Rental and AL licenses in the Algarve in 2025: everything you need to know about the latest changes

The Algarve remains a sought-after destination for tourists and investors in 2025. But if you want to offer your property for holiday rental, you need to know the current regulations around the so-called "Alojamento Local (AL) licenses". In 2023 and 2024, Portugal has introduced significant changes that affect both new and existing license holders.
Here you will find the most important changes and their significance for property owners.

What is an AL license and why is it important?

The AL licence allows properties to be legally rented out to tourists. It is essential to avoid legal and tax consequences. In total, the AL licenses have been in place since 2014. They were introduced to create clear regulations for short-term rentals, which had become much more important. The most important points at that time were:

• Introduction of a registration obligation for AL companies with the municipalities.
• Definition of different AL types (e.g. apartments, hostels, guest rooms).
• Compliance with safety and hygiene regulations.
• Limit the capacity per establishment to nine rooms and a maximum of 30 guests.

Due to the booming tourism in Portugal and thus also the AL market, as well as growing criticism – especially in cities such as Lisbon and Porto – the government introduced stricter regulations in 2018. This was the case, for example, for owners' associations. Neighbors in apartment buildings were given the right to reject AL companies if they could raise two-thirds of the owners' votes. Furthermore, landlords had to provide detailed information about their activities, including the indication of contact persons and insurance companies.

After a somewhat quieter period in the years that followed, Portugal is increasingly facing growing challenges in the housing sector. Real estate prices and rents, especially in cities such as Lisbon and Porto, have continued to rise and housing costs have become unaffordable for many. Furthermore, tourism and the increase in Alojamento Local accommodation have led to a decline in long-term rental offers. Many households struggle to find affordable housing, while at the same time vacant properties remain unused.

In 2023, the "Mais Habitação" housing programme was adopted, which entailed far-reaching interventions in the AL sector. The AL sector lost many tax advantages, such as reduced income tax rates. In many regions, new registrations of AL businesses have been temporarily stopped altogether in order to reduce pressure on the rental market and new licenses have only been issued for a period of 5 years. In addition, an extraordinary contribution, the so-called CEAL tax, was introduced for Alojamento local accommodation. The calculation of the CEAL tax is based on certain coefficients that link the area of the property to the local housing situation. An extraordinary tax rate of 15 percent should be applied to the respective tax base. After a change of government in 2024, however, the stricter rules were relaxed again. For example, the extraordinary contribution was abolished retroactively to December 31, 2023.

The most important changes in 2024

On November 1, 2024, the law "Decreto-Lei n.º 76/2024" came into force, which establishes new regulations for the rental of holiday accommodation in Portugal. The aim of the reform is to create a balance between the housing market and tourist use, to support young people in accessing housing and to promote sustainability in the real estate sector. The most important changes at a glance:

1. Repeal of previous measures:

Probably the most significant change is the repeal of Article 19 of the "Mais Habitação" law, which previously restricted new AL registrations. From November 1, 2024, new AL registrations will be allowed again throughout the country, with the exception of certain conflict zones. These include Lisbon, where restrictions on new registrations continue to apply. Furthermore, the obligation to renew the AL licence every five years and the automatic deletion of inactive registrations will no longer apply.

Even if this sounds very positive at first, you should not wait too long to register, as the individual cities and municipalities can now issue their own regulations and restrict tourist rentals and determine conflict zones. In regions with more than 1,000 registered AL businesses, a decision must be made within one year as to whether this will be implemented. In addition, an intermediary for AL can be appointed to resolve conflicts between residents, landlords and neighbours. His responsibilities include handling complaints, recommendations, and producing best practice guides.

2. Simplified registration

The regulation on the seasonality obligation for AL in main residences (maximum 120 days) is no longer applicable. This means that property owners can now operate their ALs all year round without any restrictions on the number of opening days. Hostels in apartment buildings still require the approval of the owners' meeting. The period in which municipalities can object to registrations has been extended – from 10 to 60 days or 90 days in so-called "restriction areas".

3. Transferability of licenses

AL licenses are now transferable, even in the event of a change of operator or sale of real estate, which previously led to the expiration of the license. The licenses remain valid and can be transferred, except in conflict areas with different regulations. This makes it easier for property owners to be flexible and allows the license to be passed on when selling apartments or villas.

4. Extended reasons for license revocation

Municipalities can revoke AL registrations, e.g. in the event of a lack of insurance, repeated disturbances of the peace or unauthorised use in restriction areas. In the event of revocation, the AL use of the property is prohibited for up to five years. The licence holder has the right to defend himself and the duration of the cancellation is limited to a maximum of five years.

5. Transparency

Detailed information on registered AL businesses – including capacity, ownership data and insurance status – is now published on the Turismo de Portugal website: https://rnt.turismodeportugal.pt/RNT/Pesquisa_AL.aspx

Applying for an AL license (Alojamento Local) is now even easier: In addition to visiting the town hall, you can conveniently submit your application online. The Balcão do Empreendedor, a service portal provided by the Portuguese government, is available for this purpose. Currently, the platform is only available in Portuguese, and you will need either a valid Citizen Card (Cartão de Cidadão) or a digital key issued by the competent authority to complete the application process.

6. Limitation of capacity

The maximum capacity per AL business is still nine rooms, but the number of guests has been reduced from 30 to 27. Additional beds such as folding or pull-out beds are allowed as long as they do not exceed 50% of the fixed number of beds and the accommodation is equipped accordingly.

Important tax regulations for the sale of an AL property

If you own a property with an AL license and run the business personally as a sole proprietor, the 3-year period remains relevant. This means that you will have to stop renting and wait 36 months before selling to benefit from the normal tax rules. However, if the sale takes place during the AL's operation or within 36 months of the termination of activity, no expenses can be deducted from capital gains tax, and the tax is levied on 95% of the profit generated resulting from the difference between the real estate purchase and sale value. This arrangement can have significant financial implications and should therefore be taken into account when planning a sale.

Result

Since the introduction of the AL regime in 2014, regulation has taken a clear direction: from the initial boom and promotion of tourism to stronger regulation and a better balance between tourist and long-term residential use. The reforms reflect the increasing pressure on the housing market in Portugal, especially in the big cities and tourist hotspots. The new regulations are intended to make the market more transparent, fairer and more sustainable.

Legal notice: The information presented here is not legally binding and no legal claim arises in the event of errors. If you have any legal questions, we recommend consulting a lawyer.