How to use provisions of Sub-paragraph 69.22 of Paragraph 69 Sub-section 10 Section XX "Transitional provisions" of the Tax Code of Ukraine regarding assessment and payment of tax on immovable property other than land plot for real estate objects owned by legal entities damaged in 2022
Specifics of paying tax on immovable property other than land plot (hereinafter – Tax) during the martial law in Ukraine are regulated by norms of Section XII and Sub-paragraph 69.22 of Paragraph 69 Sub-section 10 Section XX "Transitional Provisions" of the Tax Code of Ukraine (hereinafter – Code).
Provisions of Sub-paragraph 69.22 of Paragraph 69 Sub-section 10 Section XX "Transitional provisions" of the Code, taking into account changes made by the Law of Ukraine № 3050-IX as of 11.04.2023 "On amendments to the Tax Code of Ukraine and other legislative acts of Ukraine regarding exemption from payment of environmental tax, payments for land and tax on immovable property other than land plot for destroyed or damaged immovable property", stipulate that Tax is not accrued or paid, in particular, for damaged objects of residential and/or non-residential real estate (such as those in need of capital repair, reconstruction or restoration as a result of hostilities, acts of terrorism, sabotage caused by the armed aggression of russian federation against Ukraine) for a period from 01.03.2022 and subsequent tax (reporting) periods for residential and/or non-residential real estate, including their shares owned by legal entities, which were damaged in 2022 as a result of hostilities, terrorism acts, acts of sabotage caused by the armed aggression of russian federation against Ukraine, and data on the damage of which are entered in the State register of property damaged and destroyed as a result of hostilities, terrorism acts, acts of sabotage caused by the armed aggression of russian federation against Ukraine (hereinafter – Register of damaged property).
Tax accrual is renewed starting from month following the month in which, according to Register of damaged property objects of residential and/or non-residential real estate are overhauled, reconstructed, restored, recognized as suitable for living and use for their intended purpose.
Procedure for maintaining Register of damaged property is approved by Resolution of the Cabinet of Ministers of Ukraine № 624 as of 13.06.2023.
Procedure for submitting information report on damaged and destroyed immovable property as a result of hostilities, terrorism acts, sabotage caused by the armed aggression of russian federation against Ukraine, approved by Resolution of the Cabinet of Ministers of Ukraine № 380 as of 26.03.2022 (as amended by Resolution of the Cabinet of Ministers of Ukraine № 624 as of 13.06.2023).
Along with this, Clause 19 of Sub-paragraph 69.22 of Paragraph 69 Sub-section 10 Section XX "Transitional provisions" of the Code stipulates that in part of residential/non-residential real estate objects, including their shares, which as a result of hostilities, terrorism acts, sabotage, caused by the armed aggression of russian federation against Ukraine, have suffered minor damage, are suitable, in particular, for use for their intended purpose and are subject to restoration through current repairs, village, settlement, city councils, military administrations or military-civilian administrations have a right to:
- set Tax rates in amount smaller than amount of Tax established by decision of relevant local self-government body for a certain type of real estate objects paid in relevant territory;
- exempt from payment of Tax.
Tax payers can apply to local self-government bodies or military administrations/military-civilian administrations regarding establishment of Tax rate for their own real estate objects.
Such decisions can be made taking into account norm of Sub-paragraph 69.34 of Paragraph 69 Sub-section 10 Section XX "Transitional provisions" of the Code, which regulates that temporarily for a period of the martial law on the territory of Ukraine, introduced by Decree of the President of Ukraine "On introduction of the martial law in Ukraine" № 64/2022 as of 24.02.2022, approved by the Law of Ukraine "On approval of Decree of the President of Ukraine "On introduction of the martial law in Ukraine" № 2102-IX as of 24.02.2022 to December 31 of year in which martial law was suspended or canceled, requirements of Sub-paragraph 4.1.9 of Paragraph 4.1 do not apply to decisions of village, settlement, city councils, military administrations or military-civilian administrations regarding establishment of rates and benefits from local taxes and/or levies and/or decisions on amendments to such decisions and Paragraph 4.5 of Article 4, Sub-paragraphs 12.3.3, 12.3.4 and 12.3.7 of Paragraph 12.3, Sub-paragraph 12.4.3 of Paragraph 12.4 and Paragraph 12.5 of Article 12 of the Code and Law of Ukraine "On principles of state regulatory policy in the economic activity sphere", Part 4 of Article 15 of the Law of Ukraine "On access to public information", Law of Ukraine "On state aid to business entities".
