Gray rent: only 20% of homeowners in Russia pay taxes on rent
In Russia, only a fifth of residential property owners declare income from renting apartments, said Andrey Bannikov, vice president of the Russian Guild of Realtors (RGR). What risks are borne by owners renting out housing in the gray zone, as well as how the state could encourage owners to come out of the shadows — in the Izvestia article.
Consequences of non-payment
The tax legislation of the Russian Federation provides citizens with several options for taxing rental income, the Federal Tax Service reminded Izvestia.
In case of systematic rental of property for business purposes, registration of an individual entrepreneur is required with the possibility of applying a basic income tax (personal income tax at a progressive rate), a minimum income tax (6% or 15%) or an auto tax.
When renting housing by individuals, you can apply a tax on professional income at a rate of 4% (up to a limit of 2.4 million rubles per year) or personal income tax with the possibility of using tax deductions.
The state encourages the legalization of rental income by offering a choice of modes with different rates and benefits, while fines are provided for concealing income, the Federal Tax Service noted. For failure to submit a declaration — up to 30% of the tax amount (but not less than 1,000 rubles), and for non—payment or underestimation of tax - a fine of 20% of the unpaid amount.
With informal leases, there is always a risk of sudden additional charges over the past years, an expert from the Popular Front told Izvestia. Analytics" by Fedor Vylomov. The tax service may require the entire amount at once, adding penalties and penalties that drip daily.
In addition, banks have recently significantly tightened control over large and regular transfers. If the cardholder is unable to substantiate the legal nature of the receipts, transactions risk falling under suspicion, and this is fraught with blocking or urgent requirement to provide supporting documents.
— Plus, there are legal nuances: if the lease agreement is not officially formalized, it is more difficult for the owner to recover the same rental debt through the court or to prove his case in case of possible conflicts with tenants. Whitewashing the rental market is a rather complicated process that requires systemic solutions. One of them is the self—employment regime, which is already in effect," he stressed.
If we look at the practice of legal long-term leases abroad, almost everywhere the key element is the intermediary, who actually becomes the guarantor of the transaction, the expert noted. The owner of the property transfers the object to a specialized structure, often with state participation.
She first evaluates the apartment or house for compliance with basic standards, and when inconsistencies are identified, obliges to bring the housing into the right condition. After that, the intermediary takes control of the facility: independently selects financially reliable and accurate tenants, forms contractual relations with them and administers the lease.
— For the owner, this means stable rental income and protection from losses. All risks associated with property damage or unscrupulous behavior of the tenant are borne by this third party," explained Fyodor Vylomov.
Document checks
Nowadays, the problem of informal rentals is becoming more common, Alfiya Mitroshina, a member of the real estate committee of Opora Russia, told Izvestia. We are talking about a situation where housing is rented out without any contracts, rental income is not reflected in taxes, and the parties to the transaction often do not have basic knowledge of their rights and obligations, while both owners and tenants.
— The lease agreement can be replaced by a contract of gratuitous use, which the owner enters into intentionally to avoid the tax burden, — she explained.
At the moment, the tax authorities have already accumulated an impressive set of mechanisms for detecting informal leases, the expert added. There may be several reasons to start checking at once. Previously, statements from third parties, such as complaints from neighbors or former tenants, often become a signal. It is such appeals that often serve as a starting point for the inspection's interest in a particular owner.
Also, the ownership of several real estate objects attracts attention. The Federal Tax Service has the legal right to request data from the Federal Register and compare the number of apartments with the declared income.
— Open publications can serve as a source of information. In particular, housing rental ads posted on popular classified platforms. And finally, another risk marker is regular non—cash receipts from the same senders arriving on approximately the same dates, which may indicate rental payments," the expert emphasized.
The combination of these features can serve as a formal reason to start a tax audit. If the fact of income concealment is confirmed during the control, the tax authority initiates a case on violation of tax legislation. The financial consequences in such cases are very tangible.
— If income from renting out housing is not included in the tax return, the owner will pay 13% of the income received to the treasury. If the income exceeds 2.4 million rubles, it will be taxed at a rate of 15-22%, depending on the amount. In addition, the defaulter faces a fine of 20-40% of the amount of unpaid taxes, as well as penalties in the amount of 1/300 of the key refinancing rate for each day of delay, Alfiya Mitroshina said.
At the same time, it was not so difficult to avoid serious sanctions: it was enough to choose one of the legal regimes. For example, you can apply for self-employed status and transfer only 4-6% of your income to the budget. An alternative option is to register as an individual entrepreneur and work under the patent system, where the rental tax burden is also about 6% of the amount of income.
— In order to reduce tax violations among landlords, education is the best way, — she is sure. — For example, clear checklists with step-by-step algorithms that must be issued at the stage of receiving documents from the Federal Register, as well as reporting information about responsibility for violating the law.
If we talk about measures to encourage people to come out of the shadows, then certain steps have already been taken, Ivan Abramov, First Deputy chairman of the Federation Council Committee on Economic Policy, told Izvestia. However, the potential here is far from exhausted. In particular, it is possible to further simplify administration, as well as refine the patent system, making it more attractive.
— A separate area of work is tax breaks for those who are just starting to rent out their homes officially, — said the senator. — These can be temporary benefits, reduced rates, or even tax holidays for a limited period, such as for several months or a year. Similar mechanisms have already been applied to small businesses at the regional level, when entrepreneurs were partially exempted from the tax burden in the first year.
According to the politician, a similar approach can be used in relation to rent in order to motivate owners to register and transfer income to the legal field. Given that now about 80% of the rental market remains in the shadows, this is a significant reserve for the growth of the tax base, and it is worth working with it not only through control, but also through milder and more favorable conditions for citizens, he is sure.
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