Entrepreneurial activity in a residential building: whether there should be a tax exemption for immovable property, different from the land plot. 31/07/2018

Entrepreneurial activity in a residential building: whether a tax on real estate property other than a land plot.

Article 47 of the Constitution of Ukraine guarantees everyone the right to housing. The state creates conditions under which each citizen will be able to build housing, buy it or rent it.

In turn, article 42 of the Constitution indicates that everyone has the right to entrepreneurial activity, which is not prohibited by law.

In the practical application of the above-mentioned provisions of the Basic Law, situations arise when an entrepreneur-individual uses his or her home in order to exercise his right to engage in entrepreneurial activities. However, is this use legitimate?

At one time, the State Committee for Entrepreneurship in a letter dated July 31, 2007, N 5620 expressed the following position:

“Citizens who use residential premises in accordance with their destination (live in it), adhere to the rules of use of living quarters (do not use residential premises for commercial industrial character), do not harm the environment, do not violate the rights and interests protected by the law of citizens, legal entities and the state – can use the living space for business and other activities. “

According to clause 45.1. Tax Code of Ukraine the taxpayer – an individual is obliged to determine his tax address. Taxpayer address of the taxpayer – an individual recognizes his place of residence, which is taken into account as a taxpayer in the controlling body.

According to Clause 5, Clause 4, Clause 9 of the Law of Ukraine “On State Registration of Legal Entities, Individuals – Entrepreneurs and Public Formations”, the Unified State Register contains the following information about an individual – an entrepreneur, including the location (place of residence or another address on which the relationship with the individual entrepreneur is carried out).

Thus, an individual entrepreneur cannot determine his place of business other than his place of residence.

Another cornerstone is the question of whether the individual entrepreneur is entitled to a tax exemption for immovable property other than land.

As is known, paragraph 266.1.1. The Tax Code of Ukraine specifies that taxpayers for immovable property, other than land, are natural and legal persons, including non-residents, who own the objects of residential and/or non-residential real estate.

In accordance with clause 266.3.1. The PC of Ukraine is the basis of taxation of the total area of the object of residential and non-residential real estate, including its shares. In turn, clause 266.4.1. The PC of Ukraine provides the following benefit from the specified tax. Thus, the tax base of the object/objects of the residential real estate, including their shares owned by the individual taxpayer, decreases:

a) for an apartment / apartment, regardless of their number – for 60 square meters. meters;

b) for a residential house/houses, regardless of their number – for 120 square meters. meters;

Consequently, it is logical to conclude that when using the physical housing of residential premises in its own business, such an individual does not get exempted from paying property taxes, even though the property is used to generate income.

Unfortunately, explanations about the practical application of the above-mentioned legislation are either missing or have a limited application, which is why the Felix Law Enforcement Office has been requested to the State Fiscal Service of Ukraine with the following questions:

  1. Clarify whether an individual entrepreneur has the right to engage in business in a residential building (private house, apartment) in which the individual is the resident / registered?
  2. Explain if the right to benefits specified in clause 266.4.1 is deprived. The PC of Ukraine for a tax on immovable property different from the land plot, an individual entrepreneur who uses his own residential premises in which he lives in his own business if the said economic activity is not of an industrial character?The response of the main fiscal authority of the country did not satisfy and once again confirmed the fiscal orientation of this service.Although the State Fiscal Service of Ukraine noted that the use of own property for the realization of, in particular, entrepreneurial activity is one of the ways to dispose of the property of an individual, however, according to fiscal, tax exemptions for immovable property, different from the land plot provided for in sub-clause 266.4. 1 clause 266.4 of Article 266 of the Code, does not apply to the object / objects of residential real estate used by their owner in the business.


    DFS Reply 


    Lawyer of Yoop “Felix”

    Mezheritsky AA