What is rent expense and rent withholding tax?
Any rent expenses if used for the business purposes by the tenant is subject to either 10% or 15% rental withholding tax depending on the gross rent amount. In addition, according to sub-article 4, article 59 of Afghanistan Income Tax Law, two categories of payments from tenant to the land lord are titled as rent expenses:
- Any money, goods or services or any other benefit received by a person or persons as rent; and
- The cost of any repairs, renovations or improvements to the property carried out by the tenant
Moreover, in the Tax Guide 01 issued by Afghanistan revenue department in 2019, while explaining the reason behind categories of payment; it is explicitly declared that the taxable types of renovation or improvements are: “repairs and renovations that will be enjoyed by the property owner after the end of the lease”.
What are the taxable leasehold repairs?
The leasehold repairs should be separated into two types:
- Short Term with Tenant Benefited Purpose.
- Long Term with Land Lord Benefited Purpose
Of course, the first type is the tenant expense without being subjected to the rent withholding tax while the second type with longer usage period more than lease period is subject to rental withholding tax. The tenant should add the value of any repairs to the rental area on the monthly gross rent amount and calculate the rent tax withholding from the total amount. .
In case you want to know more about how rent withholding tax should be calculated and when is the due date for paying rent withholding tax as per the Afghanistan tax law, please click here and go to section 2.2 Rental Withholding Tax.