Are you considering purchasing a property in Portugal? The option to turn it into a lucrative investment by renting to tourists might be worth exploring. To list it on popular platforms like Airbnb or Booking, you are required to obtain an 'AL license'. In Portugal, this activity is known as 'Alojamento Local'. In this article, we explore the recent modifications, provide a comprehensive overview, and guide you through obtaining an AL license.
2024 Short-term Rental Updates
As of November 1, 2024, new Alojamento Local (AL) regulations in Portugal have been introduced to provide greater legal stability for short-term rentals, rolling back several restrictive measures from the 2023 "More Housing" program. These changes primarily impact apartments, offering more flexibility and security for property owners looking to enter or remain in the short-term rental market.
Key Changes
Reintroduction of New AL Licenses: With the lifting of the near-total ban under the "Mais Habitação" program, local councils can now issue new AL licenses based on local housing needs and priorities.
License Transferability Restored: Both AL registrations and licenses are now transferable, simplifying ownership changes for businesses with AL registrations.
Permanent AL Licenses: AL licenses are now permanent and will no longer expire after five years, offering greater long-term stability for property owners.
Reduced Condominium Control: While compliance with building rules is still required, condominium approval is no longer needed to apply for an AL license.
Enhanced Municipal Authority
Municipalities now have full authority to regulate local lodging within their jurisdictions. They may suspend new registrations in specific areas for up to one year while developing new regulations, which must be based on studies of containment and sustainable growth zones and are subject to reassessment every three years. Municipalities can also impose limitations on new registrations in residential areas.
Additional Updates
Capacity Limits: The maximum capacity for local lodging establishments (excluding "rooms" and "hostels") is now nine rooms and 27 guests, with convertible beds allowed if they do not exceed 50% of fixed beds.
Use of Pre-1951 Buildings: Commercial local lodging establishments are now allowed in pre-1951 buildings if they meet current legal standards.
Enforcement: Oversight of these regulations will now be managed by municipalities and the ASAE (Portuguese Food and Economic Safety Authority), with local parish councils no longer responsible for enforcement.
These changes mark a new chapter for Portugal’s local lodging sector, aiming for a balanced approach that supports both tourism and sustainable community growth.
Understanding the Different Types of Portugal's AL License
In Portugal, "Alojamento Local" (AL) accommodations cater to a diverse range of travelers by offering various types suited to different needs. Here’s a breakdown of the types of AL commonly available:
Villas and Houses: These are independent, single-family homes with private spaces, perfect for families or groups. They offer autonomy and privacy, usually with amenities for longer stays.
Apartments: Individual units within a larger building, often providing a balance between privacy and proximity to city amenities. For apartment rentals, property owners may need approval from the condominium association and the local municipal council before listing them for short-term stays.
Lodging Establishments and Hostels: These accommodations range from boutique lodgings with up to 9 rooms to hostels where dormitories are the primary accommodation. Hostels differ by allowing higher guest capacity without strict room limits, ideal for budget-conscious or solo travelers.
Private Rooms: These are rooms within an owner’s primary residence, often limited to three, creating a more personal, bed-and-breakfast feel. Guests get a more intimate experience with local insights from the host.
Unique AL Offerings: In recent years, properties like converted rural houses, beach huts, or eco-friendly lodges have grown popular, especially in Portugal’s scenic coastal and rural areas. These specialized ALs add character and appeal to travelers seeking distinct, immersive experiences.
To operate an AL legally, owners must register their property with the local municipality and follow specific regulations, like capacity limits (usually 9 rooms or 30 guests, except in hostels) and compliance with health and safety standards. Additionally, certain areas like Lisbon and Porto have restrictions to control AL density, with requirements differing based on the property type and location
Essential Requirements for Alojamento Local (AL) Properties
In Portugal, Alojamento Local (AL) properties are subject to specific regulations designed to ensure the safety, comfort, and hygiene of guests. These requirements are crucial for maintaining high standards in short-term rental accommodations. Here’s an overview of the key general requirements:
Condition and Facilities: Properties must be well-maintained, with all facilities and equipment functioning properly. They should be connected to public water supply and sewage systems to ensure basic living standards.
Ventilation and Natural Light: Each property is required to have windows or balconies that provide direct access to the outdoors, promoting natural light and adequate ventilation. Additionally, windows and doors should have coverings to ensure privacy and control light exposure.
Furnishings and Equipment: The accommodation must be furnished with essential items such as beds, seating, kitchen appliances, and utensils, all contributing to a comfortable stay.
Privacy and Security: Properties must be equipped with secure doors to protect guest privacy, and bathrooms should have features that ensure user privacy.
Safety Measures
For AL properties with a capacity of up to 10 guests, basic safety measures are mandated:
Fire Safety Equipment: Fire extinguishers and blankets must be readily accessible to guests.
First Aid Supplies: A first-aid kit should be available on-site for emergencies.
Emergency Contact Information: The national emergency number (112) must be prominently displayed in a visible area of the property.
