Return of Leased Improved Property: When Does VAT Arise?

• The return of leased improved property is subject to VAT.
• If the expenses for improving the leased object were incurred with the lessor’s consent and not compensated to the lessee, the value of the improvement is considered a free service and subject to VAT.
• According to the Tax Code of Ukraine, the place of supply of services is located on the customs territory of Ukraine.
• Supply of goods/services includes providing services to another person free of charge.
• The tax base for supply of goods/services is determined based on their contractual value, taking into account state taxes and fees.
• The tax base for supply of goods/services cannot be lower than the purchase price of such goods/services.
• Certain exceptions apply for regulated prices, gas supplied for household needs, and electricity with market prices.
• If the expenses for improving the leased object were incurred with the lessor’s consent and not compensated to the lessee, the value of the improvement is considered a free service and subject to VAT at the standard rate.
• If separate agreements are made between the lessor and lessee for compensation of the lessee’s expenses for improving the leased object, the amounts paid under these agreements are considered a separate service for improving fixed assets and subject to VAT at the standard rate.

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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