A fine of 85,000 or a 5% tax: what will landlords choose?
18 February 18:00
Members of Parliament have devised a way to replenish the budget following the failure of the so-called “IMF bills” — a bill has been registered in Parliament to tax landlords of residential properties (apartments, houses) exclusively. Deputies have calculated that landlords earn millions from renting out property and should give a portion of this to the state.
Komersant looked into how much they plan to collect from those who rent out apartments and houses, what penalties they are planning, and what will happen to the rental market.
Draft Law No. 15031 is called “On Amendments to the Tax Code of Ukraine Regarding the Taxation of Individuals’ Income from Renting Residential Real Estate or Parts Thereof.” As noted in the explanatory memorandum, today, landlords are reluctant to voluntarily pay tax on the rental of their property due to the high tax burden (18% personal income tax and 5% military tax, totaling 23%). In addition, this makes renting out property economically unprofitable. As a result, the state budget loses revenue and tenants’ rights are violated (unilateral price increases, eviction without refunds). And, apparently, the point is that deputies have decided to take care of conscientious tenants and, at the same time, replenish the coffers of the Motherland.
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And here is what is happening, according to the deputies. According to the State Statistics Service, the total number of apartments in Ukraine as of January 1, 2021, was over 17.3 million units. Even taking into account the loss of housing stock due to hostilities — about 13% of housing has been destroyed or damaged by the war and almost 3 million people have been left homeless — the supply on the market remains significant. Well, this is not surprising, as millions have left their homes in relatively safe regions and gone abroad.
According to a study by the International Organization for Migration (IOM), 54% of internally displaced persons live in rented accommodation. Considering that the total number of IDPs ranges from 3.7 to 4.6 million people, it can be argued that we are talking about millions of rental agreements.
At the same time, according to the State Tax Service, in 2024 only about 900 Ukrainian citizens officially declared income from renting out property, and the total amount of taxes from this activity was just over UAH 16 million. About 56,000 individual entrepreneurs also work in this field, but this is only a small part of the actual number of landlords.
That is why deputies decided to reduce the tax burden to stimulate the legalization of the rental market. It is proposed to amend the Tax Code:
- To reduce the personal income tax rate on income from renting out housing from 18% to 5%.
- Temporarily (from April 1, 2026, until the end of martial law) exclude this income from the taxpayer’s total taxable income.
The goal is clear: to bring out of the shadows all those who earn money from renting.
If you don’t come out of the shadows, you’ll pay a fine
As noted by MP Olena Shulyak, who, incidentally, is not the author of this bill but actively supports it, the rental market in Ukraine is currently in a state of wild capitalism.
“No one is responsible for anything, no one is protected, and all this is multiplied by total shadowing and total tax evasion. But fines without reform are like treating an open fracture by applying a plantain leaf. The effect will be the same. Zero,” Shulyak said.
Therefore, she proposes:
- Introduce a fair rental tax of 5-7%. When the tax is adequate, it is easier to pay and have official white income.
- Introduce mandatory registration of rental agreements to give tenants confidence that they will avoid urgent eviction and landlords the ability to go to court in case of problems with tenants.
Penalties should only be imposed on those who fundamentally ignore the law even under normal conditions. First, the conditions. Then, responsibility. And as for responsibility, Shulyak believes that a fine is sufficient. The State Tax Service warns that if you are caught renting out an apartment or house without paying taxes, you will be held liable under Article 212 of the Criminal Code of Ukraine. In such cases, the fine can range from 51,000 to 85,000 UAH.
New – forgotten old
On the one hand, MPs have long been concerned about the tax-free real estate rental market, and they have tried to tax it several times since 2014. But the idea did not find support among the masses, i.e., no one paid taxes on the proceeds from renting out their homes. Although the first attempt was back in 2005, when many landlords were lured out of the shadows with a single tax of 80 UAH – $16 at the time. But then, few responded to this initiative, although there was progress.
The fight against rental income was particularly fierce during Yanukovych’s rule. In the summer of 2013, the Ministry of Revenue reported that as of 2013, about 20,000 apartments and rooms were being rented out in Kyiv. According to DOM.ria.ua, the actual number of apartments being rented out is significantly higher, ranging from 50,000 to 100,000, depending on the time of year.
The Kyiv tax office said that in order to combat “shadow” real estate rentals, they constantly receive information from local authorities and housing and communal services, and also monitor advertisements in the media and on the Internet. According to the results of 2012, the tax office identified more than 1,100 Kyiv residents who were illegally renting out their own premises, although officially more than 36,000 citizens rent out real estate, and they paid almost UAH 200 million in personal income tax on the income received in 2012, which is UAH 52 million more than in 2011.
But when the personal income tax rate on apartment rentals was raised to 18% of income in 2015-16, the market quickly went underground, according to
“One thing needs to be understood here: legalizing the real estate market will primarily affect tenants. If housing is rented out officially, the tax costs will fall on the tenant. This will increase the cost of rent by an order of magnitude. For example, there are situations where renting out an apartment is an additional source of income that not many people want to disclose because they may lose certain benefits,” notes the realtor.
And again, it is very difficult to prove that the tenant is not a distant relative who was simply allowed to live there for free. On the other hand, landlords would agree to pay 5% instead of 23% if they were confident that the rules of the game would not change and that everything would not be replayed and the tax would not be increased.
Author: Alla Dunina
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