How to apply for a new AL license in Portugal
Step 1: Verify the AL Authorization Zone
Check if the building or house is situated in an AL-authorized zone. Some Portuguese municipalities establish containment zones ('zonas de contenção') to preserve neighborhoods and ensure affordable rent for locals. These zones have specific limitations on the number of alojamento local establishments, and licenses are personal and non-transferable.
As of July 2023, new AL setups are restricted to certain municipalities, mostly located in inland Portugal, excluding city centers like Lisbon and Porto.
Step 2: Acknowledge Condominium Board Authority
In a building with horizontal property and autonomous fractions, AL opening requires authorization from other condominium owners. If more than half oppose, AL operation is prohibited.
Step 3: Register as an Independent Contractor at the Tax Office
After obtaining your Portuguese Tax Number (NIF), declare the opening of your independent contractor activity at the tax office. Two income declaration options exist: Category B for self-employed individuals, with a simplified tax regime for income up to €200,000, or Category F for property income taxed at a 28% rate.
Professional AL advice from an accountant is recommended for the best tax option.
Step 4: Register the Alojamento Local
Registration is mandatory for AL operation. Begin by submitting a prior notice to the mayor of the municipality where your establishment is located. Include details like the valid property use title, establishment name, modality, and capacity. Required documents include a term of responsibility, copies of the urban land register, a declaration of activity commencement, and testimony of condominium owners' approval.
Access the Balcão do Empreendedor (Entrepreneurs’ Counter) via the EPortugal Portal or Tourism of Portugal Portal for registration.
Step 5: Obtain Compulsory Civil Liability Insurance
Operate responsibly by subscribing to compulsory civil liability insurance. This insurance covers fire risks, property damage, and non-property damage caused to guests and third parties. Failure to have insurance may result in registration cancellation and the revocation of your alojamento local license.
Step 6: Prepare for the Municipal Council Inspection
Following the 30 days after the prior notice to the municipal council, an obligatory inspection of the alojamento local is conducted to ensure compliance with all requirements. The inspection evaluates the establishment's adherence to legal obligations, including:
- Fire extinguisher, fire blanket, first aid kit, visible explanation of the 112 emergency number
- Information on the availability of a complaint book (both in paper and digital format)
- House instruction book in four languages (including Portuguese and English), containing neighborhood and house rules, as well as AL owner/manager contacts
- Acrylic identification plate "AL" visibly affixed
Step 7: Fulfill AL Tax Obligations
Issue Invoice Receipts (Recibos Verdes): Utilize the AT Portal or provide invoices for your services.
Value-Added Tax (IVA): If your annual income exceeds €10,000, you must pay a 6% tax on invoiced amounts. Submit the corresponding tax return quarterly through the AT online portal.
Personal Income Tax (IRS): Comply with Personal Income Tax obligations.
Extra IHRU Tax (15%): Applicable to Alojamento Local situated in high-density regions, effective from July 2023.
Deductible Expenses for Alojamento Local (AL) Properties
When operating an Alojamento Local (AL) in Portugal, understanding which expenses are deductible is essential for maximizing your tax efficiency. If your property is only partially used for AL purposes, you can only claim 25% of the expenses as deductions. The following expenses are generally deductible:
Property Value: A deduction of 4% of the property’s value can be claimed.
Insurance Costs: Premiums for property insurance are fully deductible.
Utilities: This includes electricity, water, and gas bills related to the operation of the AL.
Cleaning Services: Costs incurred for cleaning between guest stays are deductible.
Commissions: Fees paid to booking platforms such as Airbnb, Booking.com, or HomeAway can be claimed.
It’s important to note that tax legislation in Portugal can change frequently, so it’s advisable to verify all relevant information and updates before proceeding with your Alojamento Local business. To ensure compliance with all legal obligations and to receive accurate information tailored to your specific situation, consulting a specialized accountant is recommended.
Where is Alojamento Local (AL) Most Profitable in Portugal?
The profitability of Alojamento Local (AL) properties in Portugal is heavily influenced by location, as some regions attract more tourists and have higher rental demand than others. Understanding these dynamics is crucial for investors looking to capitalize on the short-term rental market.
1. Lisbon
As Portugal's capital, Lisbon is one of the most lucrative markets for short-term rentals. The city's rich history, vibrant culture, and renowned attractions like the Belém Tower and the Alfama district draw millions of tourists each year. Areas such as Baixa, Chiado, and Bairro Alto are particularly sought after, where nightly rates can be significantly higher due to demandent studies, investors in Lisbon can expect high occupancy rates, often exceeding 70%, making it a prime location for AL investments .
2. Algarve
Known for its stunning beaches and warm climate, is another hotspot for short-term rentals. Towns like Albufeira, Lagos, and Vilamoura are popular with both international tourists and local vacationers. The summer season sees an influx of visitors, leading to increased rental prices and occupancy rates . Additionally, the regio outdoor activities attract year-round visitors, providing opportunities for off-peak rental income . Many property owners report higher profitaing peak tourist seasons, and the demand for family-friendly accommodations is particularly strong .
