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trWhat is a lease agreement needed for, and what guarantees does it provide to the parties?
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What is a lease agreement needed for, and what guarantees does it provide to the parties?
I temporarily rent out my property to a relative who is an individual entrepreneur for residential purposes. For certain reasons, I do not want to register for tax purposes, and my relative will pay the tax himself. What happens if I do not conclude a lease agreement in this case? What is a lease agreement generally needed for?
The State Tax Service under the Ministry of Economy states that, pursuant to paragraph 1 of Article 7 of the Law of the Republic of Azerbaijan “On Lease”, the main document regulating the relationship between the lessor and the lessee is the lease agreement. The parties are liable under the legislation of the Republic of Azerbaijan and the terms of the agreement for failure to perform or improper performance of their obligations under the lease agreement, including unilateral amendment or termination of the agreement.
Income from the lease of movable and immovable property, where such income is considered income from an Azerbaijani source in accordance with Article 13.2.16 of the Tax Code, is subject to a 14% withholding tax. Income received from renting residential premises owned by individuals to other individuals (except hotels and accommodation facilities located in hotel-type properties) is subject to a 10% withholding tax. Entrepreneurs and individuals receiving income from non-business activities who make such payments are required to withhold the tax at source.
Under Article 92 of the Tax Code, individuals who make payments without withholding tax at source are liable, in accordance with the Tax Code, for failure to withhold and transfer the tax to the state budget.
Based on the circumstances stated in the inquiry, responsibility for failure to withhold tax at source from rental income rests with the person making the payment — namely, the lessee. Under Article 58.1 of the Tax Code, a taxpayer (lessee) committing such a violation may face a financial sanction amounting to 50% of the reduced or evaded tax amount (excluding additional tax assessed as a result of a desk tax audit). Under Article 59.1 of the Tax Code, if taxes are not paid within the prescribed period, interest of 0.1% of the unpaid tax or current tax payment is charged for each day past the payment deadline.
It is also stated that a lease agreement is a notarized document. By refusing to sign a document protecting their rights in the lease relationship, the lessor puts the exercise of those rights at risk. For example, if the lessee damages the property to the point of making it unusable, fails to pay the rent, or refuses to vacate the property despite the lessor’s request, having a lease agreement is essential for protecting the lessor’s rights.
Legal basis: Article 7 of the Law “On Lease” and Articles 58, 92, 124 and 150 of the Tax Code.
I temporarily rent out my property to a relative who is an individual entrepreneur for residential purposes. For certain reasons, I do not want to register for tax purposes, and my relative will pay the tax himself. What happens if I do not conclude a lease agreement in this case? What is a lease agreement generally needed for?
The State Tax Service under the Ministry of Economy states that, pursuant to paragraph 1 of Article 7 of the Law of the Republic of Azerbaijan “On Lease”, the main document regulating the relationship between the lessor and the lessee is the lease agreement. The parties are liable under the legislation of the Republic of Azerbaijan and the terms of the agreement for failure to perform or improper performance of their obligations under the lease agreement, including unilateral amendment or termination of the agreement.
Income from the lease of movable and immovable property, where such income is considered income from an Azerbaijani source in accordance with Article 13.2.16 of the Tax Code, is subject to a 14% withholding tax. Income received from renting residential premises owned by individuals to other individuals (except hotels and accommodation facilities located in hotel-type properties) is subject to a 10% withholding tax. Entrepreneurs and individuals receiving income from non-business activities who make such payments are required to withhold the tax at source.
Under Article 92 of the Tax Code, individuals who make payments without withholding tax at source are liable, in accordance with the Tax Code, for failure to withhold and transfer the tax to the state budget.
Based on the circumstances stated in the inquiry, responsibility for failure to withhold tax at source from rental income rests with the person making the payment — namely, the lessee. Under Article 58.1 of the Tax Code, a taxpayer (lessee) committing such a violation may face a financial sanction amounting to 50% of the reduced or evaded tax amount (excluding additional tax assessed as a result of a desk tax audit). Under Article 59.1 of the Tax Code, if taxes are not paid within the prescribed period, interest of 0.1% of the unpaid tax or current tax payment is charged for each day past the payment deadline.
It is also stated that a lease agreement is a notarized document. By refusing to sign a document protecting their rights in the lease relationship, the lessor puts the exercise of those rights at risk. For example, if the lessee damages the property to the point of making it unusable, fails to pay the rent, or refuses to vacate the property despite the lessor’s request, having a lease agreement is essential for protecting the lessor’s rights.
Legal basis: Article 7 of the Law “On Lease” and Articles 58, 92, 124 and 150 of the Tax Code.