Rental income tax in Portugal explained — short-term vs long-term, AL licenses, and how IFICI changes the rates.
If you own property in Portugal and rent it out, the tax treatment depends almost entirely on one choice: long-term lease or short-term holiday let. The two sit in different categories of the Portuguese income tax code, use different rates, allow different deductions, and carry completely different licensing obligations. Getting the classification right matters more than any optimization you do afterwards.
This guide covers both routes as the rules stand in 2026, including the new reduced rates for long-term rentals, the current state of the Alojamento Local rules after several years of reversals, how residents and non-residents are treated, and where IFICI (the regime everyone calls NHR 2.0) fits in.
Income from a standard lease contract falls into Category F of the Portuguese personal income tax (IRS). By default it is taxed autonomously, meaning at a flat rate, separate from your other income.
The 2026 State Budget rewrote the rate structure. The old ladder of reductions tied to contract length (15% for contracts of five to ten years, 10% for ten to twenty, 5% for twenty or more) is gone. The current structure is simpler:
Two details make the 10% rate more useful than it first appears. It applies to contracts already in force on 1 January 2026, not just new ones, as long as the rent and duration conditions are met. And 2,300 euros per month is a high ceiling; most residential leases in Portugal, including in Lisbon and Porto, fall under it. The regime is currently legislated to run through 2029 [VERIFY: end date of the moderate rent 10% regime].
Category F is taxed on net income. Before the rate applies, you deduct documented expenses actually borne to earn the rent:
Financing costs are the notable exclusion: mortgage interest is not deductible, and neither is depreciation or furniture. Keep invoices with your tax number on them. Undocumented expenses do not count.
Instead of the flat rate, you can opt to aggregate rental income with your other income and pay progressive rates, which run up to 48% plus a solidarity surcharge. This only makes sense if your total income is low enough that your marginal rate falls below the flat rate that would otherwise apply. For most landlords with other income, the autonomous rate wins. Run the numbers before ticking the box.
Holiday lets in Portugal require an Alojamento Local (AL) registration. Operating without one is illegal and fined. The AL framework went through a turbulent stretch, so it is worth stating clearly where things stand.
The 2023 Mais Habitação housing law hit the AL sector with three measures: a national suspension of new apartment registrations, a five-year expiry on existing licenses with mandatory renewal, and an extraordinary annual levy on AL operations known as CEAL.
All three were repealed. Decree-Law 76/2024, in force since 1 November 2024, scrapped the five-year expiry (registrations are once again indefinite), lifted the national suspension, and made licenses transferable when a property is sold, reversing the rule that had made them personal and non-transferable. The CEAL levy was revoked with retroactive effect to the end of 2023, so it effectively never collected.
What survived is decentralization. Municipalities now hold real power over AL. They can define containment zones where new registrations are restricted or refused, and Lisbon and Porto use that power actively. Before buying a property with AL plans, check the specific parish rules, not just the national law. A property that cannot get a registration is a long-term rental whether you like it or not.
Condominium rules also matter: in buildings constituted as horizontal property, condominium assemblies retain the ability to oppose AL activity in certain circumstances. Get this checked before committing.
AL income is business income, Category B, not Category F. Most individual operators use the simplified regime, available while gross annual income stays under 200,000 euros. Under it, tax applies not to your full revenue but to a coefficient of it:
The remaining 65% (or 50%) is deemed to cover expenses, whether or not you actually spent it. That deemed-expense logic comes with a partial verification rule: a slice of the deemed deduction, equal to 15% of gross income, must be backed by actual documented expenses or personal income tax allowances, otherwise the shortfall is added back to taxable income.
For a resident, the taxable portion then joins the rest of your income at progressive rates. Above 200,000 euros, or by option, you move to organized accounting and are taxed on real profit with real deductions.
AL also drags in obligations that Category F never does: opening a business activity with the tax office, issuing invoices for every stay, VAT registration (accommodation carries 6% VAT, though a small-operator exemption applies below 15,000 euros of annual turnover), tourist registration in the RNAL, guest reporting to the border authority, and potential social security contributions. The gross yields of short-term letting are real, but so is the administrative load.
Non-residents are taxed in Portugal on Portuguese-source rental income, full stop. There is no escaping Category F by living abroad.
The mechanics are broadly the same: non-residents pay the autonomous rates on net Category F income and can deduct the same documented expenses. Whether non-residents can access the new 10% moderate rent rate on the same terms as residents should be confirmed for your specific situation [VERIFY: non-resident eligibility for the 10% moderate rent rate].
The practical differences are procedural. Non-residents need a Portuguese tax number, and non-EU/EEA residents need a fiscal representative. You file a Portuguese IRS return reporting the rental income, and you will usually also declare it in your country of residence, with a treaty credit for the Portuguese tax paid. Portugal, as the country where the property sits, taxes first under every treaty Portugal has signed.
For non-residents running AL, the Category B rules apply in the same way, with the taxable portion under the simplified regime taxed at the non-resident flat rate rather than progressive rates.
IFICI, the Tax Incentive for Scientific Research and Innovation, is the regime that replaced NHR for people becoming Portuguese tax residents from 2024. It matters for rental income in two opposite ways.
Portuguese rental income gets nothing from IFICI. The 20% flat rate covers eligible employment and self-employment income from qualifying activities. Rent from a Lisbon apartment is not a qualifying activity. It is taxed under the normal Category F rules described above, at 10%, 25%, or 28% depending on the contract. AL income is Category B, but running holiday lets is not on the eligible activities list either, so it gets no 20% rate.
Foreign rental income is where IFICI delivers. Rental income from property outside Portugal is exempt from Portuguese tax for IFICI beneficiaries, provided the source country may tax it under the applicable double tax treaty. Since property income is taxable where the property sits under essentially every treaty, foreign rents are exempt in Portugal for the ten-year IFICI period in practice.
So an IFICI holder with a flat in London and a flat in Lisbon pays UK tax on the London rent and nothing in Portugal on it, while the Lisbon rent is taxed in Portugal like anyone else's.
Owning the property triggers taxes independent of renting it.
IMI is the annual municipal property tax, charged on the property's taxable value (VPT, usually well below market value) at 0.3% to 0.45% for urban property, set by each municipality. It is deductible against Category F rental income, which softens it for landlords.
AIMI is the additional layer for larger holdings. Individuals pay 0.7% on the part of their total VPT above 600,000 euros (1.2 million for couples opting to file jointly), 1% above 1 million, and 1.5% above 2 million. Companies holding residential property pay from the first euro at 0.4%. The 2026 housing package introduced an AIMI exemption for units leased under the moderate rent regime [VERIFY: scope and conditions of the AIMI exemption for moderate rent leases].
Buyers should also budget for IMT (transfer tax) and stamp duty at purchase, but those are one-off costs, not annual ones.
The rate you pay is mostly decided before any rent arrives: lease type, contract length, licensing, and how ownership is structured. Fixing it afterwards is possible but more expensive than doing it once, correctly.
OnCorporate advises foreign owners and investors on rental taxation, AL setup, IFICI, and cross-border filings. If you want your situation reviewed before the tax authority does it for you, talk to us at oncorporate.com/contact.
