Despite the stabilization of the housing prices, changes in the tax legislation expect Ukrainians in 2022. has interviewed experts in the real estate market and has prepared an overview of the tax innovations related to residential real estate.
According to the experts, the new tax burden on builders, developers, and sellers of the secondary market will fall on the shoulders of the real estate final buyers, and that will result in higher prices for the real estate.
How tax changes under law No. 5600 work: 5% and 18%
One of the main changes will be the amendments to the Tax Code initiated by Law No. 5600 (amended by Law No. 1914). From January 1, 2022, the tax on the sale of the third and subsequent real estate properties within one calendar year will be 18% of net income, that is, from the difference between the selling price and the price of purchasing this property earlier.
At the same time, the legislator has clearly defined a list of expenditures that can be attributed to the purchase price and also provides for the need for their documentary confirmation when filing a tax return.
"This is a completely new norm, since under the current legislation, such a tax rate is fixed at 5% of the statutory tax base, that is, based on the price specified in the sale and purchase agreement, but not lower than the assessed value of such a property," Yan Levitas, the Managing Partner at JN Legal, explains.
As a result, from the new year only the second sale of the real estate within one calendar year, as well as the third and subsequent sales, but only if the sale properties have been inherited, will be taxed at a rate of 5%.
5% will have to be paid if the person has already earned income during the tax year from the sale of the second property from the list specified in the law:
- residential house, apartment or its part, room, and country house;
- land plot with real estate properties that are for sale;
- incomplete construction;
- outbuildings on the plot that is for sale;
- agricultural land inherited or privatized.
These changes became necessary due to the spread of the tax evasion schemes among the developers, Anastasiia Harytskaya, Attorney at L.I. Group, says.
"The developers registered houses (apartments) in individuals who subsequently sold residential real estate, while the profit tax was 5%, which was more profitable compared to the 18% set out for the legal entities that were additionally charged with VAT," the expert explains.
Real estate tax: New rate on "extra meters"
The tax on real estate, or, as it is popularly called by the people, on "extra meters" remains in force. At the same time, starting from the summer of 2022, its rate will grow by 21% due to an increase in the minimum wage.
According to the established rate, for each additional meter over 60 sq. m for an apartment and over 120 sq. m for a house, Ukrainians paid 70.8 UAH in 2021, and in 2022—90 UAH.
Imposing personal income tax for owners of land plots outside the settlement
Another novelty of this year is imposing a minimum tax liability. The introduction of the minimum amount of tax liability for paying taxes, fees, and payments applies to agricultural producers engaged in the production and sale of their own agricultural products and/or using land classified as agricultural land located outside settlements.
"The owners of such land plots are obliged to pay taxes from such activities at the level of the total amount, which cannot be less than the minimum tax liability. It does not matter whether such land plots are used for their intended purpose. The amount of the minimum tax liability cannot be less than 4% of the normative monetary evaluation of the corresponding land plot," Maryna Semenova, Lawyer at Semyonova & Partners Law Firm, says.
Individuals who are owners of the land plots and grow agricultural products on such plots for the purpose of further sale are exempted from taxation only if the income from trade for the reporting year is less than 12 minimum wages established as of January 1 of the reporting year. If the income is higher, the individual must pay 18% in personal income tax and 1.5% in the military tax.
Tax amnesty: Do no harm
In 2022, the tax amnesty program will continue working. The tax amnesty is a special voluntary declaration of property with the payment of a one-time fee to the budget. To declare the assets, you must submit your tax return electronically and pay a special fee within 30 days.
With regard to real estate, only a one-time payment is provided: 9% of the value of the assets located abroad (money, real estate, etc.). It must be paid if the apartment or other property was bought with illegal income—that is, during the period when, for example, the buyer got paid under the counter.
At the same time, the lawyers note that with the current legislative framework, special declarations will have little effect on the property owners.
According to the lawyers, formally now there is no ban on the acquisition of real estate if the citizen did not take part in the tax amnesty. Today, financial monitoring rules related to transactions for acquiring expensive property (including apartments) have been tightened, but so far these restrictions have been largely circumvented by the citizens of Ukraine.
"Theoretically, in the future, the state will have questions whether the origin of the funds used to purchase real estate is legal and whether the taxes on them are paid in full. However, the existing legislative loopholes and opportunities may allow citizens to ignore such questions without consequences," Dmytro Kutsevol, the Lawyer and Partner of JSC Assyria, explains.
According to the experts, all the additional tax burden from the builders, developers, and sellers of the secondary market will definitely fall on the shoulders of the real estate end buyers.
"Accordingly, we expect a rise in real estate prices in the amount of newly imposed taxes," Ihor Yasko, Managing Partner at law firm Winner, sums up.