On January 1, 2013 the norm of the Tax Code (article 265) introduced a new local tax on real estate. The innovation has immediately raised insinuations and speculations of "evil tongues". With the help of experts, ForUm has decided to clarify the situation.
Exemption and exemption
The tax applies to both individuals and legal entities and concerns the entire housing stock, including residential houses and annexes, apartments, cottages, villas, rooms in multifamily dwellings. At the same time, there are certain exemptions, like nationalized or commune housing, housing in the alienation or evacuation zone, family-type children's homes, summer houses (not more than one object per a taxpayer). Moreover, the tax does not apply to dormitories and housing of large and foster families with three and more children (not more than one object per a taxpayer).
Critics say that instead of "wealth tax" we have "everybody tax", which will hit the pockets of modest citizens. In this respect, economist Ruslan Pavlenko draws attention to the basic balance of the new tax: it concerns only apartments of more than 120 sq m in area and houses of more than 250 sq m in area. According to the analyst, the given exemption applies not only to poor citizens, but also to a big part of middle class. To say the least, not every one of us has an apartment of more than 100 sq m in area or a private house.
As for the tax rate itself, it is not very big for working people with average and high income. For apartments of 120-240 sq m in area and for houses of 250-500 sq m the tax rate makes up to 1% of the current minimum wages per one square meter (more specific rates for every settlement will be determined by local councils). As a reminder, the minimum wage in Ukraine is 1147 hryvnias, thus 1% makes 11.47 hryvnias. In the future, the tax rate will be recalculated every January 1 basing of the minimum wage of the target year.
For the apartments and houses of more than 240 and 500 sq m respectively, the tax rate will make 2.7% of minimum wage per one square meter, which is 30.97 hryvnias for now.
Moreover, while calculating the tax fee, the beneficial 120 sq m for apartments and 250 sq m for houses get deducted from existing metric area. Here is an example of calculation of an amount of tax fee for an apartment of 190 sq m in area. Firstly, 120 sq m (tax exemption) are deducted from the total area of 190 sq m, then the remaining 70 sq m are multiplied by 11.47 (1% of the minimum wage). In the result, we have 802.9 hryvnias to pay.
The tax will be paid once a year. Before July 1, 2013 individuals will receive a tax notice about the sum to pay and payment details. The payment must be transferred within 60 days after receiving the notice. If a taxpayer disagrees with the calculations, he can challenge the decision in relevant tax bodies. Taxpayers can also apply for payment in installments. For this, a taxpayer must apply to the local tax department and validate his request. The permission for payment in installments can be granted for up to one year.
If a real estate changes the owner during a legal year, the previous owner must pay the tax for the period from January 1 until the month, when he transfers the ownership, while the new owner starts paying from the month, when he receives this ownership.
What if there is more than one apartment
As for the paying taxes for several real estate objects, specialists believe this norm is justified. "Frankly speaking, from practical experience I know that the majority of people having several apartments and houses are rich. Thus, those talks about "poor pensioners" who are in fact real estate mini-moguls are nothing but empty rhetoric," lawyer Oleksandr Popov notes.
According to the tax rules, an individual gets tax exemption only for one property. If a person has more than one real estate objects, they are subjected to tax regardless of area. Thus, for example, if a person owns two apartments of 40 and 50 sq m, he can choose the smaller one for payment in order to reduce the tax. Otherwise, the exemption will be applied to the apartment the person officially resides in.
Popov also points out an important nuance: exemptions are applied to every owner of a real estate. For example, if a husband and wife jointly own an apartment of 240 sq m in area, each of them can use the right for exemption and reduce the tax to zero.
In case of nonpayment, offenders will face sanctions. If an individual has not paid within 60 days after receiving the tax notice, he will face a fine depending on arrear period. Interest for 30-day default is 10% of the total tax fee, and if longer - 20%.
Summing up, experts agree that the real estate tax is not a domestic innovation. In Europe, for example, this tax exists for more than 500 years. In such countries as the Netherlands and Great Britain, the real estate tax is the principal tax revenues for local budgets. As for Ukraine, the tax is expected to bring 75 million hryvnias in local budgets, which is not so much nation-wide. Director of the Center on social processes study Vyacheslav Kovtun adds that the introduction of the real estate tax will promote market development. "In our country this sector of the market receives big investments. Take, for example, Kyiv suburbs with their numerous cottages, investors of which wait for "better times". This should not be like that. Such situation does not exist either in US or in the European Union. That is why the introduction of the real estate tax is a right decision," the analyst believes.
To cut the long story short, the devil is not so terrible as he is painted. Criticism is good and useful, as nobody and nothing is perfect. However, criticism is good only when it is healthy and constructive.
