Tax considerations regarding rental transactions of personally owned assets
- Vo Thi Nguyen Linh
There are many cases where companies lease owned assets such as houses, stores, warehouses, offices, and vehicles personally for foreign employees. When a company rents out personally owned assets, the company may declare and pay taxes on the rental income on behalf of the individual, but if the company does not properly understand tax laws, some risks may occur. This article explains points to keep in mind when a lessee company declares and pays taxes on rental income from personally owned assets on behalf of the lessee.
1. Determination of taxability
Circular No.40/2021/TT-BTC (hereinafter referred to as “Circular 40”) and Circular No.100/2021/TT-BTC provide that the rental income of personally owned assets is taxable if the following two conditions are met at the same time: It is stipulated that it is necessary to declare and pay taxes.
①Renting personally owned assets (houses without accommodation services, land, stores, factories, warehouses, vehicles, machinery and equipment, etc.)
②The total rental income in a calendar year exceeds VND 100 million, or in the form of prepayment over multiple periods, the annual amount calculated by dividing the lump-sum prepayment amount by the payment period exceeds VND 100 million. thing
Therefore, if the total amount of rental income related to privately owned assets is less than VND 100 million per year (calendar year), it will not be subject to tax. In addition, if the rental period is not for the entire year, the rental income per year is less than 100 million VND, and is not subject to tax.
When taxable rental income is generated, individuals are generally responsible for reporting and paying taxes. However, if the rental agreement states that the lessee’s company will declare and pay taxes on rental income on behalf of the individual, the company will carry out the procedures for filing and paying taxes on the individual’s behalf based on the guidance of Circular 40. Please note that this is necessary.
2. Taxable income/tax calculation
Rental income is subject to personal income tax and value added tax.
・Personal income tax = 5% of the rental income
・Value added tax = 5% of the rental income
The above rental income is the amount including tax. Additionally, if you receive damages or other compensation due to a breach of contract, the amount will be subject to personal income tax only.
If the rental contract specifies that the rental income is exclusive of tax, it is necessary to perform a gross-up calculation using the following formula to calculate the amount of rental income including tax(*1).
Rental income=(Tax-excluded rental income)/1-(5%+5%)
3. Method and deadline for filing and paying taxes
If a company files a tax return or pays taxes on behalf of an individual, it will do so using one of the following methods and deadlines:
①Monthly: Deadline is the 20th of the month following the month in which rental income was generated.
②Quarterly: Until the last day of the first month of the quarter following the quarter in which rental income was generated.
③Annual (calendar year): Until the last day of the first month of the following year
④Every time rental income occurs: within 10 days from the date of rental income generation
When individuals file tax returns and pay taxes on their own, they are required to do so using method ③ or ④ above, so in practice, when a company files tax returns and pays taxes on its behalf, the same period may be selected. many.
If the rent is paid in advance in a lump sum, only on the first tax return, the entire advance payment will be treated as taxable income and the amount of tax will be calculated, declared and paid. In addition, if the rental contract is reviewed and the contract amount, payment period, rental period, etc. are changed, it is necessary to file an amended tax return and pay taxes as necessary.
4. Declaration documents
・Form No. 01/TTS stipulated by Circular 40 (Personal income tax and value added tax return regarding rental income)
・Form No. 01-2/BK-TTS stipulated by Circular 40 (an appendix containing information such as the owner of the rental asset, location, payment period, etc.)
・(For first-time declaration only) Copy of rental contract, appendix to contract
*Tax authorities may request the original to confirm the authenticity of the copy. Additionally, a notarized copy of the rental property owner’s identification document may be separately requested.
In addition, companies that file tax returns and pay taxes on behalf of individuals must select “Companies that file tax returns and pay taxes on their behalf in accordance with laws and regulations” on their tax return, and provide a representative’s signature and seal or electronic signature.
5. Where to submit tax returns and pay taxes
The place to submit tax returns and pay taxes will be the local tax bureau where the company filing and paying taxes on your behalf is located.
6. Points to note regarding conditions for deducting rent
Since 2015, the year in which the Corporate Tax Guidance Circular No. 96/2015/TT-BTC comes into effect, the Tax Bureau will no longer issue invoices when renting assets from individuals(*2). Therefore, in order to deduct the rent paid by a company to an individual and the taxes paid by the company, it is necessary to prepare the following documents(*3).
・Rental contract and appendix to the contract (it is necessary to clearly state in the rental contract that the declaration and tax payment will be made on behalf of the individual who owns the rental property)
・Rent payment evidence
・Return form and tax evidence when filing and paying tax on behalf of someone (if the rental income of the individual lessor exceeds 100 million VND per year)
The above has explained the tax points to keep in mind when a lessee company declares and pays taxes on rental income from personally owned assets on behalf of the lessee. As mentioned above, when renting privately owned property, the contract should clearly state whether the rental income is tax-included or tax-exclusive. Additionally, if a company does not want to be responsible for filing and paying the relevant taxes, it is recommended that the contract state that the individual is responsible for filing and paying the taxes.
Circular N0.40/2021/TT-BTC dated June 1, 2021
Circular No.100/2021/TT-BTC dated November 15, 2021
Decree No.126/2020/ND-CP dated October 19, 2020
Circular No.96/2015/TT-BTC dated June 22, 2015
(*1) Official Letter No.3822/TCT-DNL
(*2) The old regulations stipulated that if the rental income exceeds VDN 100 million per year, the individual who owns the property must apply to the competent tax office for an invoice for the rental income and issue it to the lessee.
(*3) Circular No.96/2015/TT-BTC
*This article was translated by Yarakuzen.