Rental Income Taxation in Micronesia

Rental income from property in Micronesia is subject to income tax. This guide provides an overview of how rental income is taxed, what deductions are available, and the ongoing obligations for landlords and property investors.

Taxation of Rental Income

Rental income in Micronesia is generally treated as ordinary income and taxed at the applicable rates:

• Individuals: Net rental income taxed at progressive PIT rates (0-10%)
• Corporations: Included in business income, taxed at 30% (21% for small businesses)
• Non-Residents: 10% withholding tax on gross rental income

Allowable Deductions

Landlords can deduct expenses incurred in earning rental income, including:

• Property Management Fees: Fees paid to property management companies
• Maintenance and Repairs: Costs to maintain the property in good condition
• Insurance Premiums: Building and landlord liability insurance
• Mortgage Interest: Interest paid on property loans
• Property Taxes: Annual property taxes paid
• Utilities: If paid by the landlord
• Advertising: Costs to find tenants
• Legal and Professional Fees: Costs related to rental activity
• Depreciation: Building depreciation (typically 2% per year straight-line)

Non-Deductible Expenses

• Capital improvements (must be depreciated)
• Personal use portion of expenses
• Principal repayment on mortgages

Depreciation of Rental Property

The building structure (not land) can be depreciated for tax purposes. The standard method is:

• Method: Straight-line depreciation
• Rate: 2% per year (50-year useful life)
• Basis: Construction cost or acquisition cost allocated to building

Filing Requirements

Landlords must report rental income in their annual tax return. The tax year follows the calendar year. Rental income is reported on a net basis (gross rental income minus allowable deductions).

Short-Term Rentals

Income from short-term rentals is treated similarly to long-term rentals. Hosts should ensure compliance with local licensing requirements.