Andriy Boyarunets
Exemption and exemption
The tax applies to both individuals and legal entities and concerns the entire housing stock, including residential houses and annexes, apartments, cottages, villas, rooms in multifamily dwellings. At the same time, there are certain exemptions, like nationalized or commune housing, housing in the alienation or evacuation zone, family-type children's homes, summer houses (not more than one object per a taxpayer). Moreover, the tax does not apply to dormitories and housing of large and foster families with three and more children (not more than one object per a taxpayer).
Critics say that instead of "wealth tax" we have "everybody tax", which will hit the pockets of modest citizens. In this respect, economist Ruslan Pavlenko draws attention to the basic balance of the new tax: it concerns only apartments of more than 120 sq m in area and houses of more than 250 sq m in area. According to the analyst, the given exemption applies not only to poor citizens, but also to a big part of middle class. To say the least, not every one of us has an apartment of more than 100 sq m in area or a private house.
As for the tax rate itself, it is not very big for working people with average and high income. For apartments of 120-240 sq m in area and for houses of 250-500 sq m the tax rate makes up to 1% of the current minimum wages per one square meter (more specific rates for every settlement will be determined by local councils). As a reminder, the minimum wage in Ukraine is 1147 hryvnias, thus 1% makes 11.47 hryvnias. In the future, the tax rate will be recalculated every January 1 basing of the minimum wage of the target year.
For the apartments and houses of more than 240 and 500 sq m respectively, the tax rate will make 2.7% of minimum wage per one square meter, which is 30.97 hryvnias for now.
Moreover, while calculating the tax fee, the beneficial 120 sq m for apartments and 250 sq m for houses get deducted from existing metric area. Here is an example of calculation of an amount of tax fee for an apartment of 190 sq m in area. Firstly, 120 sq m (tax exemption) are deducted from the total area of 190 sq m, then the remaining 70 sq m are multiplied by 11.47 (1% of the minimum wage). In the result, we have 802.9 hryvnias to pay.
The tax will be paid once a year. Before July 1, 2013 individuals will receive a tax notice about the sum to pay and payment details. The payment must be transferred within 60 days after receiving the notice. If a taxpayer disagrees with the calculations, he can challenge the decision in relevant tax bodies. Taxpayers can also apply for payment in installments. For this, a taxpayer must apply to the local tax department and validate his request. The permission for payment in installments can be granted for up to one year.
If a real estate changes the owner during a legal year, the previous owner must pay the tax for the period from January 1 until the month, when he transfers the ownership, while the new owner starts paying from the month, when he receives this ownership.
What if there is more than one apartment
As for the paying taxes for several real estate objects, specialists believe this norm is justified. "Frankly speaking, from practical experience I know that the majority of people having several apartments and houses are rich. Thus, those talks about "poor pensioners" who are in fact real estate mini-moguls are nothing but empty rhetoric," lawyer Oleksandr Popov notes.
According to the tax rules, an individual gets tax exemption only for one property. If a person has more than one real estate objects, they are subjected to tax regardless of area. Thus, for example, if a person owns two apartments of 40 and 50 sq m, he can choose the smaller one for payment in order to reduce the tax. Otherwise, the exemption will be applied to the apartment the person officially resides in.
Popov also points out an important nuance: exemptions are applied to every owner of a real estate. For example, if a husband and wife jointly own an apartment of 240 sq m in area, each of them can use the right for exemption and reduce the tax to zero.
In case of nonpayment, offenders will face sanctions. If an individual has not paid within 60 days after receiving the tax notice, he will face a fine depending on arrear period. Interest for 30-day default is 10% of the total tax fee, and if longer - 20%.
Summing up, experts agree that the real estate tax is not a domestic innovation. In Europe, for example, this tax exists for more than 500 years. In such countries as the Netherlands and Great Britain, the real estate tax is the principal tax revenues for local budgets. As for Ukraine, the tax is expected to bring 75 million hryvnias in local budgets, which is not so much nation-wide. Director of the Center on social processes study Vyacheslav Kovtun adds that the introduction of the real estate tax will promote market development. "In our country this sector of the market receives big investments. Take, for example, Kyiv suburbs with their numerous cottages, investors of which wait for "better times". This should not be like that. Such situation does not exist either in US or in the European Union. That is why the introduction of the real estate tax is a right decision," the analyst believes.
To cut the long story short, the devil is not so terrible as he is painted. Criticism is good and useful, as nobody and nothing is perfect. However, criticism is good only when it is healthy and constructive.
Andriy Boyarunets
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