates (see below). Table 1 summarizes the 2025 income brackets and rates for residents:

Table 1 – Portuguese Personal Income Tax Brackets (2025)

(Note: An additional “solidarity” surtax of 2.5% applies on taxable income over €80,000, and 5% on income over €250,000 .)

Long-term rental income (Category F): Rental income from a traditional residential lease is classified as Category F (property income). By default it can be taxed at a special flat rate – recently reduced to 25% for residential leases – instead of the progressive rates . In fact, as part of 2024 housing incentives, Portugal introduced significantly lower flat rates for long-term leases based on contract length: leases up to 5 years are taxed at 25%, dropping to 15% for 5–10 year contracts, 10% for 10–20 years, and 5% for leases over 20 years . (These reduced rates apply to new or renewed contracts meeting the duration criteria.) Landlords may opt to “englobar” (aggregate) rental income with other income and pay the progressive IRS rates, but this is usually only advantageous if their total income falls in low brackets . Non-resident individuals earning Portuguese rental income cannot use progressive rates and are taxed at a flat rate (25% on residential leases, as above) with no deductions on gross rent beyond mandatory tax withholdings .

Allowable expenses: For Category F long-term rentals, taxable income = gross rents minus deductible expenses. Deductible costs include maintenance, repairs, property insurance, condominium fees, and property tax (IMI) – but not mortgage interest or furniture depreciation . This means individual landlords of long-term rentals cannot deduct financing costs under Category F. The inability to deduct interest (along with the new reduced tax rates on gross rental income) can influence the decision to choose Category F vs. treating the activity as a business (Category B), which we discuss next.

1.2 Non-Habitual Resident (NHR) Regime

Portugal’s Non-Habitual Resident (NHR) program offers tax incentives to new residents. Under NHR, qualifying individuals employed in “high value-added” professions or with self-employment in eligible fields enjoy a flat 20% IRS rate on Portuguese-source salary or business income (instead of the progressive rates), for a 10-year period . Additionally, many foreign-source incomes (pensions, dividends, etc.) can be exempt or taxed at reduced rates (e.g. 10% on foreign pension) under NHR . However, rental income from Portuguese properties is not a qualifying high-value activity – it is typically taxed at the standard rates even for NHRs. An NHR landlord would still pay tax on local rental profits either at the flat rates for rental income (25% as discussed) or at normal progressive rates if they choose to aggregate – there is no special 20% treatment for passive rental income.

Important: The NHR regime has recently been phased out for new applicants – the government ended the program effective 1 Jan 2024, though anyone who already obtained NHR (or became resident and qualified by end of 2024) can still use it for their remaining entitlement . Thus, by 2025, NHR remains relevant primarily to investors who entered Portugal earlier. In summary, NHR can be beneficial if you have other Portuguese high-skill income or foreign income, but it does not reduce Portuguese-source rental income tax, which will follow the rules outlined in this article.

1.3 Recibo Verde and Business Income (Category B)

If you operate rentals more like a business – especially short-term rentals to tourists – you may be treated as self-employed under Category B (business/professional income) rather than Category F. In practice, renting out property on a daily/weekly basis (through an Alojamento Local (AL) license for short-term stays) is considered a provision of services (akin to running a small hospitality business). Many hosts therefore register a “recibo verde” activity with the tax authorities. Recibo verde is the Portuguese system for self-employed income reporting – you issue electronic receipts for income and choose a tax regime (either simplified or organized accounting) for how your taxable profit is calculated.

Simplified regime (simplificado): This is the default if your annual self-employed revenue is up to €200,000 and you do not opt into full accounting . Under simplified IRS rules, you do not deduct actual expenses. Instead, the tax law applies a fixed coefficient to your gross income to determine taxable profit. For most service activities, the coefficient is 0.35 (35%) . Importantly, for short-term rental lodging (AL): only 35% of gross AL income is counted as taxable under the simplified regime, meaning you get a deemed cost deduction of 65% . In other words, an AL host is taxed on just 35% of their rental revenue (and the rest is presumed expenses) if the property is not in a designated high-density area. (There is one exception: if the property is in a government-designated “containment area” – zones of urban pressure where AL licenses are restricted – the coefficient increases to 50%, so that 50% of income becomes taxable . This measure, introduced to discourage short-term rentals in housing-scarce areas, affects central Lisbon and Porto, for example.)

