Bureaucracy, Legal & Tax
Useful information about IRS declaration submission

Declare property income

If you're an owner and haven't taken care of your accounting for the earnings you made in 2019, Kleya wants to help you fill out your IRS declaration. The deadline to deliver the IRS declaration is June 30. 

The Government has adopted a set of measures to encourage the rental market.

Now that the macroeconomic scenario has changed, and in the face of uncertainty, we look forward to maintaining the rules and programmes created, especially those promoting long-term leasing. As for the areas of containment of local accommodation, it may soon stop making sense.

Given the current situation, Parliament approved the suspension of rents for those who have lost income, up to one month after the end of the State of Emergency, as well as the suspension of the expiry of contracts until June 30. That is, housing and non-housing leases, or their renovations, do not end unless the lessee does not object to the termination. For more information see www.deco.proteste.pt/investe/imobiliario

The affordable rental program exempts landlords from IRS and IRC.

Traditional rental. Encompass or not encompass?

Property income for rented or subleased properties shall be declared in Annex F. If they are obtained by a dependent who is part of his household but chooses to deliver the IRS separately from his wife, report only half of the income. The same happens if you are divorced, have joint custody, and your child lives in an alternate residence agreement. A different situation is if you live with your child and have remarried or live in union with someone else. When you deliver the IRS separately, you can only declare 25% of the property income. Your spouse or partner declares the other 25%, with the remaining 50% being declared by the father or mother who does not have the same tax domicile as the child.  

In traditional rentals, only net income is taxed. That is, the value of rents should discount the costs of repair and conservation of the property (e.g. paintings, heating or central air conditioning), condominium and maintenance expenses (quotas, expenses with porters, cleaning, etc.), IMI, local taxes (such as sanitation and sewers) and fire insurance or multi-risk risks. If you have costs in mobile mediation, you can also submit them in Table 4.1 of Annex F.

Let's take an example: last year he obtained €10,000 in property income and bore €3,000 in expenses (duly documented). The IRS payable will be 1960 euros (7000 × 28%). 

The property must be declared in Table 4.1. If you are located in an urban rehabilitation area or have been recovered under official urban rehabilitation strategies, please also identify it in Table 6A. As for the properties recognized by the respective municipality as establishments of historical and cultural interest, they must be indicated in Table 6B. Finally, Table 6C is intended for rustic properties leased to forest management entities or units. 

Property income from traditional rentals is taxed autonomously at a rate of 28 per cent. However, you can choose, in table 6F, for the inclusion. This allows you to aggregate an all income so that they are taxed according to the existing tier table. For a small investor, it is only worth it if the rate applied to your tax base is not more than 28 per cent. There is, however, a situation in which encompassing can be useful, and it makes sense to consider: if you have losses from previous years, the law allows you to report them in the following five years. It's a matter of doing math.

Access the tax guide in www.deco.proteste.pt/impostos

Long-term rental. The longer the term, the lower the tax rate

Traditional leases for permanent housing concluded or renewed since January 2019, lasting two years or more, are one of the great novelties. Under the law that entered into force in January 2019 and the ordinance of April 12 of the same year, landlords can benefit from a reduction in the tax rate. 

To do so, they need to comply with a set of requirements, namely, to communicate to the Treasury the lease and the changes, if any, by delivering the model 2 declaration, and to pay the stamp duty, which corresponds to 10% of the agreed monthly income. In the event that there is no written contract, you can prove the existence of the legal lease relationship through other documents (such as rent receipts). By February 15 of the following year, the owner must also inform, through the Finance Portal, the renewals of the contract and its duration, as well as the date of termination and the reason for its end. 

It is essential to correctly fill in Table 4.2 of Annex F in order to be entitled to a reduction in the tax rate.

As we mentioned, the new law establishes different levels of taxation depending on the term of contracts (see the table next to it). For example, for those with a duration equal to 2 years or greater and less than 5 years, a reduction of 2 percentage points is applied over the rate of 28 per cent. For each renewal of the same period, the tax drops 2 per cent. That is, from six renovations (the equivalent of 14 years at least), the landlord pays 14% on property income. Only in contracts lasting more than 20 years, up to a limit of 30 years, the rate is 10 per cent. The doubt generated around these rules forced the Tax Authority to publish, in February this year, a letter. It is clear from the reading that, regardless of the initial duration of the contract, its renewals are considered in isolation.  
Simply put: What matters is the duration of the renewal and its tier in which it falls.

