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Address: 16 Tarasa Shevchenko Lane, Kyiv, 01001, Ukraine
Tel.: +380 44 364 9113
TOTUM is a law firm operating on the Ukrainian legal business market. The company has provided its clients with the entire scope of legal services since 2011. TOTUM staff consists of professional lawyers and advocates, including two PhDs in Law. Combining the best standards of running a legal practice with profound knowledge of the specific nature of Ukrainian economics as well as flexible approach to work with a clear understanding of the needs of clients we ensure success in their business.
The experience of a young and organized professional team let the Company provide high-quality legal services in the industrial and agrarian sectors of economics and also in such important business spheres as building, residential and commercial real estate, agriculture and farming, retail, food industry, trade in petroleum products, etc.
The TOTUM company provides a full range of legal services and puts forward an individual solution for our clients. Due to the competence and high level of responsibility towards the cases of clients, we focus on the main legal spheres like Land & Agrarian Law, Building & Capital Investments, Corporate & Tax Law, Dispute Settlements & Business Security.
Combining the highest professional standards, trust, responsibility, permanent professional development and significant practice experience makes the company’s team unique among other participants of the Ukrainian legal business.
Land Fee: Urgent Issues
The development of modern technologies now enables businesses to operate without “being tied” to a particular office, city or even country. This is primarily about the IT sphere, trade, etc. However, the main segment of business still uses a particular territory and building as a place of business as well as an instrument for profit. In each case, there is a problem which can be solved. Registration of land rights includes not only rights, but also warranties. Thus, the Tax Code of Ukraine defines the principle of use of paid for land.
Objects of Land Charge
At this moment, unfortunately, not all territory of Ukraine is inventorized. Some of the land that is actually in use by one or another entity is not formally registered. And that has a negative influence both for the state in the form of income foregone, and for the land user, because it restricts the conduct of commercial activity.
The Land Code of Ukraine states that a land plot becomes an object of civil rights after its formation and registration in the State Land Cadastre. Thus, after establishing its land lines, size, designation, etc., the opportunity to get the desired legal title (property rights, lease, right of permanent use) arises from that moment.
The base of land use is the normative monetary valuation of a land plot. There are many methods for calculating the normative monetary valuation in Ukraine. It shall be conducted in accordance with the procedure established by state legislation. The owner of the land plot, as a subject of land taxation, is forced to approve it via an authorized person. Let’s look in detail at the lands in a locality, because many legal entities run a business in the city, except for agricultural subjects. The main criterion for lands in settlements that has an influence on the size of the land tax and rent fee is the code of land designation. It is determined in the Instruction on the normative monetary valuation of lands in a locality, approved by the Order of the Ministry of Agrarian Policy and Food of Ukraine on 25 December, 2016.
Payers of Land Charge
The Tax Code of Ukraine defines two forms of settlement: land tax and rent fee. In this case, such payments are differentiated according to the structure of the subject.
The land tax is paid by the owner of the land plot, a permanent land user, as well as a quasi-subject as the owner of non-residential premises in a multi-apartment residential building.
The rent fee is the obligation on a land user which arises from signing of a lease agreement. Rate taxes for land are set by the administrator of such lands (state bodies or bodies of local self-government), but they cannot violate legally defined limits for either the land tax or rent fee. As a general rule, the size of the land tax is set at a rate not exceeding 3 percent of their normative monetary valuation, for general use land — not more than 1 percent of their normative monetary valuation, and for agricultural land — not less than 0.3 percent and not more than 1 percent of their normative monetary valuation.
The rent fee cannot be less than the size of the land tax.
At the same time, administrators of state and communal land have the right to set rates of land paid on the respective territory independently as well as appropriate privileges.
Typically, privileges are usually set up for land, which are used for education, housing, activities of budget enterprises, etc. At the same time, in order to improve the investment climate, support small and medium-sized businesses, the development of key sectors of the economy, whose activities are aimed at satisfying the individual needs of consumers, directing the funds released by the taxpayer to increase production volumes (provision of services), re-equipment of the material and technical base, authorities provide additional benefits for other economic entities, such as industrial producers, development companies, etc.
