Peculiarities of taxation in the territories of possible hostilities - clarification of the Ministry of Finance

The Ministry of Finance has provided clarifications regarding tax exemptions for local taxes and fees for taxable objects located within the territories of possible military operations.

Taking into account numerous requests from taxpayers regarding tax exemptions from local taxes and fees for taxable objects located within the territories of possible military operations, the Ministry of Finance of Ukraine informs.

In accordance with clause 12.3 of the Tax Code, village, town and city councils within their powers shall decide on the establishment of local taxes and fees and tax exemptions from local taxes and fees.

Paragraph two of the above paragraph stipulates that for the period of martial law in Ukraine, in the territories where village, town and city councils temporarily do not exercise their powers, decisions on the establishment of local taxes and/or fees and/or granting tax exemptions from local taxes and/or fees are authorized to be made by the relevant military administrations and civil-military administrations in accordance with the procedure provided for by the TCU for village, town and city councils.

In addition, subparagraph 69.34 of paragraph 69 of subsection 10 of Section XX "Transitional Provisions" of the TCU stipulates that temporarily, for the period of martial law on the territory of Ukraine, until December 31 of the year in which martial law is terminated or canceled, the requirements of subparagraph 4 do not apply to decisions of village, town, city councils, military administrations or military-civilian administrations on the establishment of rates and benefits for local taxes and/or fees and/or decisions to amend such decisions.1.9 (regarding the impossibility of changing tax elements during the budget year) of clause 4.1 and clause 4.5 (on the terms of application of privileges) of Article 4, sub-clauses 12.3.3, 12.3.4 (on the terms of decision-making) and 12.3.7 (on the prohibition of establishing individual privileges) of clause 12.3, sub-clause 12.4.3 (on the terms of entry into force of decisions) of clause 12.4 and clause 12.5 (regarding the terms of entry into force of decisions) of Article 12 of the TCU, the Law of Ukraine "On the Principles of State Regulatory Policy in the Field of Economic Activity", part four of Article 15 of the Law of Ukraine "On Access to Public Information", the Law of Ukraine "On State Aid to Business Entities".

Therefore, in order to resolve the issue of establishing exemptions from local taxes and fees for taxable objects located within the territories of possible hostilities, taxpayers may apply to the relevant local government authority (military administration or military-civilian administration) for a decision on granting tax exemptions.

In addition, the TCU defines the conditions under which, regardless of whether the objects of taxation are located in the territories of active hostilities or in the temporarily occupied territories, no taxes are accrued or paid:

payment for land:

- for land plots contaminated with explosive objects;

- conservation lands (for which the relevant executive authority or local self-government body has made a decision to approve a working land management plan for conservation, i.e. those lands contaminated with chemicals as a result of emergencies and/or armed aggression and hostilities during martial law, as well as those on which military engineering and/or fortifications are located)

- for land plots unsuitable for use due to the potential threat of their contamination with explosive objects, in case village, town and city councils, military administrations and military-civilian administrations make decisions on establishing tax privileges based on taxpayers' applications;

tax on immovable property other than a land plot:

for 2022 and subsequent tax (reporting) periods - for residential and/or non-residential real estate owned by legal entities destroyed as a result of hostilities, terrorist acts, sabotage caused by the armed aggression of the Russian Federation against Ukraine, data on the destruction of which are entered in the Property Register;

for the period starting from March 1, 2022 and subsequent tax (reporting) periods - for non-residential real estate, including their shares owned by individuals and/or legal entities, which were damaged in 2022 as a result of hostilities, terrorist acts, sabotage caused by the armed aggression of the Russian Federation against Ukraine and whose damage was recorded in the Property Register. The accrual of tax on immovable property other than a land plot for such real estate objects shall be resumed starting from the month following the month in which, according to the Property Register, the real estate objects are overhauled, reconstructed, restored and recognized as suitable for their intended use;

starting from January 1, 2023, for residential and/or non-residential real estate damaged (as requiring major repairs, reconstruction or restoration) as a result of hostilities, terrorist acts, sabotage caused by the armed aggression of the Russian Federation against Ukraine, the tax on real estate other than a land plot shall not be accrued and paid for the period from the first day of the month in which the fact of damage to the real estate was recorded according to the Property Register until the first day of the month following the month in which, according to the Property Register, the real estate objects are overhauled, reconstructed, restored and recognized as habitable/fit for purpose.

At the same time, we note that local governments and military administrations or military-civilian administrations are legally empowered to set tax rates on real estate other than land in an amount less than the tax rate established for a certain type of real estate and to exempt from taxation residential/non-residential real estate, including their shares, which, as a result of hostilities, terrorist acts, sabotage caused by the armed aggression of the Russian Federation against Ukraine, are not subject to taxation.

At the same time, we note that clarifications on the practical application of the peculiarities of calculation and payment of the above taxes under martial law have been published by the State Tax Service of
of Ukraine.

Additional materials:

How to apply local tax benefits during martial law

The State Tax Service on martial law benefits for taxpayers of the 4th group (legal entities)

New martial law benefits for real estate tax: let's clarify!

Clarifying the land payment taking into account military benefits

State Tax Service clarifies military benefits for eco-tax payers

Real estate tax benefits based on the list from the Ministry of Integration