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Tax liability arising when individuals lease their property to non-taxpayers
Tax liability arising when individuals lease their property to non-taxpayers
In practice, we witness individuals renting out their houses, villas, and other properties to individuals who are or are not taxpayers. What tax obligations do they have in this case? Tax expert Javid Velizadeh clarifies the question.
When individuals rent out their houses, other properties to individuals who are or are not taxpayers, the following tax obligations will arise:
Case 1: When the rent to an individual is paid by individuals registered as taxpayers, the tax liability on rental income is fulfilled by the lessee at the source of payment (at a rate of 14 percent). If an individual's income is only from rental, there is no obligation to register for tax and submit a declaration in this regard. Income tax at a rate of 14 percent should be withheld from the amount specified in the rental agreement, and the remaining funds should be paid to the lessor.
Example 1: A natural person, Veliyev Zafar, leased his non-residential property to “BY” LLC for 2,000 manats per month. That is, the amount specified in the contract is 2,000 manats. When paying the person, “BY” LLC will deduct 280 manats of tax from that amount and pay 1,720 manats to the tenant.
2000 x 14% = 280 manats;
2000 – 280 = 1,720 manats.
Case 2: If the person paying the rent is not registered as a taxpayer, the natural person who leases must register with the tax authority as a taxpayer (receive a TIN) and calculate tax at a rate of 14 percent on the income received from this activity. No later than March 31 of the year following the reporting year, the person must submit an “Income Tax Declaration” to the tax authority and pay the amount of income tax calculated during that period to the state budget.
Example 2: A person is engaged in renting out his villa in Gabala for daily rent to non-taxpayers. During the year, he received 80,000 manats in income from the rental. In this case, the person’s annual income tax will be 11,200 manats:
80,000 x 14% = 11,200 manats.
It should be noted that in this case, in accordance with Article 15 of the Law of the Republic of Azerbaijan "On Social Insurance", the mandatory state social insurance contribution is not calculated for that person on income not related to hired work and entrepreneurial activity (interest income, dividends, income from renting property, royalties, income from the provision of assets not used for entrepreneurial activity purposes, the amount of gifts and inheritances, winnings in the form of money from betting games related to sports games, lotteries, as well as other competitions and contests).
In practice, we witness individuals renting out their houses, villas, and other properties to individuals who are or are not taxpayers. What tax obligations do they have in this case? Tax expert Javid Velizadeh clarifies the question.
When individuals rent out their houses, other properties to individuals who are or are not taxpayers, the following tax obligations will arise:
Case 1: When the rent to an individual is paid by individuals registered as taxpayers, the tax liability on rental income is fulfilled by the lessee at the source of payment (at a rate of 14 percent). If an individual's income is only from rental, there is no obligation to register for tax and submit a declaration in this regard. Income tax at a rate of 14 percent should be withheld from the amount specified in the rental agreement, and the remaining funds should be paid to the lessor.
Example 1: A natural person, Veliyev Zafar, leased his non-residential property to “BY” LLC for 2,000 manats per month. That is, the amount specified in the contract is 2,000 manats. When paying the person, “BY” LLC will deduct 280 manats of tax from that amount and pay 1,720 manats to the tenant.
2000 x 14% = 280 manats;
2000 – 280 = 1,720 manats.
Case 2: If the person paying the rent is not registered as a taxpayer, the natural person who leases must register with the tax authority as a taxpayer (receive a TIN) and calculate tax at a rate of 14 percent on the income received from this activity. No later than March 31 of the year following the reporting year, the person must submit an “Income Tax Declaration” to the tax authority and pay the amount of income tax calculated during that period to the state budget.
Example 2: A person is engaged in renting out his villa in Gabala for daily rent to non-taxpayers. During the year, he received 80,000 manats in income from the rental. In this case, the person’s annual income tax will be 11,200 manats:
80,000 x 14% = 11,200 manats.
It should be noted that in this case, in accordance with Article 15 of the Law of the Republic of Azerbaijan "On Social Insurance", the mandatory state social insurance contribution is not calculated for that person on income not related to hired work and entrepreneurial activity (interest income, dividends, income from renting property, royalties, income from the provision of assets not used for entrepreneurial activity purposes, the amount of gifts and inheritances, winnings in the form of money from betting games related to sports games, lotteries, as well as other competitions and contests).