The train ordinance from late last year (2023) has some problems in practice in terms of fairness when it comes to rent and income tax.

We will remind you that in 2024, the legislation regarding companies that lease work premises from individuals became more complicated. They must pay income tax instead of the owner.

The Chamber of Fiscal Consultants (CCF) has drawn the attention of the Ministry of Finance in a letter to some issues arising from the Train Ordinance (OG 115/2023).

Therefore, in a situation where the tenant is an individual, the landlord must tax the rental income, even if he did not collect rent. In a situation where the tenant is a legal entity or organization that is required to keep accounting records, it does not withhold, declare or pay tax if the rent has not been paid.

“We believe that the distinction between the payer, the moment of the tax liability and the payment, that is, the generating fact and the term, depending on the legal status of the tenant, leads to a violation of the principle of neutrality of the tax in relation to the form of legal organization of the subject of taxation, otherwise provided for by the Fiscal Code, and also to unfairness and difficulties of application”, notes the Chamber of Fiscal Consultants.

In this document, the CCF offers technical and practical details that show the difficulties of application.

A few practical issues that the Ministry of Finance should clarify

The application of the provisions of the Decree on trains, in the opinion of the organization, requires either the regulation of some measures of a temporary nature, or the clarification of the method of application, taking into account the following situations that occur in practical activity, in the case of income from the transfer of property for use from personal property, paid by legal entities or by other persons who are entrusted with the duty of accounting and are lessees:

1. There are situations when subjects who are required to keep accounting records paid in advance in 2023 the rent related to 2024. The problem that arises and the regulation of which we do not determine: Who will pay and declare tax on rental income for 2024?

2. Transitional provision included in para. (24) Art. 133 is not clear enough in the sense that it refers to the year of “realization” of the income. The problem that remains insufficiently clarified: What is the income year, the year to which the rent relates (previous years) or the year in which the rent is charged (2024)?

* Art. 133 par. (24) – For income from the transfer of the use of goods relating to fiscal years up to 2024, the tax obligations are those that apply in the year of realization of the income. The carried forward, uncompensated loss, as well as the financial loss recorded in fiscal year 2023, is the final loss of the taxpayer

3. A situation has arisen when the tenant has carried out improvement and modernization works of buildings under lease ownership, works for which the owner is responsible. According to the terms of the contract, the cost of development and modernization works is the cost of rent for the period 2024-2030.

Thus, the following problems arise in this category of practical situations:

Who will pay and declare tax on rental income for 2024?

How will tax on rental income be calculated for 2024?

4. Although in the case of income from the transfer of personal assets paid by legal entities or other persons who are required to keep accounting records, the rule established by law is that the tax is calculated and withheld at source by the payer

income. The law does not regulate the following issues:

What happens if the tenant does not make this payment?

What are the responsibilities of the owner in this situation?

What legal framework allows a landlord to know whether tax has been withheld, declared and paid on rental income?

5. In accordance with the terms of the contract, as a rule, the lessee pays the owner guarantees for the smooth execution of the lease agreement. Necessary clarification: What is the tax treatment of security deposits paid to the landlord and not returned to the tenant after the end of the lease term?

According to the CCF, it is necessary to clarify or supplement the current legal provisions for the situation when the asset that is the object of leasing is jointly owned by several individuals.

See the full document sent by the Chamber of Fiscal Consultants to the Ministry of Finance