Taxation of the Value-Added Tax on housing supplies

The procedure for taxing the value-added tax on supplies of housing is determined by sub-item 197.1.14 of item 197.1 of Article 197 of the Tax Code of Ukraine (hereinafter - the Code). In particular, housing supply operations (housing stock) are exempt from VAT taxation, except its first supply.

In this sub-clause, the first supply of housing (housing stock) means:
a) the first transfer of ready-made newly built housing (housing object) into the Buyer’s ownership, or supply of services (including the value of purchased materials at Executor’s costs) for the construction of such housing at costs of Customer;
b) the first sale of a reconstructed or completely renovated housing (object of a housing stock) to Buyer who is person other than owner of such object at moment of its decommissioning (out of using) because such reconstruction or complete renovating, or the supply of services (including the cost of purchased materials at Executor’s costs) for such reconstruction or complete renovating at costs of Customer.

Taking into account the above mentioned, the operation of supply of services for the housing construction (housing object) for the construction company (service provider - contractor) is the first supply of housing in accordance with subitem 197.1.14 of item 197.1 of Article 197 of the Code, and therefore such transactions are subject to VAT at a rate of 20 percent.

Transactions for the subsequent transfer of the finished newly built housing to third parties shall be exempt from VAT in accordance with subitem 197.1.14 of item 197.1 of Article 197 of the Code.

It should be noted that according to item 198.5 of Article 198 of the Code, the taxpayer is required to accrue tax liabilities based on the tax base determined in accordance with item 189.1 of Article 189 of the Code, and submit not later the last day of reporting (tax) period and register in the Unified Register of tax bills within the timeframe defined by Code for such registration; a consolidated tax bill for goods / services, non-current assets (for goods / services, non-current assets purchased or manufactured before July 1, 2015 - if during such purchase or manufacture tax amounts were included in the tax credit) in case if such goods / services, non-current assets are intended for use, or starting to be used particularly in transactions exempted from VAT under Article 197 of the Code.

For goods / services, non-current assets acquired or manufactured before July 1, 2015 which are intended for use and / or are being used in the above-mentioned transactions, in accordance with item 198.5 of Article 198 Code, tax liabilities are accrued only if the amount of tax accrued (paid) during their purchase or manufacture were included in the tax credit.

For implementation the provisions of item 198.5 of Article 198 of the Code, VAT obligations are determined by goods / services, non-current assets:
- purchased for use in non-taxable transactions - on the date of their purchase;
- purchased for use in taxable transactions, which start to be used in non-taxable transactions - on commencement date of their actual use, defined in the primary documents drawn up in accordance with the Law of Ukraine “On Accounting and Financial Reporting in Ukraine”.

Until July 1st 2015, VAT amounts accrued / paid for purchases of goods / services, intended for use exempted transactions, were not included in tax credit in accordance with item 198.5 of Article 198 of the Code which operated until 01.07.2015.

Thus, if by July 1, 2015 the taxpayer had purchased goods / services intended for use in exempted transactions, and the VAT amounts charged / paid upon their purchase were included in the tax credit, then such taxpayer should make a corrective calculation of tax liabilities with VAT for the reporting period, in which tax credit was wrongly formed, because the correction of self-identified errors, and reduce in it the amount of tax credit accrued during mentioned transactions.

If goods / services intended for use in exempted transactions are purchased after July 1, 2015, the taxpayer includes the amount of VAT accrued / paid during their purchase, in the tax credit, but not later than the last day of the reporting (tax) period is obliged to calculate VAT tax obligations based on the tax base, with taking into account the value of purchase such goods / services, to compile and register in Unified Register of tax bills a consolidated tax bill for such transactions.

Starting from January 1st 2015 and according to sub-item 134.1.1 item 134.1 of Article 134 of the Code, the object for the corporate profit tax is profit from sources origin from and beyond Ukraine, which is determined by adjusting (increasing or decreasing) the financial result before taxation (profit or loss), defined in financial statements of the enterprise in accordance with the National Accounting regulations (standards) or international financial reporting standards, on the differences which arise in accordance with the provisions of Section III of the Code.

Therefore, the procedure for determining the object for taxation for the profit tax is based on the accounting results, which are reflected by the taxpayer in financial statements.

Source: Letter of State Fiscal Service (SFS) of Ukraine dated November 30, 2015, № 25585/6/99-99-19-03-02-15