For non-resident AL operators, the simplified regime works the same way, except the tax is a flat 25% on the taxable portion (since non-residents don’t use progressive rates) . A non-resident earning short-term rental income would thus face an effective 25% × 35% = 8.75% tax on gross receipts in simplified regime (assuming the 35% coefficient) – a very favorable rate. Example: €30,000 in Airbnb rental income would yield €10,500 taxable (35%), taxed at 25% = €2,625 tax due.

Note : Starting from 2024, Portugal tightened rules for the simplified regime to ensure a minimum amount of expenses. If your AL revenue is high (over ~€27,360/year) and your actual expenses are very low, the tax authorities may increase your taxable coefficient from 35% to 50% . In essence, they require that at least 15% of revenue reflects real expenses – if not, part of the presumptive deduction is clawed back . Most small landlords won’t trigger this, but extremely high-margin operations should be aware of this adjustment.

Organized accounting (regime de contabilidade organizada): Landlords are free to opt for the real/professional regime, which requires maintaining proper accounts and usually hiring a certified accountant. Under this regime, your taxable profit = actual income minus actual allowable expenses (much like a company). Allowable deductions for a rental business can include maintenance and repairs, utilities, cleaning and laundry services, property management fees, insurance, local taxes, and even depreciation of the property and furnishings used for the rental. Interest on a mortgage can be deductible in a Category B business if the loan was used to acquire or improve the rental property (since it’s a business expense), unlike in Category F . The trade-off is that you must comply with accounting and invoicing rules. Organized accounting is often chosen if the property operating costs are higher than the simplified regime’s assumed costs. For example, if your actual expenses are 80% of income (say due to a big mortgage and management costs), paying tax on only 20% net profit via the real regime could be better than being taxed on 35% by default. On the other hand, many short-term rental hosts find the simplified regime’s 65% assumed deduction generous enough that they owe very little tax, making the simpler reporting preferable.

Tax rates for Category B: If you are tax resident, any net income from either regime is added to your other income and taxed at the progressive rates (Table 1). This means small rental businesses benefit from the lower brackets, but a large profit could push you into higher brackets (up to 48% + surtax). If you have no other income in Portugal, the progressive tax on a modest rental business may be quite low. Non-residents pay a flat tax on Category B income – 25% in 2025 for AL services (this rate was 28% in prior years). The flat rate is usually withheld at source or paid via the annual return, and it’s applied to the taxable profit (after the 35%/50% coefficient, if simplified).

In summary, short-term (AL) rentals typically fall under Category B and often use the simplified 35% taxation basis for convenience. Long-term rentals usually fall under Category F with a flat 25% (or reduced rate) on net rents. However, landlords can sometimes choose between Category F and Category B. Portuguese law allows treating rental activity as a business (atividade empresarial) in some cases . If an individual has multiple properties or provides added services, they might register as Category B to take advantage of expense deductions or simplified coefficients. The optimal choice depends on calculations of effective tax – a tax advisor can run simulations to see which yields a lower bill . For many international investors with one or two properties, Category F with the new reduced rates will be simplest for long-term leases, and Category B (simplified) works well for short-term rentals (especially for non-residents, given the low effective tax on gross).

(Social security: Note that if you register as self-employed in Portugal (Category B) and it’s your main or only income source, you may also have to pay social security contributions (around 21%–25% of your net income base) after the first year. This is separate from income tax. Many rental investors already employed elsewhere or with small activity may be exempt or choose Category F to avoid this complication. Seeking local advice on this point is recommended.)

2. Corporate Taxation (Portuguese Companies)

Instead of owning property personally, investors may consider setting up a Portuguese limited company (Lda) to hold and operate rental properties. The company route introduces corporate income tax (IRC) and possibly allows more deductions, but also leads to a second layer of tax on profits if they are distributed as dividends to the owners. Below we outline Portuguese corporate tax rates, surcharges, and how they compare to personal taxation.

2.1 Corporate Income Tax Rates and Surcharges

As of 2025, Portugal has slightly reduced its corporate tax rates. Standard corporate income tax (CIT) in mainland Portugal is 20% on taxable profits (this is a reduction from the longstanding 21% rate). Small and medium enterprises (SMEs) benefit from a further reduced rate of 16% on the first €50,000 of profit . Any profit above €50k is taxed at the normal 20% rate. (For companies in the autonomous regions, rates are even lower – e.g. 14% standard in Madeira/Azores, or 11.2% on the first €50k for SMEs – but most international investors will be dealing with mainland Portugal.)

