The essentials
Short-term rental income in Portugal (Alojamento Local) is subject to IRS — the Portuguese personal income tax — under either Category F (property income, flat rate of 28% on net income after deductions, no business activity required) or Category B (business income, coefficient applied to gross revenue). In Category B, the standard coefficient for apartments and villas is 0.35 (35% of revenue is taxable); for guesthouses and hostels with hotel-type classification, the coefficient is 0.15. Short-term rentals located in municipal containment zones are subject to the higher coefficient of 0.50 (Budget Law 2026 / Law 73-A/2025). The declaration is filed in the Modelo 3 form between April and June: Annex F for Category F, Annex B (Section 4A, field 417 for apartments and villas) for Category B. In Category B, Social Security contributions — calculated on 20% of gross revenue at a rate of 21.4% — begin in the 13th month of activity.
All income from short-term rental activity in Portugal — known locally as Alojamento Local (AL) — must be declared in the annual IRS (the Portuguese personal income tax return). The applicable tax regime depends on a choice that every property owner must make: declare the income under Category F (property income) or switch to Category B (business income).
This choice has direct consequences for the amount of tax payable, the deductions available, and the administrative obligations during the year. This guide covers both regimes, the applicable coefficients in 2026, the correct way to complete the Modelo 3 form, and the tax treatment of capital gains on property sale.
For a complete overview of all taxes applicable to short-term rentals in Portugal — including VAT, municipal property tax and Social Security — see the complete guide to taxes on short-term rentals in Portugal.
Category F or Category B: which applies to your short-term rental?
The first distinction is about the regime, not the rate.
Category F — property income is the default regime for short-term rental owners who have not opened a business activity with the Tax Authority. There is no requirement to hold an active CAE business code. Net income — after legally admissible deductions — is taxed at the flat withholding rate of 28%.
Category B — business and professional income applies when the property owner opens a business activity with the Tax Authority using CAE code 55201 (Alojamento Local em Apartamentos). Instead of deducting actual expenses, a coefficient is applied directly to gross revenue, and the resulting figure is the taxable income.
The choice between the two regimes is made before filing the annual return. Moving from Category F to Category B requires opening a business activity; reverting to Category F requires closing it.
Income tax in Category F: 28% on net income
In Category F, tax is calculated on net income: gross revenue minus admissible deductions.
What can be deducted
The following deductions are permitted in Category F (Article 41 of the CIRS):
- Maintenance and repair works carried out on the property in the previous 24 months — repairs, painting, appliance replacement. Works that increase the property’s assessed value are excluded.
- Insurance against fire and other risks, and the mandatory civil liability insurance for short-term rentals.
- Mandatory condominium fees.
- IMI (Imposto Municipal sobre Imóveis — municipal property tax) paid in the year to which the income relates.
- Stamp Duty (Imposto do Selo) on the property.
Not deductible: mortgage interest (even when the property is allocated to short-term rental activity), furniture, appliances, or property depreciation.
Tax rate and income aggregation
The flat withholding rate is 28% on net income (Article 72(1)(e) of the CIRS). This rate is applied separately, without adding the property income to the owner’s other income.
Property owners may elect income aggregation (englobamento): in this case, the net property income is added to all other income and taxed under the general IRS brackets. This option is advantageous when the owner’s marginal tax bracket rate is below 28%.
| Taxable income bracket (2026, Mainland Portugal) | Rate |
|---|---|
| Up to €8,342 | 12.5% |
| €8,342 — €11,458 | 14% |
| €11,458 — €15,980 | 23% |
| €15,980 — €21,146 | 26% |
| €21,146 — €27,146 | 32.75% |
| €27,146 — €39,791 | 37% |
| €39,791 — €51,997 | 43.5% |
| €51,997 — €86,634 | 45% |
| Above €86,634 | 48% |
The minimum existence threshold in 2026 is €12,880 — income below this level is effectively protected from taxation.
Income tax in Category B: the simplified regime and coefficients
In Category B, tax is not calculated on actual net income but on a fraction of gross revenue defined by a coefficient (Article 31 of the CIRS). The legal premise is that the coefficient already incorporates an implicit deduction for expenses.
Coefficients applicable to short-term rentals
| Type of establishment | Coefficient | Legal basis |
|---|---|---|
| Apartments and villas | 0.35 | Art. 31(1)(c) CIRS |
| Guesthouses and hostels | 0.15 | Art. 31(1)(a) CIRS |
| AL in municipal containment zones | 0.50 | Budget Law 2026 / Law 73-A/2025 |
| Property allocated to activity — capital gains | 0.95 | Art. 31(1)(d) + n.4 CIRS |
The coefficient of 0.35 applies to the vast majority of short-term rental owners: apartments and villas with CAE 55201. Only 35% of gross revenue enters the tax calculation.
