What is Rent Withholding?

Rent withholding is a type of taxation system applied to commercial real estate. In this respect, it can also be expressed as the tax that must be paid before the rental income reaches the owner of the real estate. Thus, taxes are paid more easily and regularly.

When Rent Withholding Could Be Used?

When the living conditions of the unit are not met rent withholding can be used until the unit is repaired. To withhold the rent, the situation must be important and not caused by guests. Rent withholding is not legal in every state so you need to check beforehand whether it is legal or not.

How Does Rent Withholding Work?

One of the most curious subjects in terms of rental withholding is how to calculate it. The calculation is made over the gross rental price included in the rental agreement. In other words, 20% of the gross rental price is paid as rental withholding. If the rental withholding tax is not clearly stated in the rental agreement, the following calculation is made;

The gross rental price is calculated by multiplying the net rental rate by 1.25 or dividing by 0.80. Then, it is understood how much the rental withholding tax is by calculating 20% of the gross rental price.

For example, 400 TL (25.27 USD), which is 20% of the rental price of a workplace with a gross rent of 2000 TL (126.36 USD), must be paid to the tax office as withholding tax, and the remaining 1600 TL must be paid to the owner as a net rental fee.

Rent withholding is a tax that must be paid on commercial real estate. This payment is paid in 2 equal installments, in March and July, within 1 year. For this reason, the rental withholding must be declared in March. It is handled in two equal installments and then the payment is made in March and July.

The tenant is required to deposit the rental withholding every month. The tenant of the workplace deposits the rental withholding on behalf of the real estate owner through the tax offices. The real estate owner can follow up on the rental withholding tax from the Deductions Made to My Name (Withholding) page in the e-government. The owner of the property has the right to demand the eviction of the tenant if he does not pay the rent withholding.

Rent withholding is the payment of tax on income subject to Income and Corporate Tax. According to Article 95 of the Income Tax Law No. 193, some people are not obliged to pay rent withholding. The persons specified in the relevant article of law are listed below:

  • Persons who receive their salaries from abroad
  • Officers and servants working in foreign embassies and consulates
  • Persons who will make the payments that require an annual declaration

Rental withholding tax is paid to fulfill the tax liability arising from the leasing of business properties. Rent withholding tax is deducted before the real estate owner receives the income from the workplace rent. With the tenant’s rental withholding payment, the tax payment of the real estate owner becomes easier and can be carried out without interruption.

Common Rent Withholding Process

Here are the list of the Withholding process:

  1. Request to the property owner in writing
  2. Gather proof of required repairs
  3. Wait 30 days to hear back
  4. Rent might be held in escrow or withheld.

Rent withholding is governed by state legislation. Rent money must be paid into an escrow account kept by a third party in several states. This ensures that the lease agreement remains in effect and that rent payment are made on time. In some states, a percentage of the unpaid rent must be paid to the landlord to help cover repair costs.

Renters who are considering delaying rent payments due to state legislation should review the laws in their state and obtain legal counsel if necessary. The withholding process can be complicated, and in some cases, it may constitute a breach of a lease agreement.

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