Land lease: accounting and tax records

It is a widespread practice for Ukraine to lease land plots by entrepreneurs-agrarians from shareholders. Lessee should pay the rental payments for the use of land, and, accordingly, formalize this activity. How to reflect the land lease in accounting?

Accounting

It is necessary to use off-balance sheet account 01 “Leased non-current assets” to account the land lease received. The accounting should be carried out at the cost specified in the contract, by types of lands and their qualitative characteristics (para. 8 of Accounting Standards 14 “Lease”). The reason for entering the object of lease in off-balance sheet account 01 is the act of acceptance-transfer, signed by both parties to the lease.

And although the typical form of the land lease agreement does not foresee the acceptance-transmission act, such a document should be drawn up to confirm the receipt of the share.

The amount of rent payment, depending on the rules for the formation of the cost of production, should be reflected in the costs or on the account 23 “Production”.

The primary documents, on the basis of which the rent amount is credited to the cost, are directly the lease agreement and the act of acceptance and transfer. If in the lease agreement the parties noted the use of another primary document for confirmation of settlements, then that very document should be drawn up.

Any primary document confirming the fact that the lessee uses the leased object during a certain period has the required information specified in para. 2 of Art. 9 of the Law of Ukraine “On Accounting and Financial Reporting in Ukraine” of 16.07.1999, No. 996-XIV.

Tax records

PIT

The size of the lease payment for the lease of a land parcel includes the total taxable income of the individual - the lessor (para. 164.2.5 of TCU). The tax agent in this case is the lessee (para. 170.1.1 of TCU). That is, the agrarian lessee is obliged to withhold the PIT from the income in the form of rent payment for the land parcel at the rate of 18%.

The basis of taxation is determined on the basis of the size of the rent specified in the lease agreement. PIT, withheld from rent, should be paid in the general terms, established by Art. 168 of TCU:

• if the rent is paid through a transfer to a card account of an individual-lessor or cash received from the bank- during the payment of taxable income by Unified Payment Document;
• if it paid in cash from the tax agent’s cash desk - within three banking days from the day following the day of such accrual (payment, provision);
• if the rent is accrued but not paid, PIT will be paid to the budget no later than in the 30 calendar days of the month following the month of the income accrual.

The rent payment for the land parcel, as well as the amount of the withheld and transferred PIT, are reflected in the form No. 1 of DF with a sign of income “106”.

War tax

The war tax from the rent payment for the land parcel is withheld in accordance with the rules provided for the withholding of the personal income tax (para. 1.7 of para.16¹ of sub-para. 10 of sec. XX of TCU.).

The war tax rate - 1.5%. The amount withheld is reflected in line “War Tax” in sec. II of form. No. 1 of DF.

USC

The Unified Social Contribution (hereinafter - USC) the is not accrued at the rent payment, because the basis for its calculation are the amount of accrued wages and the amount of rewards to individuals for the execution of works (rendering of services) under civil contracts (para. 1 of sec. 1 of Art. 7 of the Law of Ukraine “On the Collection and Registration of the Unified Contribution to the Mandatory State Social Insurance” of 08.07.2010 No. 2464-VI.).

The lease agreement does not stipulate the performance of works or rendering of services, and rent is not a reward for performing works (rendering services) under civil contracts. Consequently, the USC is not accrued for a lease payment for a land parcel (share).

VAT

If the rent for a land parcel is paid to individuals in cash, then the tax base on value added tax (hereinafter - VAT) does not arise in this case. However, if the rent is paid “in kind”, then the taxpayer - the VAT payer has VAT obligations from the goods sold/services.

Then the tax base is determined on the basis of the contractual (agreed) value of the goods (services), but not lower (para. 188.1 of TCU):

• for the price of the purchase of such goods (services), if the goods (services) purchased in third parties are transferred in the form of a rent payment;
• for usual prices, if the rent is paid in the form of self-made goods (services).

Unified Tax

If an agricultural enterprise - a payer of the unified tax of the 4^th group leases from an individual land parcels, then such a land parcel is included in the object of taxation as the unified tax (para. 295.9.7 of TCU).

Individuals who transfer their land parcels to the taxpayers of the 4^th group are exempt from paying the land tax.