Practice of tax administration shows the need to provide clarifications, taking into account some circumstances that arise for Tax payers.
Example 1
Real estate object, which is owned by the business entity, was destroyed, about which relevant documents were compiled and object was written off, at the same time, no changes were made to the State register of real property rights (hereinafter – State register of rights). From which date is Tax for destroyed real estate object not calculated: from the date of writing off object from records or from the date of making changes to the State register of rights.
Procedure for accruing and paying Tax is regulated by norms of Article 266 Section XII of the Code, including determination of powers to establish the main elements.
According to Sub-paragraph 266.1.1 of Paragraph 266.1 Article 266 of the Code, Tax payers are, in particular, legal entities, including non-residents, who are owners of residential and/or non-residential real estate.
Official recognition and confirmation by the state of acquisition, change or termination of real property rights, encumbrances of such rights is the state registration of real property rights and their encumbrances by entering relevant information in the State register of rights.
Tax legislation does not regulate mechanism of excluding destroyed non-residential real estate objects from the taxation objects with the Tax.
At the same time, provisions of Part 1 Article 349 of the Civil Code of Ukraine stipulate that property ownership is terminated in case of its destruction. Ownership right and other real rights to immovable things, encumbrance of these rights, their occurrence, transfer and termination are subject to the state registration (Part 1 Article 182 of the Civil Code of Ukraine).
Law of Ukraine № 1952-IV as of 01.07.2004 "On the state registration of rem rights to immovable property and their encumbrances" (hereinafter – Law) provides that in case of destruction, in particular, of immovable property№ 1952-IV, relevant section of the State register of rights and registration the case is closed, and registration number of this object is canceled (Part 2 Article 14 of the Law).
Therefore, it is possible to terminate accrual of Tax on the condition that information is entered in the State register of rights.
Example 2
Owner of real estate objects – legal entity received certificates from the Register of damaged property, according to which:
- Object 1, damage of which occurred approximately on 22.05.2022, according to category of damage, is identified as object that is "unfit for use, has completely lost its economic value, there is damage to supporting and fencing structures, degree and essence of which indicate danger emergency collapse of object (destroyed objects), damage 81-100%";
- Object 2, damage of which occurred approximately on 25.02.2022, was identified by category of damage as object "existing damage to supporting and enclosing structures, degree and essence of which indicates the need for work on partial dismantling of a part of object or its individual structures etc., damage 41-80%".
Questions arise:
1) from what period does the Tax payer have a right to apply provisions of Sub-paragraph 69.22 of Paragraph 69 Sub-section 10 Section XX "Transitional Provisions" of the Code in order to clarify accrued amounts from Tax for year 2022;
2) from the first day of which period the Company has a right to apply specified norms of the Code in terms of exemption from accrual and payment of Tax for damaged Object 2.
Regarding question 1
According to norms of Sub-paragraph 69.22 of Paragraph 69 Sub-section 10 Section XX "Transitional provisions" of the Code, it is determined that tax is not calculated and paid, in particular, for destroyed and/or damaged (such as those in the need of capital repair, reconstruction or restoration) non-residential real estate objects, data on destruction and/or damage of which are entered in Register of damaged property. For objects that were damaged in 2022 – for a period of 01.03.2022 and subsequent tax (reporting) periods. Tax accrual is renewed starting from month following the month in which, according to Register of damaged property, real estate objects are capitally repaired, reconstructed, restored and recognized as suitable, in particular for use for their intended purpose.
Taking into account above specified, owner of real estate objects – legal entity has a right to clarify accrued tax liabilities for 2022 for a period from 01.03.2022 to 31.12.2022.
Regarding question 2
Since the damage to Object 2 as a result of armed aggression took place on 25.02.2022, the owner of this damaged Object 2 has a right to apply Sub-paragraph 69.22 of Paragraph 69 Sub-section 10 Section XX "Transitional provisions" of the Code, starting from 01.03.2022 until the first day of the following month for month in which, according to Register of damaged property, Object 2 will be overhauled (reconstructed, restored) and deemed suitable, in particular for use for its intended purpose.