Traditionally, the AT treated the amount received as a security deposit as rental income, subject to a 28% IRS rate, similar to rent payments.

However, the arbitration court concluded that a security deposit does not qualify as income, both from a civil and economic perspective, emphasizing that it does not effectively become part of the beneficiary’s assets. The court also noted that the AT’s interpretation could violate constitutional principles, such as equality and tax capacity.

This final and unappealable decision by the court signals a potential shift in how rental security deposits should be treated for tax purposes.

Tax Department

Sofia Quental | Inês Grácio | Flávia Almeida | Catarina Amaral