The coefficient of 0.15 applies to guesthouses and hostels whose AL type is recognised by the Tax Authority as a hotel-type activity. For standard apartments and villas, this coefficient does not apply.
The coefficient of 0.50 was introduced by the Budget Law 2026 (Law 73-A/2025) for short-term rentals located in municipal containment zones. Owners in these zones now have 50% of revenue as taxable income — instead of 35%.
Numerical comparison
| Situation | Annual revenue | Coefficient | Taxable income |
|---|---|---|---|
| Apartment outside containment zone | €20,000 | 0.35 | €7,000 |
| Apartment in containment zone | €20,000 | 0.50 | €10,000 |
| Hostel / guesthouse | €20,000 | 0.15 | €3,000 |
The resulting taxable income is added to the owner’s other income and taxed under the general IRS brackets — there is no fixed flat rate in Category B.
Containment zones: the coefficient rises to 0.50
The Budget Law 2026 (Law 73-A/2025) introduced a tax surcharge for short-term rentals located in containment zones defined by municipal councils. Instead of the standard coefficient of 0.35, these properties are subject to a coefficient of 0.50.
Containment zones are defined by municipal regulation. In Porto, the map is available at geo.cm-porto.pt/regulamentoal/mapa. The dedicated articles on containment zones in Porto and Lisbon detail the affected parishes and the implications for new registrations.
For owners in containment zones considering opening a Category B business activity, this higher coefficient significantly reduces the tax advantage relative to Category F.
How to declare: Modelo 3 step by step
The IRS return is filed between 1 April and 30 June of the year following the income year, via the Portal das Finanças (Portugal’s tax portal).
Category F — Annex F
- Select Annex F in the Modelo 3 form.
- Complete Section 4: gross income and admissible deductions per property (land registry reference and year of the receipts).
- The system automatically calculates the net income and applies the 28% rate.
- To elect income aggregation, mark the option in Section 1.
Category B — Annex B
- Select Annex B in the Modelo 3 form.
- Section 3, field 08: enter the primary CAE code (55201).
- Section 4A:
- Field 417 for apartments and villas (coefficient 0.35).
- Field 416 for guesthouses and hotel-type activities (coefficient 0.15).
- Section 8 (first Category B return only): indicate the allocation of the property to the business activity.
- Section 9 and Sections 15.1/15.2: for owners who, while in Category B, wish to elect Category F treatment for their property income from short-term rental.
Capital gains on property sale
Selling a property that has been used for short-term rental activity generates a capital gain that may be taxed differently depending on the timing of the sale.
Property allocated to Category B activity
If the property is allocated to the activity at the time of sale — or was de-allocated less than 3 years before —, the capital gain is taxed in Category B with a coefficient of 0.95: 95% of the gain is taxable income.
If the property was de-allocated from the activity more than 3 years before the sale, the capital gain moves to Category G (capital gains) under the general rules: only 50% of the gain is taxable (Article 43(2) of the CIRS).
IMT exemption and primary residence
If the property had benefited from an IMT (property transfer tax) exemption as a primary and permanent residence, allocating it to short-term rental activity within the following 6 years causes that exemption to lapse (Article 11(8)(a) of the CIMT). The IMT that would otherwise have been paid becomes immediately due.
Social Security: what changes when you open a business activity
Opening a Category B business activity for short-term rental in Portugal has implications for Social Security beyond income tax.
When contributions begin: Social Security contributions as an independent worker begin in the 13th month after the business activity is opened — not from month one.
Relevant income base: calculated as 20% of gross short-term rental revenue (not on taxable income).
Rate: 21.4% on the relevant income base (Article 168(1) of the Portuguese Social Security Contributory Regime Code).
Example: with annual revenue of €20,000, the relevant income base for Social Security is €4,000, and the annual contribution is €856 (€4,000 × 21.4%).
Owners who are simultaneously employed and already making Social Security contributions should consult a certified accountant regarding the rules on concurrent contributions.
For a complete guide to VAT on short-term rentals in Portugal — including when the exemption applies and when VAT must be charged —, see the dedicated article.
What you need to know
- Category F (default): 28% on net income after deductions for maintenance works, insurance, IMI and condominium fees. No business activity required.
- Coefficient 0.35: applies to apartments and villas in Category B — 35% of gross revenue is taxable income (Article 31(1)(c) CIRS).
