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What tax obligation arises for an individual who leases out their property?
An individual has leased out a property owned by them to another person under a lease agreement. The VÖEN (tax identification number) of both the lessor and the lessee is indicated in the agreement. Although leasing is not registered as the lessor’s main type of activity (the individual previously engaged in trading at another property using the same VÖEN), is this considered entrepreneurial activity?
The State Tax Service under the Ministry of Economy has stated that, pursuant to Article 124.1 of the Tax Code, income from the lease of movable and immovable property is subject to a 14% withholding tax if such income is derived from an Azerbaijani source in accordance with Article 13.2.16 of the Tax Code.
According to Article 150.1.6 of the Tax Code, legal entities, entrepreneurs and individuals receiving income from non-entrepreneurial activities who make payments provided for under Articles 124, 125 or 126 of the Tax Code are required to withhold tax at source. The person required to withhold tax from rental payments must transfer the tax to the state budget no later than the 20th day of the month following the quarter in which the income was paid and submit the withholding tax return to the tax authority.
In the case described in the inquiry, if rental payments to a resident individual are made by persons registered with the tax authorities as taxpayers, the tax liability on rental income is fulfilled by the lessee through withholding at source at a rate of 14%. In this case, the individual leasing out their property has no obligation to make any tax payments or submit any tax reports.
Pursuant to Article 58.1 of the Tax Code, if the amount of tax, including withholding tax, indicated in a tax return is understated compared with the amount that should have been reported, or if the amount of tax due to the state budget is evaded by failing to submit a tax return, a financial penalty equal to 50% of the understated or evaded tax amount is imposed on the taxpayer, except for the case provided for in Article 58.1-1 of the Tax Code.
Basis: Articles 124 and 150.1.6 of the Tax Code.
An individual has leased out a property owned by them to another person under a lease agreement. The VÖEN (tax identification number) of both the lessor and the lessee is indicated in the agreement. Although leasing is not registered as the lessor’s main type of activity (the individual previously engaged in trading at another property using the same VÖEN), is this considered entrepreneurial activity?
The State Tax Service under the Ministry of Economy has stated that, pursuant to Article 124.1 of the Tax Code, income from the lease of movable and immovable property is subject to a 14% withholding tax if such income is derived from an Azerbaijani source in accordance with Article 13.2.16 of the Tax Code.
According to Article 150.1.6 of the Tax Code, legal entities, entrepreneurs and individuals receiving income from non-entrepreneurial activities who make payments provided for under Articles 124, 125 or 126 of the Tax Code are required to withhold tax at source. The person required to withhold tax from rental payments must transfer the tax to the state budget no later than the 20th day of the month following the quarter in which the income was paid and submit the withholding tax return to the tax authority.
In the case described in the inquiry, if rental payments to a resident individual are made by persons registered with the tax authorities as taxpayers, the tax liability on rental income is fulfilled by the lessee through withholding at source at a rate of 14%. In this case, the individual leasing out their property has no obligation to make any tax payments or submit any tax reports.
Pursuant to Article 58.1 of the Tax Code, if the amount of tax, including withholding tax, indicated in a tax return is understated compared with the amount that should have been reported, or if the amount of tax due to the state budget is evaded by failing to submit a tax return, a financial penalty equal to 50% of the understated or evaded tax amount is imposed on the taxpayer, except for the case provided for in Article 58.1-1 of the Tax Code.
Basis: Articles 124 and 150.1.6 of the Tax Code.