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Are the expenses incurred for the rented property deducted from income?
Are the expenses incurred for the rented property deducted from income?
We have a lease agreement dated 01.03.2024. However, since the facility has not started operations, we have not registered it with the tax authorities. Currently, expenses related to this facility are being incurred. After the facility is registered, will tax be calculated from the payment source from 01.03.2024 to the present? Will these expenses be considered deductible from income?
According to the State Tax Service under the Ministry of Economy, pursuant to Article 115.3 of the Tax Code, the deduction of repair expenses for leased fixed assets is determined in accordance with Articles 115.4 – 115.6-1 of this Code.
According to Article 115.6-1 of the Tax Code, expenses incurred for the repair of fixed assets not accounted for on the lessee's balance sheet and not offset against rent or reimbursed by the lessor are deducted from income through depreciation over the term of the contract, but for no less than 5 years, in proportionate amounts for each year. Repair expenses for leased fixed assets are capitalized separately for each year and depreciated according to the rules specified in this article.
To register the leased business entity (subject) with the tax authorities, you must submit the "Application for the registration of the taxpayer's branch, representative office, or other business entity (subject)" to the tax authority where the facility is located, attaching the lease agreement.
According to Article 58.2-1 of the Tax Code, for failure to register a business entity (subject) with the tax authorities in accordance with the procedure established by the body designated by the relevant executive authority, or for providing false information about the area of the business entity (subject), a financial penalty of 40 manats is applied to micro-entrepreneurship entities, non-profit organizations, and individuals engaged in non-profit activities, and 400 manats for other individuals.
According to Article 124.1 of the Tax Code, if the income from rent for movable and immovable property, as well as royalties paid by a resident or permanent representative of a resident or non-resident in the Republic of Azerbaijan, is deemed to be derived from sources in Azerbaijan in accordance with Article 13.2.16 of this Code, a 14% tax is withheld at the payment source.
If the lessor is a legal entity, there is no withholding tax obligation at the payment source.
We have a lease agreement dated 01.03.2024. However, since the facility has not started operations, we have not registered it with the tax authorities. Currently, expenses related to this facility are being incurred. After the facility is registered, will tax be calculated from the payment source from 01.03.2024 to the present? Will these expenses be considered deductible from income?
According to the State Tax Service under the Ministry of Economy, pursuant to Article 115.3 of the Tax Code, the deduction of repair expenses for leased fixed assets is determined in accordance with Articles 115.4 – 115.6-1 of this Code.
According to Article 115.6-1 of the Tax Code, expenses incurred for the repair of fixed assets not accounted for on the lessee's balance sheet and not offset against rent or reimbursed by the lessor are deducted from income through depreciation over the term of the contract, but for no less than 5 years, in proportionate amounts for each year. Repair expenses for leased fixed assets are capitalized separately for each year and depreciated according to the rules specified in this article.
To register the leased business entity (subject) with the tax authorities, you must submit the "Application for the registration of the taxpayer's branch, representative office, or other business entity (subject)" to the tax authority where the facility is located, attaching the lease agreement.
According to Article 58.2-1 of the Tax Code, for failure to register a business entity (subject) with the tax authorities in accordance with the procedure established by the body designated by the relevant executive authority, or for providing false information about the area of the business entity (subject), a financial penalty of 40 manats is applied to micro-entrepreneurship entities, non-profit organizations, and individuals engaged in non-profit activities, and 400 manats for other individuals.
According to Article 124.1 of the Tax Code, if the income from rent for movable and immovable property, as well as royalties paid by a resident or permanent representative of a resident or non-resident in the Republic of Azerbaijan, is deemed to be derived from sources in Azerbaijan in accordance with Article 13.2.16 of this Code, a 14% tax is withheld at the payment source.
If the lessor is a legal entity, there is no withholding tax obligation at the payment source.