On top of the base CIT, surtaxes may apply to profitable companies :

• Municipal surtax (derrama municipal): up to 1.5% of taxable profit, at the discretion of the municipality . Lisbon, for instance, often levies the full 1.5%. This applies to all companies regardless of size.

• State surtax (derrama estadual): a progressive extra tax on large profits, affecting only big companies. It kicks in at 3% on the portion of profit €1.5 million–€7.5 million, 5% on profit €7.5–€35 million, and 9% on profit over €35 million . (This is unlikely to be relevant for a small property investment company, unless you build a very large portfolio.)

In summary, a typical property company with modest profits will face ≈20% CIT, plus up to 1.5% local tax – so about 21.5% tax on profits. SMEs enjoy a slightly lower effective rate on initial profits (16% on first €50k). High-level, this is comparable to or lower than the top personal tax rates, which is why a company can be tax-efficient if profits are reinvested.

Deductibility : A company can deduct all ordinary expenses related to the rental activity when calculating profit: maintenance, utilities, property management fees, salaries, interest on loans, depreciation of the property (buildings can be depreciated at a rate around 4% per year for tax purposes), furniture and equipment depreciation, taxes (IMI, etc.), and other operating costs. There is no simplified coefficient – it’s actual accounting profit that is taxed. If a property is held in a company, even long-term rental income is fully taxable business income (no 95% exclusion like the Category F alternative), but virtually all expenses including financing costs are deductible, which can drastically reduce taxable profit (especially in early years with mortgage interest and depreciation). One caveat: passive holding companies (those not engaged in a commercial activity) might not get the SME rate. However, rental activity is considered a commercial activity in Portugal for tax, so the reduced SME rate should apply to a rental company that meets the size criteria .

2.2 Distribution of Profits and Dividend Taxation

If you use a company, remember that after the company pays its ~20% CIT on profits, any dividends paid out to you (the shareholder) will face personal taxation on dividends. Portugal taxes dividend income to individuals at a flat 28% rate by default . This is a withholding tax typically applied when the company distributes the dividend. Residents in Portugal can opt to include dividends in their overall income instead, in which case only 50% of the dividend amount is subject to the progressive IRS rates . For large investors in high tax brackets, that option can sometimes reduce the effective tax on dividends (since 50% taxed at top 48% ≈ 24% effective, which is slightly lower than 28%). Non-resident individuals receiving Portuguese dividends are also usually subject to a withholding tax (28% in many cases, or lower if a tax treaty applies).

Total tax burden comparison – personal vs. company: It’s useful to compare scenarios:

• Personal ownership: Suppose a rental property yields €10,000 net profit (after expenses). If held personally (Category F as a resident landlord), and assuming a standard lease under 5 years, tax would be 25% of that net profit = €2,500 tax. The remaining €7,500 is yours to keep. If it was a short-term rental under Category B simplified, a similar net might occur but via a different mechanism – e.g. €10k profit on the books might correspond to about €28.5k gross with 65% costs assumed, still yielding ~€2.5k tax if you fall in the 20–30% marginal range. In either case, there’s a single layer of tax.

• Company ownership: The company also earns €10,000 profit (true profit after its deductions). It pays 20% CIT ≈ €2,000. That leaves €8,000 in the company. If you as the owner want to take all of it out as a dividend, the €8k would face 28% = €2,240 personal tax. Total tax = €4,240, leaving you ~€5,760 net. This is a higher burden (effective ~42% of original profit) compared to ~25% under personal ownership in this example. However, if you do not distribute the profits and instead reinvest via the company (e.g. to buy more property or pay off loans), you only incur the 20% CIT. The tax on dividends can be deferred or minimized if profits are reinvested or if you plan an exit strategy (for instance, selling the company shares instead of the company paying dividends – see below).

Additional considerations :

• Reinvestment and growth: A corporate structure makes sense if you intend to scale up your investments. Paying ~20% tax on retained profits allows faster growth than paying up to ~48% personally on large incomes. Companies can accumulate after-tax earnings for further property purchases, renovations, etc. without immediate additional tax.

