August 7, 2024

Portuguese CEAL tax: the complete guide (August 2024)

Update: This article describes the original CEAL, an extraordinary contribution on short-term rentals in Portugal, imposed through the “More Housing” (“Mais Habitação”) package published on October 2023, and revoked on August 7, 2024. We have updated this article to confirm that CEAL has been revoked, along with the fixation of the depreciation coefficient for Short-Term Rental / Alojamento Local establishments.

Chronological Developments:

October 2023: The Portuguese government proposed a set of penalizing measures for short-term rentals, including the CEAL tax, which is described in this article. You can read all about the measures of the “More Housing” package for Local Accommodation in this article and learn all the details about CEAL by staying on this page.

May 2024: The new government proposed the reversal of the “More Housing” measures for short-term rentals, including CEAL.

June 2024: On June 14, 2024, through the publication of Order No. 30/2024-XXIV by the Secretary of State for Fiscal Affairs, Cláudia Reis Duarte (document in Portuguese), the CEAL payment deadline was extended by 120 days so that property owners would not have to pay the fees imposed by the “More Housing” package, which were expected to be reversed.

August 2024: On August 7, 2024, through the publication of Law No. 152/2024, Series I of 2024-08-07 in the Diário da República gazette (official English version here), the government revoked this short-term rental extraordinary contribution, as well as the fixation of the depreciation coefficient applicable to Local Accommodation establishments for the purposes of municipal property tax settlement (“IMI”).

You can continue on this page to read the original article published by the GuestReady team in October 2023. It has also been updated to reflect the revocation of CEAL.

Original article: October 2023

The complete guide to the CEAL tax – alojamento local extraordinary contribution

‘Mais Habitação’ (lit: more housing) was the name given to a set of legislative changes (Law No. 56/2023, of October 6, 2023) that aimed to make it easier to access long-term housing. To this end, the amendments to the law intervened in many factors and stakeholders in the Portuguese real estate market, from tenants to investors, including owners of short-term rentals (STRs).

The most relevant measure from a tax point of view for the STR activity was the creation of a new tax: the CEAL (Contribuição Extraordinária sobre o Alojamento Local), which would affect the vast majority of alojamento local owners.

READ MORE: ALL THE LEGAL CHANGES FOR SHORT-TERM RENTALS IN PORTUGAL – MAIS HABITAÇÃO

Estimate now how much your property could be generating by using our income calculator.

What is the CEAL tax?

“Mais Habitação” stipulated that the alojamento local extraordinary contribution (CEAL) was a fixed rate tax of 15% which would fall on a variable tax base, not only related to the AL itself, but also to other external factors .

This tax base was calculated via the relationship between the short-term rental’s economic coefficient and the urban pressure coefficient which was then applied to the gross private area of the rental (AL).

This tax base would be obtained by the relationship between the STR’s economic coefficient and the urban pressure coefficient applied to each rental’s gross private area.

We will go over these new terms and the calculation behind the alojamento local extraordinary contribution in this article. But before that, we answer some frequently asked questions for those looking for a quick summary of the tax.

If you are only interested in the tax formula, click here to scroll down the page to where you can find our simulation.

Were all short-term rentals required to pay the CEAL?

Despite its generic name, the CEAL would not be applied to all short-term rentals with a valid license, and the exceptions were based on the location of the alojamento local, and even its use throughout the year. We will explain this next.

Short-term rentals obliged to pay the CEAL

The alojamento local extraordinary contribution (CEAL) applied to short-term rentals whose activity was carried out in residential properties, especially building units or fractions or parts or divisions of urban buildings suitable for independent use – especially in coastal areas (with some exceptions), as we will explain shortly.

CEAL would also apply to all short-term rentals that met the legal requirements throughout the entirety of the Portuguese territory, including the autonomous regions of the Azores and Madeira.

Properties located in interior territories (as identified by the Government in the annex to Order No. 208/2017, which lists all official inland territories) and those located in municipalities that have not declared a housing shortage would not be subject to the CEAL.

The criteria that defined if the CEAL will apply or not to each short-term rental would be the existence of a valid short-term rental license (licença de alojamento local, registo de titularidade de alojamento local) on December 31 of each civil year.

We also remind you that, according to the other measures of Mais Habitação, short-term licenses would automatically expire if the license holder does not prove the licence is being used for its intended purpose on any given tax period. GuestReady has already contacted Tourism of Portugal and prepared a guide on this too.

Short-term rentals exempt from paying the CEAL

Short-term rentals located in inland areas

“Mais Habitação” granted several exceptions to the short-term rental sector in a set of inland locations so that the they could continue to be developed through tourism activity. Although not all inland areas are free from all new rules, all short-term rentals in those listed inland areas were exempt from paying CEAL. You can click here to read about the inland territories exempt from CEAL in our blog.

Short-term rentals operating in buildings in full ownership

Licenced short-term rentals not located in urban buildings in “horizontal property” or with full ownership but with areas or fractions capable of independent usage would be exempt from praying the alojamento local extraordinary contribution.

