Investing in a property has long been a great way to increase your income monthly, allowing you to have more money you can spend anywhere you like. However, similar to paying property tax, there’s tax on rental properties that owners need to pay. This applies to residential, commercial, industrial properties and more. There are two types of tax applicable to rental properties as you can see below:
- Value Added Tax: The Value Added Tax (VAT) is only applied to the supply of goods and services. Generally, companies or businesses need to register for VAT and get their own tax identification number (TIN), which will be used when they file for taxes. The standard VAT rate is 10%.
- Withholding Tax: The Withholding Tax (WHT) is tax applied to the income of an individual for specific payments and transactions. This applies to residents and foreigners.
Who needs to pay rental property tax?
When you have a property you want to rent out, property taxes on that rental needs to be paid. All property owners, whether local or foreigner, are required to pay property tax. For residents, the annual tax is 10% while foreigners need to pay 14%.
Besides that, rental property tax depends if you’re part of an organization or simply leasing out your property for additional profit. To know if you need to pay rental property tax and what kind of tax you need to pay, check out the following:
- Individual owner to individual renter: No tax
If you are simply an owner of a property renting it to an individual, there is no need to pay for tax. Moreover, individual owners can’t issue tax invoice on their rental property.
- Individual owner to company renter: WHT needs to be paid
If you have your own property and a company is renting it, specifically an individual affiliated to a company, then a rental property tax needs to be paid. Generally, the owner needs to be the one who will pay the rental property tax. However, to make it easier and ensure that the tax is paid, the company who rents the property will be the WHT directly to the government.
Take note though that this is still subject to discussion between the owner and the renter if they want to keep the same setup.
- Company owner to individual renter: VAT needs to be paid
If you’re a company renting your property to an individual, you need to issue a VAT invoice to pay your taxes. This rental property tax will be included in the monthly rent, so make sure to calculate the tax properly so appropriate calculations are included in the lease agreement.
- Company owner to company renter: VAT needs to be paid
If you’re a company with a rental property leased to a renter connected to another company, a VAT needs to be paid. The VAT invoice will be created by the company who owns the rental property, and is often already included in the monthly rent. However, this is still subject to discussion with the tenant.