November 30, 2021
Recently, the Verkhovna Rada adopted a notorious Draft Law No. 5600 “On Amendments to the Tax Code of Ukraine and Certain Legislative Acts of Ukraine to Ensure the Balance of Budget Revenues”. However, it does not contain the rule that residential sales in the secondary market will be subject to VAT. The taxation rate was also changed at the rate of 18% of an individual’s income from the sale of every third and next residential object within one calendar year.
“Congratulations to the existing and future investors of RIEL Real Estate Corporation on the fact that justice has been met. At least it looks like that at the moment”, Rostyslav Melnyk, the General Director of RIEL Real Estate Corporation, points out. “While preparing the document for the second reading, the people's deputies gave ear to us – the participants of the real estate market and financial experts – and removed the VAT norm from the Draft Law. Besides, the terms of taxation of sales of more than two premises per year, proposed in the first reading, were also slackened”.
After amendments introduced, the deductions of individuals to the budget for the sale of real estate should look like this:
- charges on income from the first and only sale during a calendar year – 2%: 1% to the Pension Fund + 1% the buyer’s and the seller’s duty, provided that the property has been in possession of the seller for more than 3 years. If less, 5% of personal income tax comes to the budget from the seller's pocket and 1.5% is military tax.
- on income from the second sale during the same year – 5% of personal income tax and 1.5% is military tax.
- on income from the third and each subsequent sale – 18% of tax + 1.5% military tax, but with the difference between the purchase price and the sale price.
We remind that in the previous version of the document, adopted in the first reading on July 1, 2021, the officials proposed to increase budget revenues, including by introducing a 20% value-added tax on residential sales in the secondary market. Besides, it was planned to tax the total income of an individual on the sale of the third and each subsequent property at a rate of 18%.
“In our opinion, which was fully supported by other participants in the real estate market, this would result in a sharp rise in the cost of square metre both in the primary and in the secondary market. And it is the buyer who would pay for these legislative initiatives”, Rostyslav Melnyk emphasizes.
However, according to REC RIEL, there is always the possibility of introducing “draconian” taxes, indicated in the first version of the Draft Law No. 5600. Currently, the Parliament is still discussing the likelihood of their adoption as a separate document.