• Limited liability: Beyond tax, a company provides limited liability and a clear separation of business assets (the properties) from personal assets. This can be important for risk management, especially in short-term rentals (where guest injuries, etc., could potentially lead to liability claims – having a company and proper insurance offers protection).

• Sale of property: If you sell a property held personally, any capital gain is taxed at 50% of the gain added to your income (for residents) or at 28% flat (for non-residents). In a company, the gain is fully taxed at CIT rates (20%). However, selling company shares instead of the property could avoid property transfer tax (IMT) for the buyer and potentially be more tax-efficient for you (share sale by a non-resident can even be tax-free in Portugal in some cases). This is an advanced strategy and must be structured carefully.

• Compliance costs: Running a company incurs extra costs – accounting, annual filing, possibly payroll if you pay yourself a salary, etc. Small “unipessoal” Ldas can be quite straightforward but expect a few thousand euros per year in accounting and compliance expenses. For one or two properties, many investors find it simpler to hold personally unless there’s a clear tax or operational advantage to incorporating.

In short, personal ownership tends to be tax-efficient for small-scale landlords, especially with the new reduced rates on long leases or the simplified regime for AL. Corporate ownership might benefit larger portfolios or those who want to reinvest earnings pre-tax. A quantified comparison with your specific numbers is recommended.

3. VAT (IVA) on Rental Activities

Value-added tax (VAT), known as Imposto sobre o Valor Acrescentado (IVA) in Portugal, applies differently to short-term vs. long-term rentals. The VAT rules can significantly impact your pricing and your ability to reclaim VAT on expenses, thereby affecting net profitability. Below we explain when VAT is charged, at what rates, and the pros/cons of being in the VAT system for rentals.

3.1 VAT on Short-Term Accommodation (Alojamento Local)

Short-term tourist rentals (stays typically under 30 days, through an AL license) are treated similarly to the hospitality sector for VAT. Residential rentals of this kind are subject to VAT – specifically at the reduced rate of 6% on mainland Portugal (the same rate hotels and lodging services pay) . This means if you rent out an apartment to guests, you generally must add 6% VAT to the rental charges. For example, a €100/night rental actually breaks down to roughly €94 + €6 VAT which goes to the tax authorities . The good news is that VAT on most expenses you incur (cleaning services, supplies, repairs, etc.) is at the standard 23% rate, and you can reclaim that 23% input VAT since you’re charging VAT on your sales . In practice, many short-term rental operators often get refunds because the VAT they pay on expenses (23%) exceeds the 6% they collect on rents . For instance, if you collect €6,000 of VAT from guests in a year but paid €8,000 of VAT on furniture, contractor bills, and property management, you’d be reimbursed the €2,000 difference by the tax authorities.

However, small-scale landlords can be exempt from charging VAT under Portugal’s Article 53 IVA exemption (a special scheme for small businesses). In 2025, this annual revenue threshold is around €14,500 in gross income . If your short-term rental income is below ~€14.5k per year and you are a Portuguese tax resident, you can choose to not charge any VAT to guests . This simplifies administration (no quarterly VAT returns) but means you cannot recover any VAT on your expenses – all your costs will include irrecoverable 23% VAT. Many “casual” hosts with one property prefer to stay under this threshold to avoid VAT. Keep in mind if you start the year expecting low revenue but later exceed the threshold, you must register for VAT and start charging once you cross the limit .

Non-resident owners: A critical change is that non-resident operators of AL properties are no longer allowed to use the small business VAT exemption. Effective 2025, Portugal requires all non-resident rental businesses to register for VAT from the first euro of income . If you live abroad and rent out a Portuguese property short-term, you must charge 6% VAT to all guests and file periodic VAT returns, regardless of income level . This levels the playing field but does impose VAT administration on foreign hosts. (You will need a fiscal representative for VAT in many cases.)

Services and VAT at 23%: The 6% reduced rate covers the accommodation service itself. If you provide additional services to guests for a separate charge, those might be subject to the standard 23% VAT. For example, cleaning fees charged separately, equipment rentals, or tour services you arrange could fall under standard VAT. Most hosts simply incorporate cleaning and utilities into the rental price which is all taxed at 6%. But it’s worth noting: any income not strictly from lodging (e.g., renting out a meeting room, providing breakfast or meals) would typically be 23%. Online platforms like Airbnb and Booking charge commissions which are subject to VAT as well – since those companies are usually not Portuguese, the host must apply reverse-charge VAT on the commissions. In practical terms, you need to account for 23% VAT on the platform fees you pay and report it in your VAT return (you can simultaneously deduct it, so it often washes out, but the reporting is required) .

