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trWhat are the rules for calculating and paying withholding tax on the rental of non-residential premises by an individual entrepreneur?
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What are the rules for calculating and paying withholding tax on the rental of non-residential premises by an individual entrepreneur?
The State Tax Service under the Ministry of Economy has stated that, pursuant to Article 124.1 of the Tax Code, income derived from the rental of movable and immovable property is subject to withholding tax at a rate of 14% if such income is sourced in Azerbaijan.
According to Article 150.1.6 of the Tax Code, legal entities, individual entrepreneurs and individuals earning income from non-business activities who make payments specified in Articles 124, 125 or 126 are required to withhold tax at the source of payment. The tax withheld from rental payments must be transferred to the state budget no later than the 20th day of the month following the quarter in which the income was paid. The withholding tax return must also be submitted to the tax authority.
Accordingly, when a person registered as a taxpayer rents property from a resident individual, the obligation to fulfil the tax liability on rental income by withholding tax at the rate of 14% rests with the tenant.
Furthermore, under Article 58.1 of the Tax Code, if the amount of withholding tax reported is lower than the amount that should have been declared, or if the tax payable to the state budget is evaded by failing to submit a tax return, a financial penalty amounting to 50% of the understated or concealed tax may be imposed on the taxpayer.
In response to the inquiry, the State Tax Service clarified that the tax liability arising from rental income from immovable property is calculated based on the rental amount specified in the agreement concluded between the parties.
For example, if the monthly rent specified in the lease agreement is AZN 1,500, the withholding tax will amount to 14% of that sum, or AZN 210:
- Monthly rental payment: AZN 1,500
- Withholding tax (14%): AZN 210
- Amount payable to the individual landlord: AZN 1,290
- Amount payable to the state budget: AZN 210
- Rental expense deductible from the individual entrepreneur's income: AZN 1,500
Thus, the individual entrepreneur must pay AZN 1,290 to the individual landlord each month and transfer AZN 210 to the state budget. In this case, the total rental expense deductible from income amounts to AZN 1,500. The tax amount is not added to the rental payment and cannot be treated as an expense totalling AZN 1,710.
Legal basis: Articles 124.1, 150.1.6 and 58.1 of the Tax Code.
The State Tax Service under the Ministry of Economy has stated that, pursuant to Article 124.1 of the Tax Code, income derived from the rental of movable and immovable property is subject to withholding tax at a rate of 14% if such income is sourced in Azerbaijan.
According to Article 150.1.6 of the Tax Code, legal entities, individual entrepreneurs and individuals earning income from non-business activities who make payments specified in Articles 124, 125 or 126 are required to withhold tax at the source of payment. The tax withheld from rental payments must be transferred to the state budget no later than the 20th day of the month following the quarter in which the income was paid. The withholding tax return must also be submitted to the tax authority.
Accordingly, when a person registered as a taxpayer rents property from a resident individual, the obligation to fulfil the tax liability on rental income by withholding tax at the rate of 14% rests with the tenant.
Furthermore, under Article 58.1 of the Tax Code, if the amount of withholding tax reported is lower than the amount that should have been declared, or if the tax payable to the state budget is evaded by failing to submit a tax return, a financial penalty amounting to 50% of the understated or concealed tax may be imposed on the taxpayer.
In response to the inquiry, the State Tax Service clarified that the tax liability arising from rental income from immovable property is calculated based on the rental amount specified in the agreement concluded between the parties.
For example, if the monthly rent specified in the lease agreement is AZN 1,500, the withholding tax will amount to 14% of that sum, or AZN 210:
- Monthly rental payment: AZN 1,500
- Withholding tax (14%): AZN 210
- Amount payable to the individual landlord: AZN 1,290
- Amount payable to the state budget: AZN 210
- Rental expense deductible from the individual entrepreneur's income: AZN 1,500
Thus, the individual entrepreneur must pay AZN 1,290 to the individual landlord each month and transfer AZN 210 to the state budget. In this case, the total rental expense deductible from income amounts to AZN 1,500. The tax amount is not added to the rental payment and cannot be treated as an expense totalling AZN 1,710.
Legal basis: Articles 124.1, 150.1.6 and 58.1 of the Tax Code.