Income derived from renting out real estate is one of the most common sources of income for many property owners in Iran. However, like other types of income, it is subject to taxation, and the law sets specific rules for it. Despite this, many landlords—and even tenants—do not know exactly who must pay rental tax, how it is calculated, and what exemptions may apply.

In this practical guide, we explain rental income tax in simple and practical terms. The following topics will be discussed: what rental tax is, who is subject to it, how it is calculated, what exemptions exist, and when the rental tax return must be filed.

What Is Rental Income Tax?

Rental income tax is a type of income tax applied to income earned from granting the right to use a property. In simple terms, whenever a property owner allows another person to use their property in exchange for rent, the income generated from that rent is subject to tax.

In Iran, properties may have different types of uses, including residential, commercial, administrative, industrial, or agricultural. If the owner earns income by renting out any of these properties, that income will be subject to tax under the Direct Tax Act (hereinafter referred to as the DTA).

Who Must Pay Rental Income Tax?

In general, the following groups are required to pay rental income tax:

  • Individuals who rent out their residential, commercial, or administrative property
  • Legal entities such as companies or institutions that earn income from renting property
  • Property owners who have multiple residential or commercial rental units

An important point is that the formal or informal nature of the lease agreement does not affect the existence of the tax obligation. Even if the lease agreement is handwritten or not registered in official systems, the resulting rental income is still subject to taxation.

How Rental Income Tax Is Calculated

The rules governing rental tax are set out in Articles 52 and 53 of the DTA. According to these provisions, income derived from renting property—after deducting certain allowances—is considered taxable income.

Step 1: Determining Total Rental Income

First, the total rent received by the owner is calculated. The rent received by the landlord may be in cash or in non‑cash form (for example, gold, land, or other assets).

Step 2: Deducting 25 Percent of Legal Expenses

The law automatically considers 25 percent of the total rent as the owner’s expenses. These expenses include items such as property maintenance costs, building depreciation, or obligations related to the property. Therefore, tax is calculated only on 75 percent of the rental income.

For example, if a landlord receives 100 million tomans in rent during a year:

  • 25 million tomans are deducted as expenses
  • The remaining 75 million tomans is considered taxable income

Sometimes a person rents a property (first tenant) and then subleases the same property to another person (second tenant). In this situation, tax is calculated only on the difference between the rent received and the rent paid.

For example:

  • Rent paid: 10 million tomans
  • Rent received: 15 million tomans

In this case, tax is calculated only on the 5 million tomans profit.

Rental Tax for Individuals

Rental tax for individuals is a type of direct tax imposed on income derived from renting property owned by natural persons. In this case, the property owner who receives the rental income must pay the tax to the Iranian National Tax Administration.

For individuals, rental tax is calculated on a progressive basis. This means that the higher the income, the higher the tax rate. To calculate the tax, certain legal costs and exemptions (such as repair expenses or special exemptions for residential properties in certain areas) are first deducted from the total rent. Then the applicable tax rate is applied to the remaining taxable income.

According to the latest amendments to Article 131 of the DTA, the tax rates for rental income of individuals are as follows:

Annual taxable income (after deducting 25%) — Tax rate

  • Up to 400 million tomans: 15%
  • From 400 to 800 million tomans: 20%
  • More than 800 million tomans: 25%

Rental Tax for Legal Entities

For legal entities, rental income tax is determined based on the income derived from renting properties owned by the entity and is subject to the fixed rate specified in Article 105 of the DTA. Legal entities are required to file a tax return and pay the applicable tax.

To calculate the tax, legal expenses (such as repair costs, maintenance costs, and legal exemptions) are first deducted from the total rental income. The remaining net income is then taxed at the fixed rate of 25 percent.

What Amount Is Used as the Basis for Calculating Rental Tax?

According to Article 54 of the DTA, if there is a lease agreement between the landlord and the tenant—whether formal or informal—the rent amount stated in the contract will be the basis for calculating the tax. In other words, the Tax Administration initially relies on the amount stated in the lease agreement.

However, if there is no lease agreement or if the owner refuses to provide the contract to the tax authority, the Iranian National Tax Administration will determine the rental value itself. This determination is based on a table of comparable rental properties in the same area prepared by the tax authority.