Summary : Short-term rentals on AL are subject to VAT (6%), except for local small landlords under the threshold (residents only). Being in the VAT system lets you recover input VAT, which can boost your profitability if you have high setup costs (furniture, renovations, etc.) or ongoing expenses . On the flip side, charging VAT might make your rental rates appear higher to customers if you can’t embed it smoothly. Many professional operators find the VAT refund benefits outweigh the costs, especially when furnishing a property – effectively you save ~23% on your investment in many cost items. Also note: in Madeira the reduced VAT rate is 5%, Azores 4% for accommodation , slightly improving the math there.

3.2 VAT on Mid-Term and Long-Term Rentals

Long-term residential leases (traditional tenancies) are exempt from VAT in Portugal . Leasing property for housing is outside the scope of IVA – tenants are not charged VAT on rent, and landlords cannot recover VAT on expenses related to that rental. This exemption aligns with EU VAT rules which generally exempt most real estate leasing. There is an option in some cases to waive exemption for commercial leases, but for residential rentals this is not typical . Bottom line: If you sign a standard rental contract (e.g., 1-year lease to a tenant), no VAT is charged at all (0%), and therefore all your property expenses (which come with VAT) are simply costs with no recovery.

The “mid-term” rental category can be a bit fuzzy – it depends on how you structure it. If you are renting to tourists or transient workers for a few months at a time under an AL license, legally it’s still an AL short-term rental business, so VAT would apply as above (because each stay is a service, even if 60 days or 90 days). However, if you sign a fixed-term lease agreement for, say, 6 months or 9 months with a tenant (possibly a digital nomad or a student), that is effectively a lease – which would fall under the VAT exemption as a residential tenancy. The key differences are usually the presence of an AL license and services: If the property remains registered as an AL and you provide services (like periodic cleaning, or simply maintain the listing as short-term), you are treating it as a commercial accommodation. If instead you go the route of a standard lease (no services beyond providing the furnished flat), it’s just a VAT-exempt rental.

From a profitability standpoint, mid-term rentals often involve less intensive services (lower costs) and may choose the lease model to avoid AL regulatory constraints. In that case, no VAT to charge means simpler billing for tenants (they just pay a flat rent). The downside for the landlord is inability to reclaim VAT on any expenses. For example, if you renovated the apartment and paid €10,000 + €2,300 VAT to contractors, a long-term rental means that €2,300 VAT is not recoverable. In a short-term rental scenario, you could likely get that €2,300 back from the tax office over time by offsetting against output VAT collected from guests . This can be a material factor in the first-year setup costs.

Commercial rentals: While our focus is residential, note that renting property for commercial use (e.g. office or retail space) is also generally exempt from VAT by default . But landlords of commercial property may opt to charge VAT (23%) by waiving the exemption, in order to recover VAT on a building fit-out or purchase – this usually requires the tenant to be a VAT-registered business who can also deduct VAT. For residential, there is no such option; it stays exempt.

3.3 Impact of VAT Choices on Net Income

To illustrate, consider two scenarios for the same property used as a rental:

• Short-Term Rental with VAT: You charge €100/night which is €94 + €6 VAT. Over a year you collect €20,000 in rent + €1,200 in VAT = €21,200 from guests. You might have incurred €10,000 of expenses + €2,300 VAT (at 23%) on those expenses (cleaning services, new furniture, etc.). If VAT-registered, you would remit €1,200 but reclaim €2,300, resulting in a net VAT refund of €1,100. Your effective gross income (net of VAT remitted) is €20,000, and you got €1,100 back to offset costs. Net effect: you had €10k of costs but effectively only €7,700 of costs after reclaiming VAT, so your profit before income tax is higher. You do have the administrative work of filing VAT returns quarterly, though.

• Long-Term Rental (no VAT): You lease the same property for an equivalent €20,000/year. You collect exactly €20,000 (no VAT charged). Your expenses €10,000 + €2,300 VAT cannot be reclaimed, so effectively you paid €12,300 for them. Your profit before income tax is lower because of that unrecovered VAT leakage. You also don’t have to file VAT returns or worry about taxes on rent for your tenants, which is simpler. But your net margins are reduced by all the VAT embedded in costs.

