What is Rent Withholding Tax?

Rent withholding tax is a tax paid to the state by the tenant when making payments to the property owner in commercial leases. Withholding tax, which is an important tax liability in business leasing in Turkey, is one of the issues that both tenants and property owners should pay attention to. Serious financial sanctions and penalties may arise in case of incorrect calculation or non-payment. Therefore, it is necessary to know the details such as how the rent withholding tax is calculated, who pays it and what the legal obligations are. In this article, we clarify all the questions about the rent withholding tax.

Rent withholding tax is a type of income tax and means that those who rent a business place pay the income tax of the property owner in advance. This deduction made by the tenant is offset in the annual income tax return of the property owner. Withholding tax is not applied to residential rents, it is only valid for business leasing.

Who Pays Rent Withholding Tax?

People who are obliged to pay rent withholding tax are generally those who engage in commercial activities and rent a business place. Those who are obliged to pay withholding tax are as follows: 

• Companies, tradesmen and merchants: Businesses that engage in commercial activities and rent a business place must pay withholding tax. 
• Freelancers: Freelancers such as lawyers, doctors, and architects are also obliged to pay rent withholding tax if they rent a workplace. 
• Commercial enterprises: All businesses that rent workplaces such as stores, offices, warehouses, and shops must calculate withholding tax and pay it regularly.

How is Rent Withholding Tax Calculated?

Rent withholding tax is calculated at a rate of 20% of the gross rental amount. 

For example: 

• Monthly gross rental amount: 10,000 TL, 
• Withholding tax deduction (20%): 2,000 TL, 
• Net rent to be paid to the property owner: 8,000 TL

The important point here is to clarify whether the rental amount specified in the lease agreement is gross or net. If the rental amount is determined as gross, a direct withholding tax deduction is applied. However, if the net rental amount is specified, the calculation must be made by including withholding tax to reach the gross amount.

What Happens If Rent Withholding Tax Is Not Paid?

Failure to pay the rental withholding tax can lead to serious financial and legal sanctions. Here are the possible consequences of not paying withholding tax:

• Tax penalty: If detected by the tax office, a late payment penalty will be applied.
• Delay interest: Interest accrues every day for unpaid withholding tax.
• Fiscal inspection: Tax inspectors may inspect workplace and business accounts.

Therefore, business tenants should pay the rent withholding tax regularly and keep the relevant documents.

Important Information About Rent Withholding Tax

• Withholding tax is not applied to residential leases.
• Withholding tax is only valid for commercial leases.
• Withholding deduction can be offset against income tax.

The property owner can offset the withholding tax deducted by the tenant in the income tax return. The rental withholding tax declaration and payment must be made regularly, otherwise, financial penalties may be encountered. Rental withholding tax is an important tax liability for those renting a business. Regular payment of this tax by businesses and self-employed individuals both allows them to avoid financial penalties and provides convenience for property owners in income tax calculations. 

If you want to learn more about rent withholding tax, make your tax calculations correctly and receive professional support in legal processes, Sacit Real Estate is happy to assist you with its expert consultants. You can contact us to benefit from our professional services!