 

Duration of the lease

 IRS Tax

IRS Tax (for equal renewal)

Less than 2 years

28%

 

From 2 to 5 years

26%

Minus 2 percentage points up to 14%

From 5 to 10 years

23%

Minus 5 percentage points up to 14%

From 10 to 20 years

14%

 

Over 20 years

10%

 

For example, a 5-year, a 1-day contract, will have a 23 per cent tax. However, if you renew every two years, it falls into the second step (26%), which means that the owner will pay, after four renewals, 18% (2% less for each renewal). And so on up to the limit of 14 per cent. Which is why we recommend that you opt for the minimum period of each interval. For contracts prior to the entry into force of the law, the reasoning is the same, and the scheme applies to renewals initiated in January 2019. 

For example, in a 2010 lease, concluded for ten years and renewable for five years, income for the renewal period (between 2020 and 2025) will be taxed at the rate of 23 per cent. 

It is in Table 4.2 of Annex F that you will have to register these contracts. The completion is similar to that of Table 4.1 Be sure to supplement Table 4.2.A with the start date, renewals and termination of the contract. The "communication" column is intended to indicate whether, by February 15, the communication provided for in the Finance Portal for the contracts in force in the previous year was carried out. 

Affordable rental program:IRS and IRC exemption

This modality can be interesting from a financial point of view, in that it exempts landlords from IRS and IRC. However, to be eligible, the income charged must be at least 20% lower than the reference value set for the property. To enjoy the tax benefits, the owners who joined the program, in force since July, also have to submit the lease on the online platform of the Housing Portal accompanied by the following documents: certificates and accommodation form signed by both parties; proof of compulsory insurance; and proof of registration of the contract on the Finance Portal.

It is in Annex F, Table 4.1, that you must declare the property that generated income in 2019. The contract number shall be indicated in table 6D. This is the only way you benefit from the full IRS exemption. As a rule, we do not advise the inclusion. 

To enjoy the tax benefits, landlords who have joined this program must submit the lease on the Housing Portal.

Local accommodation. Two taxation options

Proceeds from the local accommodation of a villa or apartment fall under category B, but there are two ways of declaring them. For those who do not get more than 200 thousand euros per year (simplified regime), one is to opt for the rules of this category (Table 4A of Annex B), where the income subject to tax is 35% (it becomes 50% in the containment areas).

Finance automatically assumes that the remaining 65% are necessary charges for the activity. You still have to justify 15% of the expenses for the tax not to be increased. Over 200,000 euros, it is required to have organized accounting and taxation complies with IRC rules. You can compensate if the costs of the activity are 65% higher than the income since it is possible to deduct all the charges. The alternative is to opt for category F rules, whose tax rate is 28% (check field 1 in Table 15). Here, the collectable income results from the difference between earnings and expenses, for example, with condominium, works and IMI. 

From the outside, there are charges with bank loans, furniture, etc. If you have income from other categories, for example, dependent work, you can compensate for the building income, i.e. put them together in a single cake, if the tax rate is less than 28 per cent. Note that when removing your property from the local accommodation, you may be generating capital gains that will be taxed in categories B and G. This just does not happen if you move the property to the traditional rental for five consecutive years.


Comment. A window of opportunity?

Trying to measure rent price changes these days is a bit extemporaneous. The current situation is, for the time being, uncontrollable and its outcome cannot be predicted. Still, in the face of the economic downturn, it is certain that prices should fall. Does it make sense to talk about opportunities? Yes. It is an opportunity for the owners to be more pragmatic in defining the values practised in the lease.

Establishing an income price just because you have installed state-of-the-art equipment or because the neighbour also asks for this amount should not be arguments for an investor.

It's also an opportunity for tenants to do their math well and understand what they can pay with their budget. 

For real estate agents, this is an opportunity to help homeowners set rent prices correctly. There are several ways to find this value. 

If it is only based on the market comparison, the sky is the limit. Now, disposable income, whether from Portuguese or foreigners, does not have the sky as a limit. 

Finally, the Government can think about solutions to protect landlords and tenants. Not of social support to the head, these already exist, but for those who abide by the rules. 

If all those changes, we can change the paradigm of a misconception that renting is for those who don't have enough money to buy a house.

Source: Negocios online - Deco Proteste May 5 2020

 

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