In other words, detached houses would not pay CEAL, including those operating “estabelecimentos de hospedagem” (lodging).

Short-term rentals registered via rooms

Alojamento Local licenses can also be issued for rooms. These differ from room-renting lodging facilities, including hostels, as they are registered at the tax residence of the alojamento local holder and the number of licenced rooms cannot exceed 3 per property.

These room short-term rentals were also exempt from paying the alojamento local extraordinary contribution.

Short-term rentals registered in the owner’s permanent and main residence

SRT with a license registered in the same location as the owner’s permanent and main residence were also exempt from paying CEAL if the unit was not rented more than 120 days per year.

Please note that there was no official information on how these limits would be monitored.

Short-term rentals registered in properties intended for non-residential uses

Additionally, short-term rentals operating in properties whose constitutive title does not designate them for residential use are also exempt from paying this alojamento local extraordinary contribution. “Non-residential uses” mean, for example, properties intended for commercial use, which the municipality of Porto allowed and still allows to be converted into short-term rentals in its alojamento local regulations.

Possible exemptions

Short-term rentals in areas with reduced housing pressure

When it came to exemptions based on geographical location, in addition to interior / inland areas, the short-term rentals located in parishes that meet all of the following requirements in a given year were also exempt from paying the CEAL:

1. - The parishes within municipalities whose yearly Municipal Housing Plan demonstrated an existing positive balance of housing and student accommodation supply in the municipality;
  - The parishes also located in municipalities that had not declared a housing shortage;
  - They didn’t have any part of their territory classified as a high-pressure urban area.

Please note that, since these details would only be confirmed after each year, an year in which the STR supposedly had already operated, it was not possible to know in advance whether the CEAL would have to be paid for a given year in these parishes based on these criteria.

The CEAL payment

Many questions were unanswered for a long time regarding the CEAL calculation and the implications of this tax, including whether this extraordinary contribution was even constitutional or not. We will try to answer as many questions as possible in this article. If we have not been able to clarify all the doubts you may have, do not hesitate to contact our team without any obligation.

Who had to pay the CEAL?

All short-term rentals that were not exempt and that had a valid license on December 31 of 2023 would start paying CEAL annually.

The debtor of CEAL would always be the local accommodation license holder.

However, if the license holder did not pay the tax, and if the property owner was not the same as the license holder, the owner would be jointly liable for this debt.

When and how was the CEAL paid?

The tax would be due every year, and for this, the Government would have to provide an official form for the purpose of reporting the CEAL, which would have to be filled out and submitted by the license holder.

The deadline for submitting this declaration to the Portuguese Tax Authority would end on June 20 of the following year for which the CEAL applies, and the respective amount had to be paid by June 25.

Was the CEAL deductible?

The alojamento local extraordinary contribution was not deductible. In other words, its payment would not be considered for the determination of taxable profit in corporate income tax, even when accounted for as an expense of the taxable period.

What is a deductible expense?

Deducting an expense means that the amount paid is disregarded for the determination of profits, so that corporate income tax/personal income tax rates do not apply to these amounts that were actually spent on mandatory expenses, in this case related to the activity.

What was the CEAL rate?

The CEAL had a fixed rate of 15% that was applied to a variable tax base.

This tax base would vary depending on the performance of the short-term rental and traditional rental markets throughout the country, as we will explain now.

Calculation of the CEAL tax base

The taxable base on which the 15% CEAL was to be applied was determined by combining three factors: 1) the short-term rental economic coefficient, 2) the urban pressure coefficient, and then 3) the gross private area of the short-term rental itself.

How to calculate the CEAL of your local accommodation? Multiply the economic coefficient for local accommodation by the urban pressure coefficient, then multiply the result by the gross private area of your local accommodation, and finally multiply everything by the value of the rate for the extraordinary contribution of local accommodation (15%).

These two coefficients that would be applied to the gross area of the short-term rental were calculated based on flexible factors, including income generated in both the short-term and traditional rental markets throughout the country. Therefore, the exact values to be used in the CEAL calculation would have to be communicated annually by the Ministry of Finance.

The short-term rental economic coefficient

The short-term rental economic coefficient was calculated by the relation of two values:

1. The average annual income generated per available short-term rental room for the year prior to the one being calculated, a value that would be indicated by the National Institute of Statistics, I.P. annually.

1. 1. 1. Attention! For the calculation of the tax due in 2023, the values obtained by INE for 2019 would be used.

2. The minimum gross area of a T1-type housing unit, a value that is defined by law as 52 square meters.

The urban pressure coefficient

The calculation of the urban pressure coefficient was also determined by the intersection of two values:

1. The base rent growth per m2 in the short-term rental location between 2015 and the year before the one being calculated,

2. divided by the base rent growth per m2 also between 2015 and the year before the one being calculated, in the area of the country where this variation is greater.

