What Is Rent Tax?
Rental Income Tax is charged on income generated from rented houses or buildings located in Sierra Leone irrespective of the country of resident of the owners, as long as they are meant for commercial activity.
Relevant Provisions in the Income Tax Act:
1. Charging Provisions:
Section 3(3)—a taxpayer’s income from all sources shall be aggregated for the purpose of applying the relevant rate of tax unless Sections 124 or 125 apply, and the tax that will be imposed will be reduced by the amount of withholding tax imposed on that income.
Section 124—where a resident taxpayer receives interest or dividends from which tax has been withheld under Section 118 or 119, that tax is a final tax.
Section 125—non-residents tax is a final tax where tax is withheld under Sections 116,118,119,120,121,122 or 123.
Section 24—Business income includes:
f) Rent derived by a person whose business is wholly or mainly the holding or letting of property;
Section 25—Property income includes:
Section 27—exempt organizations are not exempt from tax on property income…
2. Withholding Tax Provisions:
Section 120 (3)
(a) The rate of tax on taxable rental income shall be 10% .
(b) Individual tenants shall withhold tax on rents payable to non- resident landlord but not on rents payable to resident landlords.
(c) Institutional tenants paying rent to either resident or non-resident landlords shall withhold tax on the rent payable.
Section 124—where a payment is made to a non-resident and tax is withheld under Section 120, that tax is a final tax.
3. Provisions for Deductions:
Section 33 (2)—a deduction is allowed for expenditure on insuring and managing the property and on expenditure incurred to repair, renew, alter or improve a property.
Section 35 (1)—a taxpayer is entitled to a deduction for interest incurred to produce assessable income.
Section 39(1)—a capital allowance deduction is allowed for depreciation of assets (the rates for Buildings in the Seventh Schedule is 15%, 10% & 5%).
Section 120(3) (a)—the landlord is granted-
(i) a non-taxable threshold of Le1, 500,000 in the aggregate.
(ii) a tax deductible allowance of 20% of the gross rental income that is in excess of the non- taxable threshold.
- Current Position
A person whose business is wholly or mainly from letting is taxed at his highest rate (30%) [LINK to Income Tax Act]
- Final Tax
- Where rents are payable to non-residents, the tax deducted is a final tax
- Where rents are payable to residents, the strict interpretation of the law is that the tax is not a final tax. Extra tax may therefore be payable after the end of the tax year
Where Section 120 applies; the strict interpretation is that the extra Le1, 800,000 plus 20% tax free should only be given for withholding tax purposes only. The other deductions in the Act are available to all tenants.
Due date for payment
Payments are made annually, not later than 90 days after the due date of the rent.
Penalty for Default
35% of total rent due.