VAT Implications on Tenant’s Improvement Costs for Leased Property Upon Return to Landlord

• Expenses for improving a rental object agreed with the landlord and not compensated to the tenant are considered a free service and are subject to VAT based on the purchase price of goods/services used for the improvement.
• According to the Tax Code of Ukraine, the object of taxation includes operations of taxpayers, particularly the supply of services within the customs territory of Ukraine.
• The supply of goods/services includes providing services to another person for free.
• The tax base for the supply of goods/services is determined by their contractual value, considering national taxes and fees.
• The tax base cannot be lower than the purchase price for goods/services, the usual price for self-produced goods/services, or the book value for non-current assets.
• Exceptions include goods/services with regulated prices, gas for household needs, and electricity priced on the energy market.
• If separate agreements exist for the landlord to compensate the tenant for improvement expenses, these payments are considered a separate taxable service and are subject to VAT.

Source: news.dtkt.ua

Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.

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