  
  

As shown, VAT registration can improve profitability when expenses are significant, but it also forces you to charge VAT (which may or may not affect demand, depending on if your clientele can reclaim VAT – tourists generally cannot). Many short-term rental markets simply treat the VAT as part of the price the guest pays (on Airbnb, for example, the platform will handle adding VAT if applicable to the listing price). As an investor, being able to recover 23% on large capital expenditures (like renovations) can tilt the balance in favor of doing a short-term rental model. Conversely, if your costs are minimal and you value simplicity, staying out of VAT (where possible) is attractive.

Summary of VAT rates:

Table 2 – VAT Treatment of Rental Models (2025)

As always with VAT, the details can get complex (e.g. mixed-use situations). The key takeaways are: short-term tourist rentals involve VAT at a low rate but with reporting duties and refund opportunities, while longer leases carry no VAT but you bear all VAT costs on inputs. Choosing the right path often depends on your target market and financial model.

4. Scenarios and Tax Simulations

Let’s bring the above concepts together with a couple of practical scenarios. We will compare the tax outcomes for different setups:

Scenario A : Non-Resident Individual with Short-Term Rentals in Lisbon.

Profile: An investor living abroad (not tax-resident in Portugal) owns two apartments in Lisbon which are rented on Airbnb to tourists year-round (Alojamento Local licensed). Gross rental income is €60,000/year (for both properties combined). Expenses (cleaning, utilities, management fees, maintenance) total €30,000/year (including VAT). The properties are in central Lisbon (a containment zone).

• Taxation: As a non-resident doing AL, the investor must register for VAT and charge 6% on guest stays . The €60,000 gross is considered plus €3,600 VAT collected (which is passed to authorities). On the income tax side, as a non-resident, they are taxed flat 25% on Portuguese rental income . Using the simplified regime, only 35% of revenue is taxable profit (but since these units are in a containment area, that coefficient rises to 50% by law) . Assuming no issue with expenses threshold (actual costs €30k are 50% of revenue, meeting the requirement), the taxable amount = 50% of €60k = €30,000. The income tax = 25% of €30k = €7,500 .

• VAT impact: Output VAT is €3,600. Input VAT on €30k of expenses (most at 23%) is roughly €5,600. The investor can reclaim the difference (~€2,000 refund). So, effectively, of the €30k expenses, €24,400 is net cost after VAT recovery, improving profit. The VAT regime adds admin work (quarterly filings, appointing a fiscal representative in Portugal), but the refunds help cash flow.

• Net profit: Before taxes, profit was €60k – €30k = €30k. After income tax €7.5k, the profit is €22.5k. (No further Portuguese tax since the owner is non-resident and just pays the flat rate; the money can be remitted abroad freely.) Effective tax rate on gross income = ~12.5%. The VAT refund essentially subsidized expenses by €2k. If the investor had not been subject to VAT (hypothetically), their expenses would be €2k higher, but no VAT to charge – net profit similarly would be ~€20.5k, still paying income tax ~€7.5k (assuming simplified 35% without the 50% adjustment). So being VAT-registered actually improved net profit modestly here.

• Comparison: If the same investor held these rentals via a Portuguese company instead: The company would charge 6% VAT as well. It would pay 20% CIT on actual profit. Profit accounting: €60k revenue – €30k costs = €30k profit (before CIT). CIT ~20% of €30k = €6,000. After-tax profit €24k inside company. If they dividend it out to themselves abroad, dividend WHT 28% = €6,720, leaving €17,280 net. Total tax = €12,720 (effective 42.4%). As a non-resident individual, we saw the total tax was only €7,500 (12.5%). Clearly, the individual route was far more tax-efficient in this case, thanks to the simplified regime. The company route only makes sense if the investor planned to reinvest the €24k profit in Portugal rather than extract it.

Scenario B : Portuguese Company Managing Mid-Term Rentals in Porto.

Profile: An investor sets up “Porto Rentals Lda”, a company that manages a portfolio of properties targeting mid-term stays for expats (3–6 month rentals). Let’s say the company has 5 apartments, each renting at €1,200/month on 6-month contracts (and typically vacant 1 month before the next tenant – so ~10 months occupied per year on average). Annual gross revenue ~€60,000. These are furnished rentals with some services (monthly cleaning, all bills included), and tenants are often foreign professionals on temporary assignments.

