For those who may not recall, Mais Habitação suspended the issue of new registrations for local Short-Term Rental establishments in the categories of apartments and lodging establishments in autonomous building units across the country, except for inland areas and the autonomous regions of the Azores and Madeira. This suspension aimed to curb the proliferation of local Short-Term Rentals in densely populated urban areas, where tourism pressure was perceived by the government as a problem for residents and a cause for rising housing prices in Portugal. This decision, however, overlooked the significant role Short-Term Rental entrepreneurs have played in rehabilitating much of the real estate in urban areas.

Under the Mais Habitação framework, local Short-Term Rental registrations were limited to a five-year duration, renewable for another five years, upon the express decision of the competent municipality. This measure would also apply to licenses already in force at the time the legislative package came into effect, requiring their validity to be reassessed in 2030. The goal was to ensure periodic reviews of accommodation conditions and compliance with legal and safety requirements. However, such measure represented no more than a threat to the stability of the entrepreneurs who had invested in the sector as they faced the risk of losing their licenses every five years.

Additionally, Mais Habitação established a rule that prevented the transfer of the operating license along with the sale of the property intended for local Short-Term Rental, causing licenses to expire upon such sale. This measure was particularly punitive in areas where the issue of new licenses was suspended or in containment zones, devaluing properties for investors and preventing them from recouping their investments upon sale.

Moreover, and when we believed Mais Habitação could not be anymore unfair and punitive towards this profitable and significant sector in Portugal, the government increased taxes associated with local Short-Term Rentals by creating the Extraordinary Local Accommodation Contribution (CEAL) - a 15% fixed rate on a variable taxable base - and amended the Municipal Property Tax Code (IMI), to set the property age coefficient at 1 for such properties with local accommodation establishments, regardless of their actual age.

This package of government approved measures imposed severe and disproportionate restrictions on the sector and represented a genuine attack on private initiative and property ownership. These policies, under the guise of regulating Portugal's housing market, have unfairly targeted small business owners who invested their life savings in local accommodation businesses and have seen their life projects and expectations frustrated.

Thankfully, after this unprecedented attack on local Short-Term Rental, the new government in office since the 2nd of April, recognizing the importance of this sector in a country where tourism contributes 9,5% to the Gross Domestic Product (GDP), revised the aforementioned policies focusing on providing greater stability and encouraging investment in the sector.

In this regard, on the 27th of May, the new government approved a decree-law that amended the legal framework applicable to local Short-Term Rental establishments, decentralizing regulatory powers to municipalities and repealing the unfair, restrictive and disproportionate measures.

As a result, the suspension on the issue of licenses was revoked, and each municipality will henceforth be allowed to set rules tailored to their local needs and to decide on the distribution of new licenses by parish.

This adjustment aims to create a balance, eliminating what were perceived as disproportionate restrictions and allowing for greater autonomy at a local level. Granting more power to municipalities fosters a decentralize management system that enables local authorities - who are more attuned to the specifics of each area - to make more informed and appropriate decisions.

Furthermore, the new government intends to eliminate the expiration of local Short-Term Rental licenses and revoke the non-transferability of licenses imposed by the previous government, allowing licenses to transfer with the sale of properties, thereby protecting the investments made by the sector's entrepreneurs. This provides greater legal security to investors and encourages long-term investment, which is what is to be expected in a country that has relied on tourism for many years.

Finally, on the 21st of June last, the Portuguese Parliament approved the legislative authorization to repeal the CEAL and the fixed age coefficient applicable to local accommodation establishments for IMI calculation purposes.

By doing so, the current government seeks to demonstrate that, in contrast to the previous government, the plan is not to penalize the investment in the sector but rather to promote and encourage it. Reducing the tax burden on the local Short-Term Rental sector will certainly contribute to the sector’s recovery and growth.

The changes presented by the new government have been met with relief by local Short-Term Rental owners, who saw the measures in Mais Habitação as a threat to their business viability.

One can therefore conclude that these recent legislative changes promise to revitalize the sector, ensuring its sustainable growth and contributing to the local economy without overburdening communities, reinforcing local Short-Term Rental as a fundamental pillar of tourism and the country's economy.

Credits: Supplied Image; Author: Client;

Written by Maria do Rosário Tavares de Pina

E-mail: mrtpina@cca.law

Website: www.cca.law