How to rent an apartment in Ukraine: expert advice

At the end of July 2020 y, a draft law was submitted to the Verkhovna Rada, on amendments and additions to the article 170 Tax Code of Ukraine. The essence of the changes is aimed at reducing the current tax rate on income collected from the lessor - from 18% to 9%. According to the authors of the project, more 90% of all residential real estate are leased unofficially. The landlord puts himself in jeopardy - ignoring the requirements for registering a lease agreement directly indicates the illegality of providing property for rent. How to rent an apartment legally? Real estate expert advice Alexandra Tsvigun:

• What benefits and protection the landlord will receive, if you follow the official path of registration of the contract?
• What a property owner can lose?
• How to reduce the tax burden - very simple secrets to reduce the current tax rate with 18% + 1,5% to 5%;
• How to evaluate a tenant - what to look for?

How to officially rent out an apartment?

The conditions for the legal renting of an apartment and income taxation are governed by the total 2 normative acts of Ukraine:

• Rental housing in accordance with Art. 810 Civil Code of Ukraine;
• Article 170 (1) on the specifics of calculating and paying tax on income from renting out property.

pay attention to 2 important conditions:

1. Contrary to popular belief, the rental agreement is not subject to notarization. Many people confuse it with a buyback agreement.. When a tenant enters into an agreement with the right of priority purchase of residential real estate.
2. Mandatory written form. The contract does not need to be registered with a notary. but, the property owner must fill out a special form with the tax authority - to register a taxable source of income.

Registration of the contract with a notary does not give advantages to the lessor. The contract does not provide additional conditions for security. Vice versa, this path will be difficult for both sides:

• Time of conclusion of the contract;
• Additional costs for a notary.

How to rent an apartment with the least risk - officially?

With 24 july 2020 y, in the Rada there is a bill to reduce the tax rate for rent from 18% to 9%. It is unknown when it will be accepted.. We take into account 18%. With 30 thous. UAH. conditional income, the landlord has to pay the total 5400 UAH. tax. Compared to a fine above 14 606 UAH. - this is quite tolerable.

How to legally reduce the tax on renting an apartment in Ukraine?

The owner of the property is registered as a sole proprietor 3 group. In this case, he is obliged to pay 5% on the income received and 1039 UAH. as a social contribution. No military fee. From the notional rental amount to 30 thous. UAH. it turns out 1500 UAH. income tax and 1089 UAH. social contribution. Total 2589 UAH. against 5400 UAH.

A question often asked by tenants. If the property is not registered as taxable income, whether this is the reason for the refusal to consider the case in court. For example, when a claim is brought against a former tenant for damages and so on. No. According to the Civil Code of Ukraine, the simple written form of the contract must be followed. Failure to pay taxes refers to a completely different legal relationship - the court will not consider them in isolation from the main claim. This is the sole concern of the tax authority.

Recommended article: Taxes when renting real estate in Ukraine (2021 year)

Unofficial renting of an apartment in Ukraine

Above, we examined the cost of the issue - how much should be given to the state. Let the landlord not be intimidated by the creation of a sole proprietor, you can do without an accountant. The registration procedure with the tax authority is simple – you need to fill out the form and 4 pay tax once a year. Requisites will be kindly provided by the tax authority.

However, there are conditions, who are pushing for an unofficial lease. For example, when the property is larger 100 square meters (not suitable for sole proprietorship 3 group) or when you just don't want to get involved with the state.

What are the benefits of the landlord?

• Minimal money savings;
• There is a risk of being caught, however, if the tenant is reliable, the risk is zero;
• “The less the state knows, the better”.

Let's pay attention once again - ignoring the registration of the contract with the tax, does not entail his non-recognition in court. On condition, if simple writing is followed. We see only one risk - never, under any circumstances, make a deal verbally. In this case, the property owner has more to lose, what to buy.

How a realtor can help? Only in finding an adequate client and saving money. For example, each ad requires paid promotion on the Internet. An employee of a real estate agency takes over all the functions of showing an apartment, fulfillment of formalities with the conclusion of an agreement. Pay attention to the little nuance. When you settle with a realtor, you make the payment officially. What cannot but leave the field of vision of the tax.

Penalty for unofficial renting of an apartment

The thing is, that tax authorities often arrange surprise checks and round-ups on the landlord, who rents an apartment without a contract.

Let's look at a simple example, what penalty will the landlord pay:

An apartment rental agreement has been concluded with a monthly amount 10 thous. UAH. The owner of the real estate did not notify the tax authority and made a delay and concealment of the calculation of income for 3 months (the tenant filed a complaint with the tax authority for non-payment of deductions).

According to article 127 Tax Code of Ukraine, an individual is obliged to pay 20% from unpaid tax on time.

Income rate itself - 18% plus military fee 1,5%. Total 19,5%. The amount of lease payments for 3 month was 30 thous. UAH.

Total:

• Direct payments on the income received will be 5 850 UAH. (18% + 1,5%);
• Fine in the amount 20% from the amount of unpaid tax of illegal lease - 1 170 UAH. (if the delay exceeds 30 days, if less - 10%);
• The state authorizes the owner for late filing of the declaration (where the income should be indicated according to the article 164.1) - from 3 to 8 living wages (PM) citizens. The penalty is imposed in the amount of 50%. Considering that, that the tax has not been paid for more than 3 months, the tax authority will impose a maximum fine of 8 PM. With 1 December 2020 year it is 2189 UAH. The calculation is carried out according to the accounting 50% PM items: 8 * 2189 (50% – 1094,5) = 8756 UAH.

In total: 5 850 UAH. + 8 756 UAH. = 14 606 UAH. This amounts to 50% possible proceeds from renting out an apartment.

In this example, we have calculated the period in 3 months. If the term is from 1 years and above - amounts, of course, there will be much more.

Tips for renting out an apartment

How to properly rent an apartment - what to look for when meeting with a potential client? We give some actionable tips, which helped many owners to avoid problems:

• Type the customer's phone number into Google search - Maybe, contacts already somewhere could light up. Check customer data by simply dialing the phone in Viber, WhatsApp - if the client is not registered, this should immediately alert. maybe, he uses a one-time number. Just in case of this lease;
• Ask for TIN. Submit your request to the credit bureau. If a person is problematic, with a bunch of debts - ignore his suggestions (ask him to register himself and get a report - if the client is honest, he should not be confused by this procedure);
• Ask for a link on social media. The fraudster will immediately betray himself - for him anonymity is the decisive factor;
• Check your personal data in the search for the database of the Ministry of Internal Affairs of Ukraine. Precaution won't hurt;

Basic rules for renting an apartment miss an important detail – list of property in the apartment at the time of its transfer to rent. Absence of this document, makes life much harder for a deceived landlord. Always make a list of the transferred property. Furniture, interior items. Attach this list to the contract. The tenant must sign - from now on, he is responsible for this. Contacting the police without a specified list is a waste of time and nerves.

Finally, very important recommendation. Often ignored by apartment owners. Get basic insurance for your apartment. From flooding or fire. It doesn't cost that much. Less 10% from a monthly rental - but you have no headache in case of inadequate actions of the tenant.

Remember, from 10 selected tenants are better to choose 1 reliable. Let it take time. But the price of the issue is significant. You will not suffer losses from careless use of the bathroom, your apartment won't burn down, all furniture will not be taken out and you will not make repairs every year. Such costs often eat up all rental income..