Rental Tax Exemptions

The Direct Taxation Act provides several exemptions for certain properties. Being aware of these exemptions can help reduce the amount of tax payable. Some of the most important exemptions are described below.

1. Size-Based Exemption for Residential Properties

Residential properties used for living purposes benefit from a size-based exemption:

  • In Tehran: up to a total of 150 square meters of useful area is exempt from tax
  • In other cities: up to a total of 200 square meters is exempt

This exemption is cumulative. For example, if a person rents out two 110‑square‑meter units in a city other than Tehran (220 square meters in total), the income related to 200 square meters will be exempt, and only the remaining 20 square meters will be taxable.

2. Residence of Family Members in the Property

According to Note 1 of Article 53 of the DTA, if the property is used as the residence of the owner’s father, mother, spouse, children, grandparents, or dependents, the law presumes that no rent is being paid. Therefore, no rental tax is imposed.

However, if documents show that actual rent is being paid in such cases, the property will be considered a rental property and will be subject to tax.

In addition, if the owner has several residential units occupied by themselves or by the above-mentioned relatives, the law allows one unit for the owner’s residence and one unit for the residence of each of those individuals to be excluded from rental taxation. In other words, if these units are used as the residence of the owner or close family members, they are not considered rental properties.

For example, if a person owns four apartments and lives in one, their mother lives in another, their child lives in a third, and only one unit is rented out to a tenant, only the unit rented to the tenant will be subject to rental tax, while the other units will be exempt.

3. Properties Provided Free of Charge to Government Entities

If a property is provided free of charge to ministries, government institutions, or municipalities, the property is not considered a rental property and no rental tax is imposed.

4. Owners of Residential Complexes with More Than Three Rental Units

In some cases, owners of residential complexes with more than three rental units that are constructed in accordance with the official housing consumption pattern (as determined by the Ministry of Housing and Urban Development) may benefit from tax exemptions.

Who Is Responsible for Paying Rental Tax?

In general, rental tax is the responsibility of the landlord, because the rental income belongs to them. However, the method of payment depends on the type of tenant.

·      When the Tenant Is an Individual

In this situation, the tenant pays the full rent to the landlord each month. At the end of the tax year, the landlord must submit a tax return and pay the rental income tax.

·      When the Tenant Is a Legal Entity

If the tenant is a legal entity, the law assigns the payment responsibility differently. According to Note 9 of Article 53 of the DTA, the legal entity must withhold the rental tax from the rent amount, pay it to the tax authority, and provide the payment receipt to the landlord. This type of tax is known as withholding rental tax.

In this case, the taxpayer is the landlord, but the obligation to pay the tax lies with the tenant.

Deadline for Filing the Rental Tax Return

The deadline for submitting the tax return and paying the tax depends on the type of taxpayer.

·      Individuals

Individual property owners must submit their rental tax return and pay the relevant tax by the end of Tir (around July 22) of the following year.

·      Legal Entities

Companies and other legal entities must submit their tax returns within four months after the end of their fiscal year.

Penalties for Non‑Payment of Rental Tax

Failure to comply with tax regulations may lead to significant penalties.

·      Penalty for Individuals

According to Article 192 of the DTA, if a landlord fails to submit their tax return on time, they will be subject to a penalty equal to 10 percent of the tax due. This penalty cannot be waived.

·      Penalty for Legal Entities

If a legal entity acting as tenant fails to pay the withholding rental tax, it will be subject to a penalty equal to 10 percent of the unpaid tax plus an additional penalty of 2.5 percent for each month of delay.

 

Conclusion

Rental income tax is one of the most important tax obligations for property owners in Iran. Understanding how this tax is calculated, what exemptions apply, and what the legal deadlines are can help prevent tax problems and heavy penalties.

In summary, rental tax applies to income earned from renting property. The primary responsibility for the tax lies with the property owner, but when the tenant is a company, the tax is withheld and paid by the tenant. If you own multiple rental properties or plan to invest in real estate, it is advisable to familiarize yourself with the relevant tax regulations before signing a lease agreement to avoid legal and financial complications in the future.