Determination of the minimum tax liability for individuals

Law of Ukraine as of 30.11.2021 № 1914 “On Amendments to the Tax Code of Ukraine and other legislative acts of Ukraine to ensure balance of budget revenues” determines the concept of minimum tax liability for taxpayers – individuals who own and / or use (lease, sublease, emphyteusis, permanent use) land plots classified as agricultural land.

Paragraph 64 Section XX “Transitional Provisions” of the Tax Code of Ukraine (hereinafter – Code) stipulates that the first year for which the minimum tax liability is determined is 2022.

Payers in part of the minimum tax liability are a resident who owns and / or uses (leases (subleases), on the terms of emphyteusis, permanently uses) land plots classified as agricultural land (Sub-paragraph 162.1.1 Paragraph 162.1 Article 162 of the Code).

Sub-paragraph 170.14.3 Paragraph 170.14 Article 170 of the Code stipulates that determination of the total minimum tax liability for individuals who are not registered as individuals – entrepreneurs is carried out by controlling bodies at the tax address of such individuals before July 1 of year following the reporting year.

Please note that taxpayers pay to the budget only positive value of difference between amount of the total minimum tax liability and amount of taxes, levies and payments related during the tax (reporting) year to the production and sale of own agricultural products and / or property and / or use (lease, sublease, emphyteusis, permanent use) of land plots classified as agricultural land.

Personal income tax and military levy on income from the sale of own agricultural products, land tax for land plots classified as agricultural land are included to the total amount of taxes, levies and payments paid during the tax (reporting) year for individual – taxpayer (Sub-paragraph 170.14.5 Paragraph 170.14 Article 170 of the Code).

Individuals who are not registered as individuals – entrepreneurs will receive tax notification – decision with detailed amount calculation of annual tax liability from personal income tax on land classified as agricultural land for the first time starting from 01.01.2023 to 01.07.2023.

It should be noted that in case of transfer of land for lease (sublease), emphyteusis or other use (with registration of such relationships according to applicable law), the minimum tax liability is determined for tenants, users of other conditions of such land in manner prescribed by the Code.

As follows, for individuals who, according to norms of the Civil Code of Ukraine, the Land Code of Ukraine and the Law of Ukraine as of 06.10.1998 № 161 “On the land Lease”, the tax liability is not determined by the controlling body. In this case, the minimum tax liability for such land is paid by the lessee.

Estimated amount of the minimum tax liability is determined according to formulas established by Article 38¹ of the Code depending on the available normative monetary land valuation or normative monetary valuation of 1 hectare of arable land in the Autonomous Republic of Crimea or region, taking into account the indexation coefficient determined for land by the Code; coefficient and number of calendar months during which the land is owned, leased, used on other terms (including emphyteusis) by the taxpayer.

Notification! Temporarily, there is applicable coefficient with 0.04 value for calculation of the  minimum tax liability for 2022 and 2023 tax (reporting) years (Paragraph 67 Section XX “Transitional Provisions” of the Code).

For example, the taxpayer – individual in 2022 owns a land plot in Kyiv region classified as agricultural land with an area of 4.0 hectares, normative monetary valuation of which has not been conducted. Land plot was not leased on emphyteusis or other use. Land tax in the amount of 318.4 UAH was paid in 2022.

Estimated amount of minimum tax liability for a land plot, normative monetary valuation of which has not been carried out, is calculated by the formula:

Minimum tax liability = normative monetary valuation × S × K × M / 12,

that is:

Normative monetary valuation of 1 hectare of arable land in the Autonomous Republic of Crimea or in region, taking into account the indexation coefficient determined according to procedure established by the Code for land tax;

S is the land area, hectares;

K is a coefficient;

M is the number of calendar months during which land is owned, leased, used on other terms (including emphyteusis) by the taxpayer.

Under conditions specified in example, based on the results of 2022, the controlling body will form and send tax notification – decision to the taxpayer by 01.07.2023 on the amount of difference between amount of the minimum tax liability and amount of taxes paid during the tax (reporting) year:

(26531 × 4 × 0.04 × 12/12) - 318.4 = 4,244.96 - 318.4 = 3,926.56 UAH.

Herewith, if during reporting year the taxpayer received income from the sale of agricultural products in the amount of 100,000.0 UAH, of which 78,000 UAH were not subject to taxation, according to Sub-paragraph 165.1.24 Paragraph 165.1 Article 165 of the Code, and from the difference withheld tax by tax agent in the amount of 3,960.0 UAH, the amount of personal income tax that the taxpayer must pay to the budget (positive value of difference between the minimum tax liability and amount of taxes paid during the tax (reporting) year) will be 33.44 UAH (4,244.96 - 318.4 - 3960.0).