For more details on this issue, Article 7 of the annex to Article 22 of the Mais Habitação legislation also presents several paragraphs that seek to clarify the concept of “location” and how these values and their calculations will be determined and limited in relation to other land use conditions for CEAL payment assessment.

However, as we mentioned earlier, values used in these calculations would always be presented by the Ministry of Finance each year. The coefficients to be used in the calculation of the taxable base for 2023 CEAL would have to be published by the Government within 60 days of the entry into force of “Mais Habitação”. This was done via official ordinance on December 29th, which you can consult by clicking here. The link is in Portuguese, but you’ll find a city list and, next to each city, the value you would need to calculate your CEAL tax.

Update on the coefficients: Ordinance No. 455-E/2023, dated December 29th

Although in this ordinance, Article 3 is titled “economic coefficient,” it only presents information related to the urban pressure coefficient. The economic coefficient was not published. Below we present the coefficients used for the calculation in 2023 according to GuestReady’s experts’ legal interpretation.

Simulation: how to calculate the 2023 CEAL to be paid in 2024

To determine the CEAL you could owe for 2023, you should first consider both coefficients explained above (the short-term rental economic coefficient (which we’ve been calling the “economic coefficient” for simplicity in this post) and the urban pressure coefficient), and multiply them by the gross private area of your accommodation to calculate your taxable base. To ascertain the amount due, you should then calculate 15% on this base.

Given that the economic coefficient was never been published in an official ordinance, GuestReady’s experts present their legal interpretation of the previous available legislation. But caution: we remind you that these data are presented by us so that you can simulate how much you could have to pay in 2024 so you can have an approximate value in mind. It could be possible that our interpretation of the law or even our calculations do not coincide with the final formula that was to be presented by the Tax Authority (AT) before the payment period. In any case, we hope to help you have an idea of the amount you could owe.

Short-term rental economic coefficient for 2023: based on the average income per room of short-term rentals in 2019 (RevPAR 2019 as published by INE), we will multiply this value (which is 29.90 euros) by a fiscal year (always 365 days), thus obtaining the annual average income the Mais Habitação legislation requires, “10,913.5”. Next, we will divide this value (10,913.5) by the minimum size of a 1-bedroom apartment (52m2). Then, we obtain the value 209.875 as the economic coefficient of local accommodation for 2023.

Urban pressure coefficient for 2023: as this coefficient depends on the location of your property, you should look for the “zone” in the list published by the government on December 29th in Ordinance No. 455-E/2023 (you can click here to open the Diário da República page with the publication of this list – again, the page is in Portuguese, but you’ll find a list of all the areas and the number you need right in front of it).

STR area: you need to get this value from your property registry document (“Caderneta Predial”), and it is listed as “área bruta privativa” of your short-term rental (STR).

CEAL rate: the CEAL is a 15% tax that applies to the taxable base we calculated above with the coefficients multiplied by your property area. Thus, we finish this calculation by determining these 15% (multiplying the previous result by 0.15).

Practical simulation:

We will consider a property located in Porto, in Campanhã, with an area of 75 m2. According to Ordinance No. 445-E/2023, the urban pressure coefficient to consider will be 0.4854.

Thus, we will calculate: Economic Coefficient x Urban Pressure Coefficient x STR Area x 0.15 = 209.875 x 0.4854 x 75 x 0.15 = 1,146.07 euros.

The possible unconstitutionality of the alojamento local extraordinary contribution

Various aspects of this extraordinary contribution were questioned as possibly unconstitutional.

One of them was the fact that the tax could be due by the owner of the property allocated to the local accommodation activity, not by the short-term rental licence holder, thus creating joint liability for the property owner when they were different persons.

However, the main legal criticism of CEAL concerned a possible violation of the constitutional principles of taxation based on real income and the ability to contribute.

These principles underlie the use of progressive rates and percentages in the Portuguese tax system, so that taxpayers with similar incomes pay similar amounts, but taxpayers with different incomes pay different amounts.

As we explained, the CEAL did not use the revenues generated by each short-term rental in its calculations.

Instead, the law opted to use the short-term rental economic coefficient, using the average income earned by local accommodations throughout the national territory (the value that was to be shared by INE each year).

This meant that the base will be the same, even in situations where the incomes earned are very different because the calculation used values that are the same for every property.

In other words, two local accommodations with very different availability (one available for rent for two months, another available year-round), and thus with very different incomes, would pay a similar tax because the CEAL used those values.

It is worth noting that in the specific article (article 6, paragraph a, of the annex to Article 22 of Law No. 56/2023, of October 6, “Mais Habitação”), it stated: “The average annual income per short-term rental available room calculated by the National Institute of Statistics, I.P., for the year prior to the tax event.”

For this reason, the tax disregarded actual individual ability to contribute, and was based on a “presumption of income” principle, with property owners being taxed based on what they are presumed to have earned through the generalization of short-term rental income generated, rather than what they actually earned in each relevant tax year.

However, the alojamento local extraordinary contribution has been revoked on August 2024, so these questions are no longer on the table.

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