Real Estate on Tourism Development

Definition

Tourism enterprises are establishments intended to provide accommodation services against remuneration, having an appropriate set of facilities, equipment and complementary services.

Tourism enterprises can be:

  • Hotels and aparthotels

  • Holiday villages

  • Tourist apartments

  • Resorts

All tourism enterprises are mandatory graded between one and five stars, taking into account the quality of the service and of the facilities, in accordance with the requirements defined by the order-in-council (no. 327 / 2008).

Building Licence

Like in any other development, the applications for a building license of tourism enterprise are submitted to the Municipal Council, but its acceptance requires a favourable opinion of Turismo de Portugal, I.P. Furthermore, the interested party will apply for the authorisation for tourism use to the Municipal Council. This organism will inform Turismo de Portugal, of the tourism use request. The deadline for the authorisation is 20 days after the application is submitted.

Multi-Ownership of Tourism Enterprises

Multi-owner tourism enterprises are deemed to be those that comprise condominium units involving one or more buildings. As with all residential units, the condominium units of a tourism enterprise can be sold o plan only after the issuance of the building license by the Municipal Council.

  • The deed of incorporation needs to be registered with the land registry services prior to the conclusion of any contract or promissory contract for the transfer of the condominium units.

  • The owner of a condominium unit of a multi-owner tourism enterprise shall pay the managing entity a fixed service charge in accordance with the criteria stipulated in the deed of incorporation.

  • All works carried out by the owners of condominium units, even when carried out indoors, must be authorised by the managing entity, under penalty of the latter being entitled to re-establish the status quo at the owner’s expense.

Management of Tourism Enterprises

  • Each tourism enterprise shall be managed by a single entity responsible for its full operation and service quality, and also for compliance with applicable laws and regulations.

  • The owner of the accommodation unit is considered as a tourist and as such he can occupy his unit whenever he wants and up to 365 days per year.

  • The management entity shall ensure that the accommodation units are kept furnished and equipped at all times, fully able to be rented to tourists as accommodation and that the mandatory services provided therein are of the category assigned to the tourism enterprise.

  • If the property is owned and operated for tourism purposes by different entities or if the project is a multi-ownership one, the management entity must obtain from all owners a legal document (tourism operation contract) entitling it to manage all the accommodation units.

  • It is mandatory to enter into tourism operation contracts, which give the management entity the approval to commercialise the accommodation units for tourism purposes, regardless of whether the owner uses the property for the entire year, or if they fully or partially transfer it to be operated.

  • The accommodation units cannot be managed directly by their owners, nor may they constitute the object of contracts that compromise their use for tourism purposes, notably leases or creation of rights of use and residence.

  • Submission of accounts and management programme: the management entity of the enterprise shall organise annually the accounts relating to the use of the service charges and submit them for scrutiny by an auditor. Furthermore, it shall establish a management and maintenance programme for the enterprise each year. The management report and accounts referred to in the preceding paragraph shall be sent to each owner, together with the notice convening the annual general meeting, accompanied by the opinion of the auditor.

  • Good management and maintenance performance bond: at multi-owner enterprises, the enterprise’s management entity shall post bond for good management and maintenance in favour of the owners of the condominium units or plots, by means of a bank deposit, fidelity insurance or bank guarantee, issued by an insurer or financial entity of the European Union.

Area Definition

GCA - Gross Construction Area

Total build area including the enclosed area of a building (common areas and private areas), basements, terraces and balconies.

Excludes landscape and external infrastructures.

NLA - Net Leasable Area

All private enclosed areas, private terraces and balconies.

From allotment (alvará), PU or PDM. Total sum measurement from closed covered area limited by exterior wall outside face.

Specific contabilizantion:

  • Interior private stairs or common closed stairs: One stair each two stories.

  • Elevators or lifs: Only base floor.

Excluded:

  • Common vertical circulation, ramps or stair, uncovered or covered but open on façade.

  • Horizontal circulation or common galleries uncovered or covered but open on façade.

  • Basements, with clear height until 2,30 metres, if used for car parking, storage facilities, technical and infrastructure compartments

  • Attic or roof areas, not used for residencial purpose, in special conditions. - Porches or exterior leisure areas, if covered, until 20% of LCA.

  • Covered or pergola roofing exterior leisure areas.

VAT

VAT on Real Estate Transactions

As a general rule, the transfer and lease of real estate are exempt from VAT. However, if the following objective and subjective conditions are fulfilled, the VAT exemption may be waived and the standard 23% VAT rate applies (thus, allowing the deduction of Input VAT):

The Properties:

  • Are registered in the name of the owner and qualified as an urban property or land for construction.

  • Are transferred as an entire property or an autonomous unit.

  • Are transferred or leased for the first time after construction or after an operation in which the VAT exemption was waived (within the 19 years after first occupation).

  • Are used by acquirer/tenant for activities that grant the right to deduct input VAT; and

  • In case of lease, are leased for an annual rent higher than 125 of the acquisition value or construction costs.

The Parties:

  • Perform activities that are subject to VAT or, if they also perform activities which are not, the former activities represent at least 80% of their total annual turnover.

  • Have organised accounts under the Portuguese tax framework; and

  • Are not included in the “special VAT regime for small retailers”.

VAT on Construction Services

  • The VAT charged by the construction services provider to the owner of the property should only be deductible by the latter if and when the relevant property is sold or leased with VAT.

  • If the construction services are referred to a property allocated to an activity subject to and not exempt from VAT (such as tourism activity), the reverse-charge mechanism should apply and the VAT may be simultaneously deducted.

VAT Framework by Typology

Residential Properties

In case the referred properties are acquired by a Promoter who executes the construction and sells the residential properties or units to final clients, the sale by the Promoter will also be exempt from VAT (and therefore the Promoter will not be entitled to deduct the VAT borne with the construction).

Retail Properties

In case the referred properties are acquired by a Promoter, who makes the construction and afterwards sells the retail properties to final clients, provided that the final clients use the relevant properties to develop an activity subject to VAT (and assuming that the remaining conditions will be complied with), the Promoter will be entitled to waive the VAT exemption applicable to the sale of the retail properties and deduct the input VAT borne with its construction.

Touristic Properties

In case the referred properties are acquired by a Promoter who executes the construction and afterwards sells the relevant properties to clients (such as hotel chains), provided that the final clients use the relevant properties to develop an activity subject to VAT (and assuming that the remaining conditions will be complied with), the construction and the subsequent transfer should be subject to the same VAT rules referred to above.

In this regard, please note that if the intention of the Promoter is to sell the relevant properties, the possibility of acquiring the relevant plots through a Portuguese Special Purpose Vehicle (“SPV”) may be considered. A different SPV should be used for each project, which will be the one developing the touristic activity in such properties (including, the rendering of accommodation services).

This alternative should allow (i) the application of the reverse-charge mechanism to the construction services and (ii) the immediate deduction of the VAT self-assed regarding those services. In fact, considering that the activity of the SPV will be an activity subject to VAT, no VAT should be effectively paid by the SPV on the construction services it acquires (the SPV will be self-assessing the VAT due and deducting such VAT in the same return and therefore no effective payment of VAT will be made by the SPV).

Moreover, the Promoter would be able to sell the project to the final investor/client through a share deal (once the construction is finished or even before) without jeopardising the VAT regime applied during the construction.