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Tax obligations related to vehicle rental
Tax obligations related to vehicle rental
I want to rent a vehicle that belongs to me to an enterprise. I am not a taxpayer and I am not an employee of the company renting the vehicle. In this case, will the tax obligations arising from the rental agreement be limited to VAT based on the rental amount, or will additional tax obligations arise due to my management of the vehicle?
According to the State Tax Service under the Ministry of Economy, when rent is paid to an individual by a person registered as a taxpayer, the tax obligation on rental income is fulfilled by the lessee at the source (at a rate of 14%) in accordance with the rental agreement. If the individual’s income is solely from rent, there is no obligation for tax registration or to submit a declaration.
If the person paying the rent is not registered as a taxpayer, the lessor must register as a taxpayer with the tax authorities (obtain a Taxpayer Identification Number) and must calculate tax at a rate of 14% on the income obtained from this activity. The lessor must submit an income tax return to the tax authorities no later than March 31 of the following year and pay the calculated income tax to the state budget.
In the case described in your inquiry, 14% income tax should be withheld from the amount specified in the rental agreement, and the remaining amount should be paid to the lessor.
Additionally, according to paragraph 12 of Article 15 of the Social Insurance Law of the Republic of Azerbaijan, mandatory state social insurance contributions are not calculated on income that is not related to salaried work or entrepreneurial activities (such as interest income, dividends, income from leasing property, royalties, income from providing unused assets for business purposes, gifts, inheritance, and winnings from sports betting, lotteries, and other competitions).
Please note that if an individual is involved in performing work (services) related to the main activity of the employer, the payment for these services must consist of a monthly rate (salary), allowances, and bonuses, as specified in part 3 of Article 157 of the Labor Code. In this case, the conclusion of an employment contract is mandatory.
We inform you that Article 58.10 of the Tax Code applies in this situation. According to this article, if an employer creates conditions for hiding (reducing) the income of individuals by involving them in work (services) without a legally valid employment contract, the employer will be subject to a financial penalty for each such case during the calendar year. The penalty is 2,000 manats for the first occurrence, 4,000 manats for the second occurrence, and 6,000 manats for three or more occurrences.
Furthermore, according to part 192.1 of the Administrative Offenses Code, for involving individuals in performing work (services) without a legally valid employment contract, the fine for individuals ranges from 1,000 to 2,000 manats, for officials from 3,000 to 5,000 manats, and for legal entities from 20,000 to 25,000 manats.
I want to rent a vehicle that belongs to me to an enterprise. I am not a taxpayer and I am not an employee of the company renting the vehicle. In this case, will the tax obligations arising from the rental agreement be limited to VAT based on the rental amount, or will additional tax obligations arise due to my management of the vehicle?
According to the State Tax Service under the Ministry of Economy, when rent is paid to an individual by a person registered as a taxpayer, the tax obligation on rental income is fulfilled by the lessee at the source (at a rate of 14%) in accordance with the rental agreement. If the individual’s income is solely from rent, there is no obligation for tax registration or to submit a declaration.
If the person paying the rent is not registered as a taxpayer, the lessor must register as a taxpayer with the tax authorities (obtain a Taxpayer Identification Number) and must calculate tax at a rate of 14% on the income obtained from this activity. The lessor must submit an income tax return to the tax authorities no later than March 31 of the following year and pay the calculated income tax to the state budget.
In the case described in your inquiry, 14% income tax should be withheld from the amount specified in the rental agreement, and the remaining amount should be paid to the lessor.
Additionally, according to paragraph 12 of Article 15 of the Social Insurance Law of the Republic of Azerbaijan, mandatory state social insurance contributions are not calculated on income that is not related to salaried work or entrepreneurial activities (such as interest income, dividends, income from leasing property, royalties, income from providing unused assets for business purposes, gifts, inheritance, and winnings from sports betting, lotteries, and other competitions).
Please note that if an individual is involved in performing work (services) related to the main activity of the employer, the payment for these services must consist of a monthly rate (salary), allowances, and bonuses, as specified in part 3 of Article 157 of the Labor Code. In this case, the conclusion of an employment contract is mandatory.
We inform you that Article 58.10 of the Tax Code applies in this situation. According to this article, if an employer creates conditions for hiding (reducing) the income of individuals by involving them in work (services) without a legally valid employment contract, the employer will be subject to a financial penalty for each such case during the calendar year. The penalty is 2,000 manats for the first occurrence, 4,000 manats for the second occurrence, and 6,000 manats for three or more occurrences.
Furthermore, according to part 192.1 of the Administrative Offenses Code, for involving individuals in performing work (services) without a legally valid employment contract, the fine for individuals ranges from 1,000 to 2,000 manats, for officials from 3,000 to 5,000 manats, and for legal entities from 20,000 to 25,000 manats.