Your Tax Obligations on Rental Property
Give to Caesar that which belongs to Caesar. A little difficult most times to know everything that belongs to Caesar, perhaps Caesar owns far too much? Regardless, it is important to be compliant and avoid running into any potential trouble with the law. Ignorance is no defense. Recently, the Zambia Revenue Authority (ZRA) has been implementing a number of strategies to increase public awareness and compliance on several tax obligations that have for a long time been surprisingly overlooked. Of interest to real estate is the Withholding Tax on rental income.
Now what is Withholding Tax exactly you may ask? According to the ZRA, Withholding Tax is not a tax but a means of collecting tax from a payment by the person who is liable to make payment (the Payer) at the point in time the person to whom it is due to be made (the payee) becomes legally entitled to it (date of accrual). Jargon-eish? here is our layman understanding in more palatable English, Withholding Tax is a percentage of total gross rental income that is supposed to be paid to the taxation collection authority (the ZRA in the case of Zambia). Zambia’s current rate on Withholding Tax at the time of writing this article stands at 10% of gross rental income (ensure to check with the ZRA for up-to-date rates and tax information).
So, who is responsible for paying this tax to the ZRA? The tenant is expected to deduct Withholding Tax from the gross rental amount. This should however be agreed on prior in the rental lease to avoid any misunderstandings. The Tenant is expected to;
- register for withholding tax and obtain a Taxpayer Identification Number (TPIN);
- submit a withholding tax return within 14 days following the month of payment of the rentals;
- deduct and pay the withholding tax amount within 14 days following the month of deduction; and
- give a copy of the receipt in respect of the payment and certificate of deduction to the landlord within 14 days of making the payment.
What is expected of the property owner? what is their obligations to this end? As the property owner, you are required to;
- register for income tax and obtain a Taxpayer Identification Number (TPIN);
- provide your TPIN to the tenant;
- submit a provisional tax return to the ZRA;
- submit annual income tax returns making full declaration of the rental income and other income received during the year.
As a guideline, it is always best to mention Withholding Tax in your lease agreement. Consult your ZIEA agent or the ZRA for assistance if needed. They should be able to guide you on being fully complaint.
Next blog…we talk Property Transfer Tax (PTT)…watch this space!