• VAT: The company must evaluate if this is treated as AL lodging or standard leases. Given services are provided and stays are short, the safer approach is to treat it as AL (short-term) for tax, meaning charge 6% VAT on rents. However, many mid-term operators actually use lease contracts for 3–6 months (since Portuguese tenancy law allows short fixed terms for non-permanent residence). If structured as leases, it would be VAT-exempt. Let’s assume for simplicity the company opts for lease contracts (exempt from VAT) to avoid charging tenants extra and to reduce bureaucracy. Thus, no VAT collected; but the company also can’t reclaim VAT on its costs (cleaning services, etc., carry 23% VAT that becomes a cost).

• Corporate tax: The company’s taxable profit = rental income minus costs. Suppose expenses per apartment (condo fees, maintenance, cleaning, internet/utilities, etc.) are €600 per month when occupied. With ~50 tenant-months total (5 apts × 10 months), expense = 50 × €600 = €30,000/year. So profit = €60k – €30k = €30,000. CIT (20% on full amount, as this is active income) = €6,000 . Porto also levies ~1.5% municipal tax: ~€450. So total company tax ≈ €6,450 (effective ~21.5%). Profit after tax in company = ~€23,550.

• If profits are distributed: The owner (say they are also a Portuguese resident) takes a dividend of €23,550. Withholding tax 28% = €6,594, leaving net €16,956. Add the company level tax €6,450, total tax ~€13,044. That’s ~21.7% effective on gross revenue, or ~43.5% on the initial €30k profit.

• Comparison with personal ownership: If the investor had owned the 5 apartments personally and rented the same way (assume as traditional leases, Category F income): Gross €60k, allowed expenses €30k (assuming similar costs deductible except interest). Net taxable €30k. As a resident, they could opt for the flat residential rental rate. If leases are 6 months, they count as short-term contracts (under 5 years) so tax rate 25% . Tax = 25% of €30k = €7,500. No further tax. Net income = €22,500. That’s actually higher net than the company w/ dividend route (€16,956). Even if the person had other income pushing them into higher brackets, the 25% flat would apply to rental regardless.

• Insight: For this level of income, personal ownership with the special flat rate yields a lower tax burden than using a company and paying dividend tax. The company structure only starts to show an advantage if the owner does not distribute the profits but instead reinvests them (then only ~21.5% tax is paid, versus 25% personally – a small saving). And if the owner is a non-resident, the personal flat rate would be 25% as well (or 28% if older contract rules), still likely beating the double taxation of a corporation.

These scenarios highlight that one-size-fits-all does not apply – you must consider income level, residency, rental strategy, and reinvestment plans to determine the best structure. The Portuguese tax system currently rewards longer-term residential leases with very low rates (down to 5–10%), while short-term rentals can benefit from simplified income calculation and VAT recovery.

5. Guidance for Investors: Choosing the Right Structure

Every investor’s situation is different, but here are some practical guidelines based on revenue, location, and rental model:

• If you plan to rent long-term to residents (traditional tenancy): Using personal ownership is generally simplest and tax-efficient. The new reduced IRS rates for long leases (25% or lower) mean you might pay even less tax than a corporation would. For example, a 10-year lease at only 10% tax is hard to beat . If you have multiple properties and high net income, you can still cap your rate at 25% by not aggregating with other income (autonomous taxation). A company could allow deduction of interest, but since interest isn’t deductible in Category F, a workaround if you have a big loan is to consider Category B (business) with organized accounting – though that comes with complexity. For most passive landlords, Category F with flat rates is ideal.

• If you want to do short-term rentals (Airbnb style): Determine if you will be resident in Portugal or not. A non-resident should be aware that they must handle VAT from day one and a 25% flat income tax will apply . The simplest path is often to stay as an individual (no company) and use the simplified regime – you’ll only be taxed on 35% of your gross rents , which is a major benefit. Make sure to appoint a fiscal representative and accounting help for VAT and declarations. A resident short-term host might do the same (Category B simplified), but needs to watch their total income – if your rental profits plus other income push you into high brackets, your marginal tax on that 35% taxable slice could be high (e.g. 35% of gross taxed at 45% = ~15.75% effective on gross). In such cases, if short-term renting is a main business, setting up a company might be worth evaluating, or even electing to be taxed under Category F rules (though that usually is worse for AL). Also consider scale: one or two holiday apartments are usually fine under personal ownership; a larger operation (say 5+ apartments, staff employed) may be better run through a corporate entity for legal and organizational reasons, despite the higher total tax on distributed profits.

