Renting to an individual or a company
If the tenant is a natural person, the landlord must enter their details into the tax return form manually. It does require a bit of extra work but has one important benefit. Namely, when renting out a dwelling, it is possible to get back 20% of income tax. The tax return form must show the full amount of rent for the year and a 20% deduction will be made automatically in the system.
Example: The rental income was 7,200 euros last year, of which the income tax is 1,440 euros. In the case of renting a dwelling, this income tax is reduced by 20% = 288 euros. So, you must pay an income tax of 1,152 euros.
For a beginner on the rental market, this calculation may be a bit confusing: have I understood things correctly? It is more convenient to know that 16% of all rental income is tax.
Example: The rental income was 7,200 euros last year, and the income tax is 16%, which is: 1,152 euros.
If the rent is paid by a company, income tax has already been automatically deducted and the declarant does not have to do anything extra. When submitting the tax return form, the data should simply be carefully reviewed and then confirmed.
Rental income is not just rental fees
Rental income includes rental payments as well as other liabilities (e.g., loan payments or land tax) if it has been agreed upon with the tenant that they will pay these costs. Rental costs do not include ancillary costs that are related to the maintenance of the dwelling (e.g., snow removal or lawn mowing).
Being a landlord as a company
Over the years, investing in real estate and renting out rental space has become a relatively popular form of business. If the apartment or house is rented out by a company, it makes sense if there are plans to invest money in real estate in the future as well. It is worth noting that a company does not benefit from the income tax benefit that a natural person can get when renting out a dwelling. At the same time, the business owner can reinvest their earned profits back into the same business without having to pay tax. In Estonia, reinvesting profits in your company is tax-free.