Operations with land plots
Based on the provisions of the Tax Code, it becomes apparent that the land plots will be assigned to fixed assets of the first group (p.14.1. Article 14, section 3 of the NCA). But despite this, the taxpayer will be required to maintain separate records of transactions for the sale or acquisition of land as a separate object of ownership. The costs associated with such acquisition, shall not be included in expenses (they now will not be called gross) for reporting tax period and not subject to amortization. But the positive difference between the sale price of land and the cost of its acquisition will increase taxable income. Unlike the system used today, a separate accounting for transactions with land plots, NCA provides a special procedure for determining the amount of the cost of the land - costs are multiplied by a factor of indexing, index-linked inflation.
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That is, you can expect some increase in the amount of costs incurred in connection with the acquisition of land for the period of its use in the event that the rate of inflation over this period exceeded 10% per year (p.15.20. Article 15, Section 3 of the NCA). The increased amount of costs incurred will reduce taxable income. Income (positive difference), arising from the operations of the land will be taxed on total income tax rate - 20% of the tax object to the progressive reduction up to 17% by 2017. At the same time local governments are allowed to apply to the income tax rate an additional rate of 2% (the Supreme Council of Crimea, regional, Kiev, Sevastopol city councils) - 3% (district, city councils).
In the context of the ongoing land operations with special interest in the project draws p.16.5 NKU, under which income received as a result of the alienation of land is determined in accordance with the contract of sale or other disposition, but not below the normal price of such land. In turn, for determining the normal price will now be used not the contract price, and the indirect methods of determining the normal price (analog method of sales, resale price, cost plus "method of distribution of profit)
Regarding the taxation of the supply of land VAT, we see the preservation of VAT exemption of the supply of land privately owned separately from the real estate (19/01/1920 Article 19 section 5 of the draft NCA).
Attracting investment in construction projects
The cardinal changes in the draft that significantly affect future developments in the construction market, is the abolition of the rule of "first event" in determining the date of the gross income. If many of the earlier developers were forced to resort to financial instruments, including bonds of trust for the purposes of deferral of tax liabilities, then the following Section 5.1.1. Article 5, section 3 of the NKU developer receiving funds under a contract entered into by the investor, as payment will not include them in income before handing over the constructed real estate in favor of the investor.
At the same time, the VAT, the rule of "first event" remain in effect, forcing many developers to preserve existing tsenobumazhnye mechanisms to raise funds in construction projects. Moreover, the regime of separate accounting of tax consequences in the context of a security or package of identical securities retained (p.22.8. Article 22, section 3 of the NCA). Placement of securities does not lead to the emergence of an issuer or gross tsenobumazhnogo income that allows more active and use the transaction data for the purpose of tax planning operations in the construction project. But even here there were no specific provisions, raises questions about whether to continue some operations with securities (eg, transactions for issuing bonds). For example, free provision of taxpayer securities and / or derivatives to another person does not cause any loss from such transactions. Accordingly, the subsequent disposal of donated securities received from the investor's taxable income will arise which can not be reduced by the costs incurred. These provisions of the draft NKU jeopardize the possibility of further use of mortgages to finance construction projects.
At the same time, securities transactions carried out with funds are not subject to VAT in accordance with p.18.1.8. Article 18, section 5 of the draft NKU. Today, many developers are interested in using the securities in tandem with the institutions of collective investment for the purpose of attracting funds into housing construction in compliance with article 4 of the Law of Ukraine "On investment activity" and to achieve the optimal tax effect. Therefore, rather topical issue in the context of the adoption of the draft NKU remains the question of the Taxation of income of ICI. Following the registered project NKU, ISI fully preserve the existing benefits. According p.5.1.9. NKU project are not included in gross income the amount of joint investment, namely, the funds raised from investors ISI, revenues from transactions with the assets of such institutions.
A welcome change for the construction and investment market is to govern the tax treatment of transactions under the contract of joint activity.
The Tax Code does not distinguish between residential buildings for affordable housing and commercial, it imposes its classification of recognized residential real estate, including their component dwelling house, apartment house mansion type, extension to dwelling house (apparently - non-residential), apartments, cottages, rooms in multi-family homes, garden house, holiday house (p.16.1.51. Article 16, Section 1 of the NCA). Accordingly, the project, we did not find the special benefits provided to developers, implementing projects to build affordable housing.
Despite a number of statements, the first delivery of housing is subject to VAT. The existing exemption for VAT exemption of the supply of housing concerns only the second delivery (subsection 19/01/1915 Article 19 section 5 of the draft NKU). In presenting the above-mentioned norms are fully backed controversial rule as amended, paragraph 5.1.20 of the Law of Ukraine "On VAT", which certainly does not simplify the practical application of VAT-free transactions for the supply of housing developers. Maybe for some developers who are forced to implement the first delivery of housing some consolation will be the use of rates of VAT - 20% of the tax object to the progressive reduction up to 17% by 2017 (p.15.1. Article 15, section 5 of the draft NCA).
Natalia Dotsenko-Belous, Vasil Kisil & Partners Senior Associate