• Mid-term rentals (specialized in 3–12 month stays): This model gives you a choice – operate informally as long leases or formally as AL. If you cater to a transient but professional tenant base and provide services, you might lean toward AL (with VAT and all obligations), which allows flexible contracts. If you find tenants willing to sign standard leases (perhaps because they also want stability), you could go with Category F and benefit from low tax on longer contracts. Location matters: in Lisbon or Porto, local regulations might cap AL licenses in certain areas, pushing you toward longer leases. Tax-wise, if you can secure leases of ≥5 years with mid-term tenants (e.g. corporate lets), the tax rate drops to 15% or less – very attractive . But most mid-term stays won’t be that long, so realistically you’re at 25%. Again, personal ownership likely suffices unless you’re scaling up heavily.

• Consider NHR/Relocation: If you as an investor are considering moving to Portugal (perhaps to oversee your properties), and you managed to get NHR status in time, remember NHR doesn’t shield your local rental income (it will be taxed normally) . But it could mean your other foreign income or salary is tax-advantaged, which might free up funds to invest. Operating personally under NHR is fine; you just won’t get a special break on rental income apart from what any resident gets. If NHR is no longer available, regular residency means progressive tax on aggregated income – in that case, using flat-rate options (25% on rentals or 28% on dividends) might be preferable to avoid pushing yourself into higher brackets.

• Corporate vs. personal – when to use a company: As a rule of thumb, for a small portfolio (1–3 properties) that you intend to hold and derive income from, personal ownership with the appropriate regime (F or B) will be easier and often results in less total tax. A corporate structure starts to make sense if:

  
  

  • You have a larger portfolio or plan to reinvest earnings into more properties (compound growth using the company’s lower CIT rate).

  • You want partners or investors to co-own the venture (an Lda can issue shares, etc.).

  • You need limited liability and separation of personal and business assets for risk management.

  • You are planning an exit by selling the business – selling a property company can be cleaner than multiple individual property sales.

  
  

  Keep in mind the administrative overhead and double taxation on profits taken out. Some investors use a hybrid approach: hold properties personally for long-term lets (to get the lease tax breaks) and hold any highly active rental operations in a company. Always crunch the numbers for your specific case.

• Other taxes and duties: Don’t forget there are other taxes in the mix for property investors: IMI property tax (municipal annual tax on property value), IMT and stamp duty on purchase, and if you sell, capital gains tax. These were outside our scope but should factor into your strategy (for example, a company pays full tax on capital gains, whereas a resident individual might pay effectively 14%–24% on a long-term gain, and there are exemptions if reinvesting in a personal primary home, etc.). Also, local tourist taxes in cities like Lisbon must be collected from guests (this is separate from VAT and income tax) . Ensure compliance with all such obligations.

• Seek professional advice: Portuguese tax law is nuanced and changes frequently (as seen with the 2024 housing law changes to rental tax rates and the pending phase-out of NHR). Always consult with a Portuguese tax advisor or accountant before finalizing how you structure your rental business. They can provide personalized simulations considering your worldwide income, the property location (e.g. if it’s in a high-density urban area with special rules), and any international tax treaty benefits if you’re non-resident.

In conclusion, Portugal offers a relatively landlord-friendly tax regime, especially encouraging longer rentals through reduced rates and giving small short-term landlords a big presumed expense cushion. By choosing the right ownership structure and tax regime, and by understanding VAT implications, an investor can optimize returns and stay compliant. The key is to balance simplicity with tax efficiency – what saves tax on paper might not be worth it if it triples your accounting work or costs.

Final Note : This overview provides general information up to 2025. Given the complexity and ongoing changes in Portuguese tax law, investors should seek tailored professional advice before acting. Tax outcomes can vary based on individual circumstances (residency status, other income sources, financing methods, etc.). Working with local tax advisors, accountants, or lawyers is invaluable to ensure your rental investment is structured optimally and complies with all regulations. Always do a personalized analysis – the Portuguese tax code has many options, and the best choice is the one aligned to your specific goals and situation.