Tax on rental income: a road map

Renting out your flat is, first and foremost, a legal contract with specific characteristics of its own. In addition to the intricacies of the contractual language, one should also consider other important aspects, such as the fact that a rent collected by the flat owner/landlord constitutes is the income of an individual — which is subject to taxation.

As you are concluding a rent agreement, you should report the lease to the tax office. If the agreement is being concluded in the presence of a notary, then such notary may act as a fiscal agent for tax collection purposes.

Pursuant to Clauses 319 & 320 of the Ukrainian Civil Code, the owner has a right to manage his or her property at his or her own discretion. Any property — such as a room, a flat, a utility space, or just about any other item of real estate — may be rented out to tenants/lessees. From the formal standpoint, the procedure is governed by a real property lease/rent agreement. Taxation of rent receivables is governed by Article 170 of the Ukrainian Tax Code.

Possible Changes in the Future

At the present moment, the Ukrainian Government is driving the effort to move the real estate rent market out of the shadow economy. This is why changes are expected to be made in the procedure of interaction between landlords, tenants, and tax authorities.

Details of the upcoming changes are yet to be ascertained; so far, the only thing we know for sure is that the new legislation is going to affect regulations pertaining to issues including accommodating a tenant, registering the tenant at their current address, and forceful removal (eviction) of a tenant in the event of tenant’s failure to comply with the terms of the agreement.

In Ukraine, residential tenancy issues are governed by the Civil Code which stipulates that the landlord shall enter into an agreement with a lessee and then, the landlord shall be obliged to pay a tax in the amount of 18% of the rent payment (income tax) plus another 1.5% currently payable as war tax whereas the tenants are entitled to register their domicile on a temporary basis.

At the present time, neither the landlords nor the tenants consider an official (formal) rent agreement to be an action to their benefit. Most of the agreements are de facto oral contracts; statistical data points to the fact that only a mere 30% of agreements are being concluded in a transparent manner as far as legislative requirements are concerned. There is no ‘generic’/‘standard’/‘commonplace’ language of a rent/lease contract — any contract should, however, contain a detailed description and enumeration of fittings, furniture, appliances, and other property elements.

A tax authority is only going to find out about a lease if the corresponding agreement is concluded in the presence of a notary. Notaries are obliged to include all of the leases in their tax reports which they submit on a quarterly basis.

On the other hand, in the opinion of the chairman of Ukrainian Association of Real Estate Specialists, current national legislation pertaining to real estate is, by and large, satisfactory. Any issues emerging thereby are challenges are quite typical to just about any other industry. Most of the issues tend to arise out of the vague and protracted ongoing settlement of disputes between landlords and tenants.

The most recent wave of collisions in the industry has been caused by the housing utility bills skyrocketing nationwide in the recent years as the landlords have largely been unwilling to make any concessions thereby to their tenants. That said, the current situation in the market is still driven and determined, first and foremost, by the factor of actual demand for accommodation.

In order to get the real estate rent market out of the shadow economy, the authorities better cut down the tax on rental income. The authors of a new legislative bill propose to cap it at 5% — this might urge landlords to opt for the formal conclusion, certification, and registration of their rental contracts.

Comfort Realty Company is happy to offer you long term flat rentals and lease of commercial spaces across Lviv City. We have a database of verified landlords, with affordable prices and flexible terms. We would also like to offer you comprehensive legal services including contract management which would help you avoid any hidden agendas and/or underlying potential problems. Are specialists are here to help you with real property appraisal, preparation of documents, and putting together a custom-elaborated agreement. We are always ready to provide any advice you might need and settle any discrepancies on the road ahead.