Treatment of NGOs on Rent Tax Sami Salihu acting Director of Taxpayers Service and Education May, 2016 1
Source Withholding Tax on Rent According to Law no.05/l-029 for TAK, each taxpayer paying for rent to individuals who are residents of Kosovo or those who are not, withholds tax at the rate of nine percent (9%) at the time of payment or crediting. For payment purpose of source withholding tax, withholders shall complete tax withholding and remittance statement forms as prescribed by TAK and shall submit the payment form to a bank or financial institution, licensed by the Central Bank of Kosovo. Tax Withheld at Source shall be paid to the bank, or financial institution within 15 days of the following month in which the payment is done or credited. Requests for source withholding tax on rent applies only to "taxpayers" who pay rent. 2
Example 1: An NGO has entered into an agreement with an individual business for renting a building for a 3 years period, starting from May 2016, i.e. in this case the NGO is the tenant who will pay 1.250 per month. What are the tax obligations, who should withhold tax at source for rent for the period May 2016? 3
Answer : NGO is obliged to withhold tax on source for rent at the rate of 9%; Legal basis: Paragraph 3 of Article 30 of the Law no. 05/L-029 for TAK; Certificate for Source Withholding Tax; WR form - by which is done declaration and payment Example 1 - Declaration.pdf 4
Example 2: An NGO has entered into an agreement with a Legal Person for renting a building for a 3 years period, starting from May 2016, i.e. in this case the Legal Entity- LLC is the lessor. The agreement between parties defines that lessor shall pay Tax on Rent. Tenant shall pay 1,000 per month. Is the agreement between lessor and tenant pursuant to the Law? 5
Answer The Law supersedes Agreements reached between parties; NGO - the tenant is obliged to withhold tax on source for rent at the rate of 9%; Legal basis: Paragraph 3 of Article 30 of the Law no. 05/L-029 for TAK; Certificate for Source Withholding Tax; WR form - by which declaration and payment is done; Example 2 - Declaration.pdf 6
Example 3: L.L.C. Business rented the building from an NGO (Lessor) for a period of 1.5 years. L.L.C., shall pay to lessor each month the amount of 1.600. The building is rented from May 2016. Since the L.L.C. and NGO are legal persons, which one of them is obliged to declare and pay tax on Rent? 7
Answer: L.L.C. is obliged to withhold tax on source for Rent at the rate of 9%; Legal basis: Paragraph 3 of Article 30 of Law no. 05/L-029 for TAK; Certificate for Withholding Tax on Source; WR form - by which declaration and payment is done; Example 3 - Declaration.pdf 8
Example 4: NGO, for May 2016 has rented various buildings from three persons, one of them is a Natural Person and will be paid 1.200, the other person is Individual Business and will be paid 1.500, while the third person is Legal Person and will also be paid by NGO in the amount of 1.700. What are the tax obligations of Lessors and Tenant? Thus, the NGO uses buildings rented from the following persons: Tenant NGO Lessor Natural Person 1,200 Individual Business 1,500 L.L.C. 1,700 Total: 4,400 9
Answer: NGO is obliged to withhold tax on source for Rent at the rate of 9%; Legal basis: Paragraph 3 of Article 30 of Law no. 05/L-029 for TAK; Certificate for Withholding Tax on Source ; WR form - by which declaration and payment is done; Example 4 - Declaration.pdf 10
Example 5: The Company "X L.L.C." registered for VAT, in the capacity of lessor and "NGO Y" in the capacity of tenant, agreed that the monthly rent for the building shall be 1,000 NET (One thousand euro and zero cents NET). What should be the values, mentioned in the invoice by the company "X L.L.C." and what is the value that should be paid by "NGO Y"? What should be the tax on rent and who should pay for it? 11
Answer: According to paragraph 3, article 31 of the Law no. 05/L-029 on Corporate Income Tax, the person who has the obligation to withhold tax and to pay is the person paying the rent, the tenant and in this case is NGO "Y". Withholding tax at the rate of 9% should be applied to the amount after deducting the amount of VAT, so for the value of VAT should not be withheld tax on source. Tenant is required to pay the Rent Tax. NGO "Y" shall pay the Rent Tax, after withholding Tax on source. Lessor, "X" L.L.C., shall apply the VAT while he is taxable person and for this he must declare and pay the VAT. 12
Answer (continuation): For the Net value of the rent which should be 200 (if the contract defined it as such, to deduct VAT and tax on rent from gross rent), calculations must be done as follows : 1,000 x 9 = 9,000 = 98.90 100-9 91 So the value of 98.90 should be added to the net value of the rent and reach the gross value (1,000 + 98.960) = 1,098.90 The invoice must be issued 1,098.90 x 18% TVSH = 197.80 1,098.908 * 18% = 197.80 will be the VAT value 1,098.90 * 9% = 98.90 will be the withheld tax for Rent The invoice must be issued by the Lessor : 1,098.90 * 18% TVSh (197.80 )= 1,296.70 The tenant will withhold the tax at source for rent 1,098.90*9% = 98.90 The tenant shall pay to lessor (1,098.90 98.90) = 1,000 + 197.80 = 1,197.80 Lessor shall declare and pay VAT of 197.80 NET value after VAT will remain to the Lessor = 1,197.80 197.80 = 1,000 This indicates that the total payment that lessor received from the tenant was 1,197.80 and after paying VAT in the amount of 197.80, it will remain the NET value of 1,000. 13
Thank you for your attention!