Taxation Of Rental Income In Zimbabwe

Taxation of Rental Income in Zimbabwe

As the dust settles on the excitement of a new property purchase, the considerations extend beyond identifying the perfect tenant. Property owners, including Airbnb owners, who host fee-paying guests and receive rental income, must declare the rental income to the Zimbabwe Revenue Authority (ZIMRA).

Throughout the year, landlords use rent money collected from tenants to pay the bills, mortgage and loans, but, when tax time comes around, are unsure of how rental income is taxed. 

What is Rental Income Tax?

In Zimbabwe, all rental income is subject to taxation under the Income Tax Act (Chapter 23:06).

In terms of section 8(1)(l) of the Act, gross income includes any amount paid in the form of rent, premium, or consideration, for the right of use or occupation of a property.

Property owners have therefore always been required to declare rental income as part of their taxable income and to pay the appropriate taxes. For individuals, the tax rates for rental income depend on the overall income brackets, as it is combined with other income sources. For corporates, the income is taxed at the corporate tax rate.

Sources of Rental Income

Rental income can generally be derived from the following sources:

·         Leasing a property, either wholly or partially;

·         Granting rights in relation to the property (e.g. beneficial interest or use of rooms);

·         Assigning rights attached to the property (i.e. the right to enter and use common areas such as terraces or parking spaces);

·         Letting of facilities in a hotel (e.g. conference rooms or parking spaces);

In practice, therefore, rental income should be added to the gross income of the property owner and is generally treated as normal taxable income, taxed at the basic Corporate Tax Rate/income tax rate.

2025 National Budget Pronouncements

The 2025 National Budget introduces measures that impact rental income taxation.

The key measures include:

1. The introduction of stricter monitoring and enforcement measures for accounting in under-taxed areas such as rental income to broaden the tax base.

2. More specifically, the Budget proposed as follows:

·         “All properties that have been converted from residential to business properties be subject to Rental Income Tax at a rate of 25% and accounted separately by the Zimbabwe Revenue Authority.”

·         “Any company or organisation using rented premises be compelled to disclose to the (Revenue) Commissioner, the rental expense, the location and owner of the property for purposes of Rental Income Tax.”

·         “Any company or organisation that fails to declare the owner of the rented property will be precluded from claiming the rental expense against taxable income,”

To effect the above enforcement measures, there will be an increased use and reliance on technology, by government, to detect undeclared rental income. This will include: cross-referencing property ownership data with tax filings, much assisted by the newly introduced Tax and Revenue Management System (TaRMS) by ZIMRA. Collectively, these measures align with the broader fiscal policy aimed at increasing revenue collection and tightening tax compliance mechanisms for property owners.

Can the taxable rental income be reduced?

Deliberately failing to declare rental income tax is considered a serious offence, punishable with financial penalties, criminal prosecution and imprisonment, seizure of property to recover unpaid taxes and penalties; and the suspension or revocation of business licenses for corporate entities involved in evasion. These penalties aim to deter non-compliance and ensure adherence to tax obligations.

Maximising tax deductions to Reduce Your Tax Burden

As a property owner in Zimbabwe, understanding the available deductions can significantly reduce your tax burden. By claiming eligible expenses, you can offset your taxable income and potentially save on your tax payments.

Here’s a breakdown of the most common deductions:

 Direct Property Expenses

·         Levies and rates imposed on the property.

·         Property taxes

·         Homeowners’ insurance

·         Bond interest if you have a mortgage on the property;

·         Maintenance and repairs incurred to keep the property in good condition.

·         Security

Operating Expenses

·         Utilities such as rates, electricity and water

·         Advertising and marketing

·         Cleaning and laundry expenses provided to guests

·         Property Agent’s fees for property management services

·         Depreciation

If expenses exceed rental income?

There are times when, for one reason or another, the expenses accrued from leasing a property exceed the income. The loss should then be off-set against other income received by you the owner. When leasing out a property it is always best to consult with an accountant or tax specialist to fully understand what is deductible, how much tax will essentially be paid over the annual lease period, and the like. This will provide a realistic view of your net income.

Keeping Accurate Records: The Cornerstone of Tax Compliance

Maintaining detailed records is essential for accurate tax reporting and maximizing deductions. By meticulously tracking your income and expenses, you can provide the Zimbabwe Revenue Authority with the necessary documentation to substantiate your tax claims.

Here’s a checklist of essential records for property owners

Rental income records:

·         Lease Agreement or rental agreement for each tenant/guest;

·         Reservation details: guest names, check-in/check-out dates, and rental periods.

·         Payment receipts or bank statements showing the amounts received.

·         Any additional fees collected, such as cleaning fees or security deposits.

Expense records:

·         Receipts or invoices for all deductible expenses (utilities, property taxes, maintenance, and advertising.

·         Bank statements showing payments made for expenses.

Conclusion

The 2025 National Budget proposal is not an explicit modification of rental income tax but an introduction of measures to enhance compliance to declare rental income by property owners.

Although the legal position is fairly clear in Section 8(1)(l) of the Income Tax Act, it appears that ZIMRA may have identified the need to focus on improving taxpayer compliance, particularly amongst property owners who derive rental income from hosting fee-paying guests (short-term rentals), and therefore on an ad hoc basis, rather than property owners who enter into standard lease agreements for longer periods of time.

As ZIMRA continues to improve the efficiency of tax collection, with great help from the new Tax and Revenue Management System (TaRMS), it is increasingly unlikely that any such non-declaration and or under-declaration will remain undetected.