Income from lease

A natural person may deduct 20% from the income from lease for covering the expenses related to letting out a residential building or apartment. There is no need to submit expense receipts for this. 20% is deducted when the person is declaring the income from lease based on the income tax return.

20% is deducted from the lease of a residential space in the case of leasing a residential building or an apartment under residential lease contract. A residential lease contract is concluded when the dwelling is leased and upon concluding the contract, it is agreed that the dwelling will be used for living purposes. For example, if a company rents an apartment for running an office there, the fact that the apartment in itself can be used for living does not change the tenancy contract into the residential lease contract.

Accessory expenses and encumbrances (duties) related to the lease are not considered as income from lease (i.e. the amount from which the deduction is made), if the lessee has paid these himself/herself or compensated to the lessor.

The annual summary amount of the rent has to be indicated in the income tax return.

The duties paid by the lessee that are related to the upkeep of the apartment house or the residential building are not considered income from lease. For example, the expenses of snow clearing around the apartment house are considered such a duty. However, loan payments taken for the acquisition of the leased dwelling or the land tax cannot be considered accessory expenses or duties, and if the lessee pays them for the lessor, these are considered the income of the lessor.

If the lessee made improvements to the leased dwelling whereby the value of the dwelling has increased and if the lessor does not compensate these expenses when terminating the lease contract, the increase in value of the dwelling let out as compared with the value of the dwelling at the conclusion of the contract is the lessor’s income. However, if the lessee did restoration repairs whereby the value of the apartment or residential building has not increased as compared with the value at the conclusion of the contract, this will not create the taxable income to the lessor.

If a lease contract has been concluded with a legal person, the legal person must withhold the income tax from the gross amount of the rent, except accessory expenses and duties. 20% of the overpaid income tax on the income from the lease will be refunded to the lessor on the basis of the income tax return.

Examples of declaring income from lease

The amount agreed by the lease contract is 200 euros per calendar month and, pursuant to the contract, the lessee pays the utilities based on the invoices submitted by the apartment association. According to the invoice, the lessee pays 200 euros to the lessor and 150 euros to the apartment association. For that calendar month, the lessor has to declare 200 euros as the income from lease.

The amount agreed by the lease contract is 200 euros per calendar month and, pursuant to the contract, utilities of the apartment association paid by the lessor are added to the sum. The lessee remits the amount of 350 euros to the lessor. The lessor pays 150 euros to the apartment association based on the invoice. For that calendar month, the lessor has to declare 200 euros as the income from lease.

The lessee and the apartment owner have agreed that instead of the rent, the lessee will pay the loan payments taken for the acquisition of the apartment. The owner has to declare the loan payments paid for him/her as the income from lease.

If a residential lease contract is concluded with a legal person and the rent payable under the contract is 200 euros per month, the lessee (legal person) is obliged to withhold income tax from the rent at a rate of 20% (40 euros). 160 euros (200 – 40 = 160) is paid to a natural person. The lessee is obliged to declare the gross amount (200 euros) of the rent:

  • under code 57 of Annex 1 to the tax return TSD – if the payment is made to a resident natural person or
  • under code 185 of Annex 2 to the tax return TSD – if the payment is made to a non-resident natural person.

This income is entered into the pre-completed income tax return of the natural person as the lessee has declared the payments made under the residential lease contract. According to the income tax return submitted, the taxable income for the dwelling will be reduced by 20% and the income tax will be recalculated accordingly: the income tax is 32 euros ((200 – 20% × 200) × 20%). However, it should be taken into account that annual income and permitted deductions have an effect on the final amount of the income tax calculated on the basis of the income tax return.

Income from rent

If a dwelling is used for accommodation services, a deduction of 20% cannot be applied and the income received must be declared under the income type of income from rent. For example, a private person using a dwelling for temporary accommodation services through AirBnB or booking.com and it is not his/her business activity, has to indicate the gross amount of the income in his/her income tax return wherefrom no expenses (including service fee) can be deducted.

Likewise, a deduction of 20% cannot be applied and the income received pursuant to the subletting contract of the dwelling must be declared under the income type of income from rent.