3. Porto
Portugal's second-largest city,s been gaining traction as an AL destination. The city’s charm, characterized by its historical architecture and the famous Douro River, appeals to a diverse array of tourists. While Porto may not have the same level of tourist traffic as Lisbon or the Algarve, its emerging reputation as a cultural hub is leading to increasing interest in short-term rentals . The average rental yields in Porto are competitive, and prooods like Ribeira and Cedofeita are particularly profitable due to their appeal to both tourists and locals .
4. Madeira
The Madeira archipelago is another area where AL can be itable. With its stunning landscapes, pleasant climate, and reputation as a year-round tourist destination, Madeira attracts visitors looking for both relaxation and adventure. The capital, Funchal, offers numerous AL opportunities, particularly for properties with views of the ocean or near tourist attractions . The island’s unique offerings, including hiking trails and botanical gardens, contributey influx of tourists, making it an attractive investment for AL owners .
Ultimately, the profitability of Alojamento Local in Portugal hinges on various cluding location, seasonal demand, and property type. Investors should conduct thorough market research, consider the unique attractions of each region, and analyze potential returns before diving into the AL market. Areas like Lisbon and the Algarve offer robust opportunities for profitable investments, while cities like Porto and regions like Madeira present growing markets with their own unique advantages.
Comparing Short-Term Rentals and Long-Term Rentals
When it comes to real estate investment in Portugal, property owners often face the decision of whether to pursue short-term rentals (STRs) through platforms like Airbnb or opt for long-term rentals (LTRs). Each strategy has its own set of advantages and disadvantages, and the choice between them can significantly affect both profitability and management.
1. Profitability
Short-Term Rentals: STRs tend to generate higher rental income per night compared to long-term rentals. According to a report by AirDNA, properties in prime tourist areas can command nightly rates that are significantly higher than the monthly rent of a long-term lease. However, the income can be variable, heavily influenced by seasonal demand, local events, and occupancy rates.
Long-Term Rentals: In contrast, LTRs provide more stable and predictable income. While the per-month rent may be lower than what could potentially be earned through short-term rentals, landlords benefit from consistent cash flow without the fluctuations seen in vacation rental markets. Additionally, long-term tenants typically remain in place for a year or more, reducing vacancy rates.
2. Management and Maintenance
Short-Term Rentals: Managing an STR requires more active involvement, including regular cleaning, guest communication, and the handling of bookings. Property owners need to invest time or hire services to ensure the property is well-maintained and appealing to guests. This can also include managing multiple guest turnovers each month, which can be labor-intensive.
Long-Term Rentals: Managing LTRs is generally less hands-on. Once a tenant is secured, the landlord’s responsibilities may primarily involve periodic maintenance and addressing any issues that arise. This passive approach can save time and effort, allowing property owners to focus on other ventures or investments.
3. Regulatory Considerations
Short-Term Rentals: The regulatory landscape for STRs in Portugal has been evolving, with specific rules governing licensing and operational standards. As of November 1, 2024, new regulations have been implemented that aim to stabilize the market, but landlords still need to navigate the requirements of obtaining an Alojamento Local (AL) license, which can involve additional costs and compliance with safety standards.
Long-Term Rentals: While LTRs also have regulatory requirements, they tend to be more straightforward, with less frequent changes compared to the short-term market. Landlords need to comply with rental laws, which may include tenant rights and eviction processes, but overall, the regulatory burden is often lighter than that for STRs.
4. Market Demand
Short-Term Rentals: STRs are typically most profitable in high-tourism areas such as Lisbon, Porto, and the Algarve. Investors can capitalize on tourist seasons and events, but they must also be prepared for periods of low demand, which can lead to lower occupancy rates.
Long-Term Rentals: The demand for LTRs can be more stable, especially in urban areas with a consistent population of students, professionals, and families. Markets like Lisbon and Porto have seen a rise in demand for long-term rentals, particularly in neighborhoods that are attractive to expats and young professionals.
Ultimately, the choice between short-term and long-term rentals in Portugal will depend on individual financial goals, the amount of time an investor can dedicate to property management, and the local market dynamics. While STRs may offer higher short-term income, they come with increased management demands and regulatory complexities. In contrast, LTRs provide steady income with less oversight, appealing to those looking for a more passive investment approach.
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What is Alojamento Local?
In Portugal, Alojamento Local (AL), or "Local Accommodation," refers to properties that offer short-term rental services to tourists, as long as they don’t qualify as full tourist resorts. Simply put, AL properties are used commercially for temporary stays.
When buying a property in Portugal with the intent to rent it to tourists, you’ll find a range of options, particularly in high-tourism areas. Larger cities, in particular, offer extensive AL opportunities and strong demand.
Is Condominium Approval Needed for Alojamento Local?
Is it mandatory for all Alojamento Local properties to display the AL sign?
Can I retain an existing Alojamento Local (AL) license when purchasing a property?
How long is the validity period of an Alojamento Local (AL) license once it has been obtained?