Pedro Correia Real EstateRental income tax: 25% or 10%?
Two owners rent identical apartments in Quarteira for €1,200 a month. One signs a one-year contract and pays 25% on the net rent. The other signs a ten-year contract and pays 10%. Same tenant, same building, €1,800 a year of difference. Here is the rule, and the catches.
The standard rate
Rental income (Category F) is taxed at an autonomous rate of 25% on the net amount, for residents and non-residents alike. Residents may instead add it to their other income and pay at the progressive scale, which only helps at low total incomes.
Net amount means rent received minus documented costs of the property: IMI, condomínio charges, insurance, repairs and maintenance, and the municipal rate. Not mortgage interest, not furniture, not your own time or travel.
The reduced rates for longer leases
| Lease length | Rate |
|---|---|
| Under 5 years | 25% |
| 5 to under 10 years | 15% |
| 10 to under 20 years | 10% |
| 20 years or more | 5% |
Each renewal that takes the contract past the next threshold moves you to the lower rate. The lease must be registered with Finanças.
The 10% rate from 2026
The 2026 State Budget cut the rate from 25% to 10% for "moderate rents": permanent-housing leases with a rent of up to €2,300 a month (2.5 times the 2026 minimum wage), which covers almost every long-term lease in the Algarve. Existing contracts qualify, there is no minimum lease length, and the rate applies to rent received after the law entered into force and until 31 December 2029. Conditions: the lease is for permanent housing and communicated to Finanças (Modelo 2), the income is declared under Category F, and you do not opt for aggregation. Short-term and commercial lets are excluded. A separate scheme (RSAA) gives 0% on leases of at least 3 years with rent at or below 80% of the county median. The tax authority's detailed guidance was still arriving when this was written, so confirm the mechanics with your accountant before you file. See the rental income tax calculator for your numbers under each rule.
Worked example: €1,200 a month
| 1-year lease | 10-year lease | |
|---|---|---|
| Gross rent | €14,400 | €14,400 |
| Deductible costs (IMI €500, condomínio €900, insurance €200, repairs €400) | €2,000 | €2,000 |
| Net rent | €12,400 | €12,400 |
| Rate | 25% | 10% |
| Tax | €3,100 | €1,240 |
| Difference per year | €1,860 |
Over ten years that is €18,600, before counting that a long-term tenant rarely leaves the apartment empty between contracts.
The catches
- The tenant is the risk, not the rate. Ten years with the wrong tenant costs more than any tax saving. Screening, a registered contract and a deposit are the job.
- Rent updates still apply. The annual coefficient published by the state applies to long leases too. A long contract is not a frozen rent.
- Early termination by the landlord can bring the reduced rate back to 25% with interest.
- The reduced rate applies to the net. If your costs are high, the saving in euros is smaller than the headline suggests.
What I do for my own 15 units
Every unit I let long-term is on a registered contract of at least five years with a screened tenant, a two-month deposit and a maintenance clause. The lower rate is one reason. The other is that a tenant who expects to stay five years treats the apartment as a home, and I see it in the condition at inspections.
Short-term rental is a different regime
Income from Alojamento Local is business income (Category B), not rental income. Under the simplified regime a fixed share of gross income is taxed at your marginal rate. Which regime leaves you more depends on occupancy and costs; compare them in the short-term vs long-term calculator.
The short version
If you plan to keep the property and let it long-term, sign for five years or more with a registered contract and a screened tenant. The free audit shows the figure for your property under each option.
Sources: Personal Income Tax Code (CIRS) article 72 (autonomous rates and reductions for long leases); Finanças lease registration rules; 2026 State Budget proposal (10% rate for rents up to €2,300). Last checked 2026-10-10. General information, not tax advice.
FAQ
I live abroad. Do I pay Portuguese tax on the rent?
Yes. Rental income from a property in Portugal is taxed in Portugal at the same autonomous rates, and you declare it in your country of residence under the double-tax treaty. You need a Portuguese tax representative if you live outside the EU.
Can I deduct the mortgage interest?
No. Interest is not deductible against rental income in Portugal. IMI, condomínio, insurance, repairs and maintenance are.
What if the tenant leaves before the lease term ends?
The reduced rate applies to the contract as signed and registered. If it ends early for reasons attributable to you, the tax authority can claw back the difference. A tenant leaving does not trigger it.
Do I have to register the lease?
Yes, on the Finanças portal within the month after signing, with stamp duty of 10% of one month's rent. Unregistered leases do not get the reduced rates.