What is Rental Income Tax?
Rental income tax is an annual tax payable by individuals on their rental income. “Rental income” is the total amount of rent derived by an individual during a year of income from the lease of immovable property in Somaliland with deduction only allowed for net capital losses, if any, arising from the disposal of rental assets. Corporate taxpayers are NOT required to pay rental income tax. Instead, they are required to include their rental income along with their other income in their annual income tax returns.
Who is obliged to pay rental income tax?
Any individual taxpayer or business other than corporate business, who derives income from the lease of immovable properties in Somaliland is obliged to file and pay annual rental income tax in respect of each year before 30th of April of the following year.
What is the tax rate for rental income tax?
According to sec 57 of the Revenue Act 2016, the rental income of an individual for a year of income is charged to tax at the rate of 12.3%
How do you calculate rental income tax?
Let us take an example of a taxpayer XY who owns two residential houses, (house A & house B) in Hargeisa Somaliland, house A is located in 26 June district and its rental income is 20,000,000 SL_SH per month and rental income for house B located at Gacan Libaax district is 15,000,000 SL_SH per month. Both houses are rented for the full 2019 year. What will be the total tax to be paid by XY by 30th April 2020?
- Name of taxpayer XY
- Annual rental income for house A in 26 June = 20,000,000*12= 240,000,000 SL_SH
- Annual rental income for house B in Gacan Libaax = 15,000,000*12= 180,000,000 SL_SH
- Total annual rental income for the year 2019 = 240,000,000 + 180,000,000 = 420,000,000 SL_SH
- XY annual rental income tax for 2019 = 420,000,000*10% = 42,000,000 SL_SH
- Administration tax 2%*420,000,000 = 8,400,000
- Stamp tax 2.5%*(42,000,000+8,400,000) = 1,260,000
- Total tax (42,000,000+ 8,400,000 + 1,260,000) = 51,660,000
- Filing & payment due date will be 30th April 2020
What expenses & losses related to lease of property deductible from taxable rental income?
Expenses or losses related to the property are not deductible but net capital losses arising from the disposal of rental assets during the year of income are deductible from taxable rental income as per sections 56(1)(b) and 73 (1)(b) of the Revenue Act 2016.
Where can I get rental income tax return forms and guidelines for their completion?
Rental income tax forms and guidelines are available from any IRD office or you can find at the end of this page.
Where can I file my rental income tax return and pay my rental income tax?
Rental income tax returns and payment should be submitted to any IRD regional or district office in Somaliland.
When are persons who derive rental income required to file a tax return?
Rental income tax returns should be submitted to your local IRD office within four months after the end of the year (not later than 30th April of the following year) as per section 142 of the Revenue Act 2016.
What happens when a rental income tax return is filed late?
According to sec 30 of the Revenue Act 2016, a person who fails to furnish a return within the time required under this Act is liable to pay penal tax equal to two (2) percent of the tax payable for that year or one currency point per month (currently US$100), whichever is the greater, for the period the return is outstanding. Late filers may also be convicted of an offence under sec 17 of the Revenue Act and be liable to a fine of up to US $1,500.
What happens when rental income tax is paid late?
According to section 16 of the Revenue Act 2016, any person who fails to make payment of rental income tax before the 30th April due date is liable for late payment fees equal to two (2) percent per month on the amount unpaid calculated from the date on which the payment was due until the date on which payment is made.
What happens for failure to keep proper records like valid rental contracts?
A person who deliberately fails to maintain proper records for a year is liable to pay penal tax equal to double the amount of tax payable by the person for that year. A person who fails to maintain proper records also commits an offence and is liable on conviction to;
(a) Where the failure was deliberate, a fine of not less than fifteen (15) currency points ($1500) or to imprisonment for a term not exceeding one year.
(b) In any other case, a fine not exceeding twenty-five (25) currency points ($2500).