LEASES AND LEASE TRANSACTIONS UNDER THE NEW TAX CODE OF UKRAINE | UBC

Rental and leasing transactions: from agreement to tax accounting

A lease allows a business to use real estate, equipment or vehicles without immediately purchasing the asset. Leasing can combine financing, use of property and its subsequent transfer into ownership.

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The tax and accounting result depends not on the everyday name of the agreement, but on its terms, the status of the parties, type of property, payment schedule, moment of transfer and the accounting rules applied by each participant.

Materials from previous years separately considered lease-to-own housing and transitional provisions following adoption of the Tax Code. In particular, they analysed agreements entered into after 1 January 2011 and a rule that restricted acquisition of housing by a lessor until 1 January 2020. This time reference is relevant when checking transactions of the corresponding period. A new project in 2026 is assessed under the current legislation, the text of the agreement, accounting standards and the actual movement of property and funds.

What is checked before the agreement is signed

• the lessor's title, encumbrances, arrests and authority of the signatory;
• a precise description of the object, its condition, completeness, place of transfer and permitted use;
• term, renewal procedure, indexation, security deposit and settlement schedule;
• allocation of repair, utility, insurance, registration and maintenance expenses;
• conditions for improvements, sublease, return, early termination and compensation for losses;
• VAT, corporate profit tax or taxation of an individual's income, as well as source documents.

For real estate, the register of property rights, land plot, designated use, technical characteristics, access to the premises and ability to register the required rights are checked additionally. If the lessor is an individual, taxation of the rental income depends on who pays the rent and acts as tax agent. For VAT taxpayers, the place of supply, taxable base, date of tax liabilities and documentary treatment of reimbursements are determined separately.

Operating lease and finance lease

An operating lease normally involves temporary use of an asset and its return to the owner. A finance lease has a different economic substance: the lessee obtains the right to use specified property in return for payments, while material risks and benefits and the possibility of purchase are assessed under the law and agreement. In accounting, classification and recognition of the asset, liability, interest component and depreciation also depend on the standards applied by the company.

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Before signing, it is advisable to build a cash-flow table for the entire term: advance payment, periodic payments, fees, insurance, repairs, taxes, purchase price and registration costs. This makes it possible to compare leasing with a credit-financed acquisition or direct purchase. The agreement should distinguish the charge for use, reimbursement of additional expenses and future payment for transfer of ownership where that model is envisaged.

Lease with a purchase option

The purchase option should be worded unambiguously: who may exercise it and when, how the price is determined, what part of earlier payments is credited, what documents formalise transfer of title and what happens on early termination. For housing or other real estate, notarisation in cases prescribed by law and state registration of the property right are important. Long-term payment by itself does not replace the document that provides the proper basis for transfer of ownership.

For development or an unfinished property, land rights, permits, the funding model, technical readiness and the possibility of future registration are checked. The payment schedule should be linked to documented stages, while refund terms and replacement of the object should be agreed before the first payment.

Documents and accounting

The set may include the agreement, acceptance and transfer act, technical description, invoices, service certificates, payment documents, indexation calculation, insurance documents and decisions of the authorised bodies of the parties. Source documents should correspond to the actual transaction, and the payment description should correspond to the agreement. For related parties and cross-border transactions, arm's-length market conditions, transfer pricing, currency rules and tax residence are assessed additionally.

Tax analysis should be carried out together with accounting analysis. Expenses, depreciation, tax differences and VAT may arise at different times. For an old agreement, the version of the rules applying in the relevant reporting period is checked; for a new agreement, the current model as at the transaction date is used. This distinction helps restore accounting correctly while also planning future payments.

UBC procedure

Work may start with an audit of a draft agreement or an existing transaction. UBC determines the document list, checks corporate authority and the object, compares the agreement with the payment and accounting model, prepares a list of changes and coordinates the notary, valuer, accountant or registrar. For a regional object, a verified local provider may be engaged with an agreed scope of responsibility.

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Managing the agreement after signing

Proper support continues throughout the entire period of use of the property. The parties maintain a calendar of payments and indexation, document meter readings, repairs, improvements, insured events and changes of responsible persons. Before renewal, current details, authority, tax status and the condition of the object are checked. If a purchase is planned, the valuation, corporate decisions, final settlement and registration documents are prepared in advance. UBC can prepare a checklist for the lessor or lessee, carry out periodic reviews of the file and coordinate changes. This format turns the agreement into a managed business process and gives the accounting team evidence for every material stage.

For a portfolio of several objects, a single register of agreements is useful. It records the area and composition of property, term, rate, indexation, security, responsible persons, insurance, repair obligations and date of the next decision. The register makes it possible to compare the actual cost of use, review terms in time and prepare documents for audit. Where necessary, a map of tax and accounting events for each agreement is added.

When the owner of the property changes, a party is reorganised or the agreement is transferred, succession, notices, security and payment details are checked. A reconciliation statement and document inventory help separate completed obligations from future ones. For early termination, inspection of the object, final settlements, return of security, removal of improvements and, where applicable, state registration of termination of the right are planned in advance.

A prepared calendar gives the parties a common list of dates, documents and responsible persons for completing each action.

Related materials: Taxable object, Income, Expenses, Operating expenses, Other expenses, Expenses not taken into account, Fixed assets and depreciation, Ordinary prices, Tax differences, Carry-forward of losses, Dividends, Tax accounting during reorganisation, Securities, Foreign-currency transactions, Asset management, Doubtful debts, Tax reliefs, Tax holidays, Corporate profit tax rate.

The service for analysing and supporting rental and leasing transactions is available to property owners, tenants, investors and developers. A UBC specialist will explain the current conditions in detail, check the contractual and tax model, propose a format of direct or partner support and answer additional questions. We will be pleased to support your transaction and wish you success in business in rental, leasing and real estate.