The lease agreement is subject to income tax. A typical consequence of this situation is the obligation to pay tax on this account. However, it is worth paying attention to the formal obligations associated with the lease. Accounting service providers often wonder whether they need to report a lease agreement to the tax office. Let’s figure out how to account for rent in 2024!
Rent as a separate source of income in 2024
The Personal Income Tax Law contains an extensive list of sources of income from which taxpayers can receive certain property benefits.
Clause 6 of Part 1 of Article 10 of the Personal Income Tax Law states that the source of income is rent, sublease, hire, sublease and other agreements of a similar nature, including lease, sublease of special units of agricultural production and the farm or its components for non-agricultural purposes or for running special units of agricultural production, with the exception of property related to business activities.
Turning to the question of the form of taxation, we note that according to section 9a(6) of the Personal Income Tax Law, income received by taxpayers from the source specified in section 10(1)(6) is taxed as a lump sum on registered income in accordance with rules established by the Law on Lump-sum Income Tax.
Regarding the formal obligations associated with tax calculation, we recall that with both forms of taxation it is necessary to remember to pay advance payments/lump sums throughout the year. Then, at the end of the tax year, the taxpayer submits – depending on the chosen form of taxation – personal income tax-36 or personal income tax-28.
The main formal obligation in connection with paying rental tax is the need to file an annual tax return. Currently, there is no obligation to file a declaration when making advance payments.
Notification of the lease agreement to the tax office in 2024
Staying on topic with tax forms, we note that the registered lump sum applies to private rentals by law (from 2023). On the other hand, general rules apply to business activities. This is the basic form unless the taxpayer elects a registered lump sum.
Thus, according to paragraph 1 of Article 9 of the Law on a one-time tax, a written application for the choice of taxation of income from non-agricultural entrepreneurial activity in the form of a one-time tax on registered income for a given tax year is submitted by the taxpayer to the head of the tax authority authorized at the place of residence of the taxpayer, and in the case of a hereditary enterprise – at the last place of residence of the deceased entrepreneur, until the 20th day of the month following the month in which he received the first income in this regard in the tax year, or until the end of the tax year if he received the first such income in December of the tax year.
Thus, as can be seen from the presented provisions, if you choose a form with a fixed rate, it is enough to make a one-time payment of tax in a given year to the corresponding bank account number at the tax office. In the current legal situation, individuals are no longer required to submit a special declaration to the tax office to choose this form.
Thus, it should be noted that neither the general rules provisions of the Personal Income Tax Act nor the registered lump sum provisions of the Law contain rules requiring notification of the tax office about a lease agreement.
Notification of the lease agreement to the tax office is not mandatory due to any provisions of the tax acts governing the taxation of leases.
Lease agreement form
At this stage, it is also worth turning to the norms of civil law relating to the lease agreement itself. Thus, according to Article 659 of the Civil Code, under a lease agreement, the lessor undertakes to provide the tenant with a thing for use for a definite or indefinite period, and the lessee undertakes to pay the lessor the stipulated rent.
On the other hand, Article 660 of the Civil Code establishes that a lease agreement for real estate or premises for a period of more than one year must be concluded in writing. If this form is not observed, the contract is considered concluded for an indefinite period. Thus, it should be emphasized that the lease agreement does not necessarily have to be in writing, since the Civil Code does not establish such a requirement (although it does stipulate certain sanctions in case of non-compliance with this form).
The provisions of the Civil Code also do not require that the lease agreement – in any form – be brought to the attention of the head of the tax service.
Notification of the tax office about the lease agreement in necessary situations
However, we must emphasize that there are situations in which the lease agreement must be notified by the tax authority. This is a so-called incidental tenancy agreement, regulated by the Tenants Protection Act.
As follows from the definition contained therein, an occasional lease agreement is a lease agreement for residential premises, the owner of which, being an individual, does not conduct business in the field of rental premises, concluded for a certain period not exceeding 10 years.
The peculiarity of such an agreement is that its mandatory element is the application of the tenant in the form of a notarial deed, in which he submits himself for compulsory execution and undertakes to vacate and rent out the premises used under a temporary lease agreement within the period specified in the owner’s request. Such a statement ensures the interests of the landlord and protects him from unscrupulous tenants who do not want to vacate the premises in the event of termination of the lease agreement.
In accordance with Article 19b of the above-mentioned agreement, the owner is obliged to notify the head of the tax office at the owner’s place of residence about the conclusion of a periodic rental agreement for the premises within 14 days from the start of the lease. If requested by the tenant, the owner must provide proof of notice.
The start date of the lease should be considered the date the premises are transferred to the tenant for use. Therefore, this does not necessarily have to be the date the lease is signed, as the parties can agree that the delivery of the premises will occur at a later date.
An Example
The parties entered into a periodic lease agreement on July 1. Due to the need to vacate the premises, the contract included a provision that the premises will be vacated and provided to the tenant on August 1. How long does it take to notify the authorities about the conclusion of a lease agreement?
Thus, the conclusion of the lease agreement must be reported to the head of the tax office before August 15.
On the other hand, in case of failure to comply with the obligation to report the conclusion of the agreement to the tax office, the provisions regarding the determination and termination of rent, as well as the expiration and termination of an occasional lease agreement, do not apply.
This provision not only obliges the taxpayer to inform the tax office about the conclusion of a one-time lease agreement, but also provides for certain sanctions associated with non-compliance with this obligation.
In addition, there is no provision in the legislation obliging the taxpayer to inform the head of the tax service about the circumstances of termination or expiration of the lease agreement. This obligation applies only to the situation of his imprisonment.
