Rental income
Income from tenants is business-related income, and therefore the obligation to tax it to CIT arises on an accrual basis, i.e. regardless of when it is received.
The date on which business income arises is generally considered to be the date on which the service is rendered, no later than the date on which the invoice is issued or the amount due is paid. However, in the case of rental, the principle of accounting for rental services in accounting periods (monthly/quarterly/ semiannual/annual) usually applies. Then CIT income arises on the last day of the settlement period specified in the contract or invoice issued, at least once a year.
Please remember that CIT obligation and VAT obligation may arise on different dates, as in case of rental revenues.
VAT liability
VAT liability for rental services arises on the date of the invoice issuance, but no later than the due date for payment. Invoices documenting rental services shall be issued no later than the due date.
Invoice issuance often determines the moment of VAT obligation. This feature is very often used in real estate transactions, where the buyers seek for output VAT in a closing month so that they can apply for input VAT deduction in a regular (and not prologed) time period.
They can also be issued earlier, which is quite often market practice (for example, an invoice for a rental in March is issued at the end of February ‘in advance’). The invoice can be issued 30 days before the service is rendered, and for rental services, if the invoice states what billing period it is for, it can be issued even earlier than the described 30 days.
Rent-free vacations
It is not uncommon for leases to provide for rent-free periods for tenants, during which tenants are exempt from rent payments, paying only service charges.
Rent-free periods usually cover a small portion of the entire contracted lease term. This is an important and acceptable argument for the authorities to exclude rent-free periods from the category of gratuitous or partially gratuitous benefits (taxable to CIT).
Tax regulations do not specify what exactly is to be understood by the term gratuitous or partially gratuitous benefit. In the case law, it is assumed that it is such a material benefit that is not associated with costs or any other form of equivalence on the part of the taxpayer (lack of reciprocity). In the context of the entire lease agreement, it is difficult to consider the rent-free period as a non-equivalent benefit.
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