- Coefficient 0.15: applies to guesthouses and hostels with hotel-type classification — not to standard apartments or villas.
- Containment zones: higher coefficient of 0.50 in 2026 (Budget Law 2026 / Law 73-A/2025).
- Social Security: begins in the 13th month; calculated on 20% of gross revenue at a rate of 21.4%.
- Declaration: Annex F in Category F; Annex B (Section 4A, field 417 for apartments) in Category B. Deadline: April–June.
- Capital gains: de-allocation less than 3 years ago → Category B coefficient 0.95; more than 3 years → Category G, 50% taxable.
Where to start
The choice between Category F and Category B is the most important tax decision for any short-term rental owner in Portugal. For lower revenues or properties with significant deductible expenses, Category F may be simpler and more advantageous. For higher revenues, the coefficient of 0.35 in Category B substantially reduces taxable income — but it entails opening a business activity, additional reporting obligations, and Social Security contributions from the 13th month.
The impact of the 0.50 coefficient for containment zones changes this equation: owners in those areas should recalculate the relative advantage of each regime before deciding.
For a complete view of all taxes applicable to short-term rentals in Portugal — income tax, VAT, IMI and CEAL —, see the complete guide to taxes on short-term rentals in Portugal. For the full process of opening a short-term rental in Portugal, from RNAL registration to the start of operations, see the guide to opening a short-term rental in Portugal.
If you would prefer to delegate the full management of your short-term rental in Portugal, contact Host Wise for a free property assessment.
Frequently Asked Questions
In Category F (property income), property owners do not need to open a business activity with the Tax Authority: the net income — after deductions for maintenance works, insurance, municipal property tax (IMI) and condominium fees — is taxed at the flat withholding rate of 28%. In Category B (business and professional income), the owner must open a business activity with CAE code 55201; a coefficient is applied to gross revenue (0.35 for apartments and villas, 0.15 for guesthouses and hostels), and the resulting figure is the taxable income. Category B is generally more advantageous at higher revenue levels, but it entails more administrative obligations and Social Security contributions from the 13th month of activity.
The standard coefficient for apartments and villas in alojamento local is 0.35 (Article 31(1)(c) of the Portuguese Personal Income Tax Code — CIRS): only 35% of gross revenue is considered taxable income. For guesthouses and hostels classified as hotel-type activities, the coefficient is 0.15 (Article 31(1)(a)). For short-term rentals located in municipal containment zones, the coefficient rises to 0.50 (Budget Law 2026 / Law 73-A/2025). In all cases, the resulting taxable income is subject to Portugal’s general IRS income tax brackets.
No. The 28% rate applies as a flat withholding tax on net income in Category F. In Category B, the taxable income (gross revenue × coefficient) is added to the owner’s other income and taxed under the general IRS brackets, which range from 12.5% to 48%. In Category F, owners may elect for aggregation (englobamento) if their marginal tax bracket rate is lower than 28%.
In Category F, the following are deductible: maintenance and repair works carried out on the property in the previous 24 months (excluding improvement works that increase the property’s assessed value); mandatory insurance against fire and other risks; mandatory condominium fees; municipal property tax (IMI); and Stamp Duty (Imposto do Selo) on the property. Not deductible: mortgage interest, furniture, appliances, or property depreciation.
Yes. All short-term rental income must be declared in the annual IRS return, regardless of the amount received. In Category F, Annex F of the Modelo 3 form is completed. In Category B, Annex B is used. Failure to declare rental income constitutes an omission of income and is subject to a fine.
Social Security contributions as an independent worker begin in the 13th month after opening the business activity. The relevant income base is 20% of the gross short-term rental revenue, and the contribution rate is 21.4% (Article 168(1) of the Portuguese Social Security Contributory Regime Code).
If the property is allocated to the short-term rental activity (Category B) at the time of sale — or was de-allocated less than 3 years before —, the capital gain is taxed in Category B with a coefficient of 0.95: 95% of the gain is taxable. If the property was de-allocated more than 3 years before the sale, the gain moves to Category G (capital gains) and only 50% is taxable (Article 43(2) of the CIRS). If the property had benefited from IMT exemption as a primary residence, allocating it to short-term rental activity within the following 6 years causes that exemption to lapse.
Yes. To move to Category B, simply open a business activity with the Tax Authority (Autoridade Tributária) under CAE code 55201. The switch takes effect in the tax year in which the activity starts. Once in Category B, it is still possible to elect to have the property income taxed under Category F rules within Annex B itself (Sections 9 and 15.1/15.2), if that is more advantageous — while keeping all obligations of the open business activity.