One positive point is that the Tax Code exempts from tax liability if the owner of the real estate uses it for personal needs and is registered as a payer of the single tax of group 3 or group 4.
The Owner of Real Estate — Land User
In Ukraine the principle exists of the unity of the legal fate of the land and buildings located on it. According to Article 120 of The Land Code of Ukraine in the case of a person acquiring real estate, the latter acquires rights to the land on which it is located, in the same volume and under the same conditions as the previous owner of the property.
We draw attention to the fact that the essential condition of the contract of alienation of property is the cadastral number of the land plot — a unique number identifying the land as a separate object of civil rights.
Therefore, when purchasing a building, it is necessary to carry out not only an audit of the object named in the contract, but also the land plot underneath it, since at that moment there is an automatic change of the user of the land: the seller’s right to the land of the real estate is terminated, and the buyer’s right arises. The ground for land use and land payment does not change. This may be a contract of lease, a state act on the right to private property or a state act of permanent use, etc.
Land Fee Without Legal Instruments
In cases when the land is not yet formed, the right of use is not registered in the State Register of Property Rights. Yet, it is in actual use by the owner of the real estate and does not relieve the person of paying the land fee.
Of course, the process of land registration is a long-term process. Yet, according to the Tax Code, the right arises from the time the right to the building comes into effect.
Ukraine has open access to a number of state registries, which will help the tax authorities to control the operation of such a duty.
Indeed, tax and land legislation contain conflicting rules: in accordance with the Tax Code of Ukraine, the obligation to settle payments for land use arises from the moment the property right is registered. However, in accordance with the Land Code of Ukraine, the person pays the money from the moment the right to land is registered. “Current” jurisprudence takes the position of the tax authorities and charges arrears. In the past it was necessary to prove the user’s fault to recover damages. Today, the debt is payable irrespective of who is responsible for delaying the process of transferring the land plot to the property / use, and this is an unfair enrichment relationship.
In addition, if the land is not registered in the State Land Cadastre, the sum of debt will be significantly higher. This is because the tax authorities carry out the calculation independently. As indicated above, the coefficient of the target type is decisive for calculating the size of the normative monetary valuation. So, when the plot is not formed, the target destination is not defined, and the valuation may be larger by 30-85%.
Consequences of Non-Documentary Use of Land
The owner of real estate will be distracted by the actual use of land for such property and will be required to pay a land tax without the right to such a land plot. At the same time, the legality of such calculations is quite dubious.
There is a probability of an appeal by the authority to a court with the requirement to the owner of real estate about debt enforcement from payment for the use of land plots.
Inspections by the controlling bodies and imposition of sanctions for unauthorized occupation of the land plot.
Possibility to lose the factual use of a part of the land, that doesn’t include immovable property, by registration of the property right to a land plot by third parties.
In the case of alienation of immovable property, the value of the contract may be reduced proportionately.
Prohibition of reconstruction of building and commencement of new construction without registration of rights to the land plot.
Thus, registration of property rights to a land plot in accordance with current legislation will enable optimization of payment for land and will avoid additional financial expenses related to many litigation actions.
Ways to Optimize Plan for Land
In addition to the above, here are a number of options to reduce the size of the land fee. The feasibility of using each mechanism is solved individually.
For example, there is the possibility of amending land lease agreements in terms of reducing the rental rate, dividing the land plot with the subsequent waiving of the newly formed land plot free of building, registration of land ownership, while in that situation the amount of tax may be several times less than the land rent. We also offer our clients the wonderful method of making changes to the State Land Cadastre in terms of the code of the intended designation.
In conclusion, as economists say: “Money saved is money earned”. That’s why you cannot lose the chance to use one of the various methods noted above. By carrying out these actions you will simplify your life, and by using law consultants and advisors who possess experience and knowledge in that