A new provision was added to the ITA. According to the provision, 20% is deducted from rent (subsection 1 of § 16 of the ITA) earned under a tenancy contract for the purposes of the Law of Obligations Act (LOA) in order to cover expenses related to letting. The deduction is available to resident natural persons, non-residents and common investment funds. The deduction is not available to sole proprietors, because their income from business is subject to taxation as a whole, not based on individual cost types.

As regards the amendments, it is important to keep in mind four aspects. First, the deduction is made only from rent earned on the basis of a residential premises tenancy contract. The definition of a residential premises tenancy contract is given in the LOA sections that regulate contracts of the respective type (§§ 273-275). Second, the deduction is made in the income tax return, which means that the possibility is not available without submitting a tax return. Third, the deduction is made without any documentary evidence regarding costs related to letting. Fourth, there is no maximum limit to the deduction.

According to the Ministry of Finance, the system is available to all taxpayers regardless of the extent to which they actually incur costs and cover the amortisation component of the residential premises. The choice for the percentage-based deduction without requesting any documentary proof of the actual costs has been made, because it is easy for the taxpayer and best helps to reach the expected result of the amendment. Granting the right to deduct only costs supported by documentary proof would mean that the landlord has to collect and preserve all expense receipts. In addition, the border between the taxation of natural persons and sole proprietors would become more vague in the event of document-based deductions.

In all other events (i.e. rental income other than income earned from letting residential premises based on a tenancy contract, as specified in subsection 1 of § 16 of the ITA) there is no right to make any deductions from rental income as long as the person has not registered as a sole proprietor and does not treat their rental income as business revenue.