Copyright (licence fee)

Copyright issues are regulated by the Copyright Act.

Copyright covers literary, artistic and scientific works. Copyright is granted to the authors of literary, artistic or scientific work upon creation of their work. Moral rights and economic rights constitute the content of copyright. The moral rights of an author are inseparable from the author’s person and non-transferable. The economic rights of an author are transferable as single rights or a set of rights for a charge or free of charge.

Works shall be used by other persons only in the case of transfer (assignment) of the author’s economic rights by him or her or on the basis of an authorisation (licence) granted by the author except in the cases prescribed in Chapter IV of the Copyright Act.

An author’s contract is concluded between the author and a person who wishes to use the work. An author’s contract may be entered into to use an existing work or to create and use a new work. Upon the use of an existing work on the basis of a licence agreement, the provisions of the Law of Obligations Act concerning licence agreements apply to the author’s contract. Upon creation and use of a new work, the provisions of the Law of Obligations Act concerning contracts for services apply to the author’s contract.

Taxation of author’s remuneration (licence fee)

Remuneration for the right to use or transfer of the right to use an existing work

Pursuant to the Income Tax Act, income tax is charged on consideration for the right to use a copyright of a literary, artistic or scientific work (including cinematographic films or videos, recordings of radio or television programmes or computer programs), or consideration for transfer of the right to use the above (subsection 16 (2) of Income Tax Act).

That provision is primarily applied in the taxation of the remuneration received by the author for the use of an existing work (as mentioned in subsection 48 (3) of the Copyright Act). The licence fee specified in subsection 16 (2) of the Income Tax Act is subject to gross taxation, which means that expenses cannot be deducted from the income. In the case of an existing work, the costs have been incurred earlier and the author receives the so-called passive income. Upon the payment of remuneration, income tax is withheld pursuant to subsection 41 (7) of the Income Tax Ac while social security contributions are not charged on licence fees.

NB! Licence fees are taxed as described above and such a remuneration is not taxed as gains from the transfer of property under the contract of purchase and sale.
 

Remuneration for creation and use of a new work

Pursuant to the Income Tax Act, the income received by a natural person from independent economic or professional activity, including creative activity, is taxed as business income (subsection 14 (2) of the Income Tax Act).

If an author’s contract for creation and use of a new work has been concluded between the author of the work and a person who wishes to use the work (mentioned in subsection 48 (4) of the Copyright Act), and the person has created the work independently, not depending on anyone, has made expenses in the course of creating the work, for example, has bought instruments, paid for services, borne the risks, etc. - such an activity has elements of business and the remuneration is charged as business income.

The business income of a registered business operator is charged according to the principle of net income, i.e. expenses related to the business can be deducted from business income.

Income tax, social tax and contributions to mandatory funded pension pursuant to the procedure provided by the Funded Pensions Act are imposed on the net business income, if the sole proprietor is an obligated person.

The user of a work must withhold income tax from the remuneration paid on the basis of the contract for services under the Law of Obligations Act (clause 41 3) of the Income Tax Act). Social tax, unemployment insurance premiums and contributions to mandatory funded pension pursuant to the procedure provided by the Funded Pensions Act are also imposed on the remuneration paid on the basis of the contract for services under the Law of Obligations Act, if the payment is made to an obligated person.

  • If the author of a work has been entered in the commercial register or the register of a Contracting State to the EEA Agreement as a sole proprietor, the user of the work need not withhold income tax (clause 40 (2) 3) of the Income Tax Act) or pay social security contributions. The sole proprietor pays the said taxes himself/herself. At the request of the sole proprietor, his/her business income may also include the licence fees mentioned in § 16 of the Income Tax Act (subsection 14 (4) of the Income Tax Act).
  • If the author is not a registered sole proprietor, income tax is imposed on the remuneration received for the creation of a new work (mentioned in subsection 48 (4) of the Copyright Act) as gross income regarded as remuneration received on the basis of a contract for services under the Law of Obligations Act (subsection 13 11 of the Income Tax Act).
     

Last updated: 17.06.2021

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