08-06-2009 / Landlords caught in the crosshairs

The tax authorities have been waging a campaign to draw landlords' rental income out of the shadow economy since 2006. At the time, authorities called upon vigilant neighbours to report suspicious new tenants to the tax police.

In 2008, Moscow tax authorities reported that 15,536 individuals paid tax on rental income, with 6,804 of those paying after tax inspectors conducted preliminary check ups. The exact number of leased flats in the capital is impossible to estimate, but city authorities put the figure at around 125,000 apartments.

 

"Realtors, in principle, always direct property owners towards paying taxes on rental income, but, of course, we can't force the landlord to do this," said Anton Gololobov, head of the press service at Incom Realty. "We can only recommend, for instance, including in the rental agreement a point explaining the necessity and the mechanism for paying the appropriate tax."

Gololobov said that estimating the proportion of landlords who paid tax on their rental income was difficult as the market lacked transparency.

"Besides agreements that are concluded using realtors, who can at least inquire [about taxes], there is also a rental market that works via acquaintances as well, without any middlemen at all. In these cases, signing agreements is a true rarity, as is the payment of taxes."

The head of the rental department at Penny Lane Realty, Vadim Lamin, said that the less expensive the flat, the less likely that tax would be paid.

"In the business- and elite-class segment, the rent levels of which start from $3,000 a month, the owners prefer to pay taxes," said Lamin. "As a rule, this is not their main source of income for such landlords, more likely it is an additional income and paying tax on it is not a great burden."

Lamin said that 15 to 20 per cent of owners of business- and elite-class apartment owners don't pay taxes on their rental income.

In the opinion the managing partner of developer and consulting company Panama Estate, Omar Gadzhiyev, on the mass market of economy-class apartments approximately 80 to 90 per cent of owners don't pay taxes.

Besides the obvious financial burden of tax payments, landlords are reluctant to declare taxes due to the substantial bureaucracy involved in paying it. Under current law, any rental agreement concluded for a period of more than one year must receive government registration or otherwise it is invalid. On any registered agreement, tax is levied at 13 per cent.

"Many people are scared by the procedure for declaring taxes," said Gadzhiyev. "You need to fill out a rather complicated declaration, stand in queues at the tax department - people simply don't want do all this for one single source of income. They would, perhaps, be happy to pay under a simplified procedure."

Gololobov said that a study conducted by Incom in summer 2008 showed that 30 to 40 per cent of landlords would like to pay taxes on their rental income.

"But that was before the crisis," said Gololobov. "Most likely, the number of such owners may have fallen because of the crisis for obvious reasons: cutbacks, unemployment, and a general reduction in income," he said.

Legal precedent

Tenant takes revenge

The first case of a landlord being convicted over unpaid taxes on rental income has taken place, Rossiiskaya Gazeta reported in late April.

Muscovite Vladimir Arakcheyev rented out his Leningradskoye Shosse flat for 37,000 roubles a month for some two years. Arakcheyev had concluded no official contract with the unnamed lessee. According to the newspaper, Arakcheyev's tax avoidance may have gone unnoticed were it not been for his greed. Despite rents falling across the board, the landlord demanded a rent increase, much to chagrin of his tenant, who proceeded to inform the tax authorities.

Arakcheyev was charged under Article 198 of the legal code - "failure to pay taxes by an individual". The court calculated that Arakcheyev failed to pay taxes on 888,000 roubles and billed him 115,440 roubles in unpaid taxes plus an additional fine of 100,000 roubles.

The paper noted that the fine was minimal, with the law including fines of up to 500,000 roubles and goal terms of up to three years.

Source: Moscow News