Taxation of Real Estate Transactions by LLCs

For many companies, real estate is a strategic asset that determines the value of the business and its market opportunities. An office, warehouse, production facility, or land plot may be contributed to the share capital or become the subject of a purchase and sale transaction. A legal entity may act as both buyer and seller, but each scenario has its own tax implications.

Limited liability companies (LLCs) face a double challenge: correctly formalising ownership transfers and ensuring compliance with tax legislation. Differences between the general and simplified tax regimes, VAT rules, specifics of taxing investment income, and determining who pays which tax — all of this creates a complex picture. It is essential not only to know the statutory requirements but also to anticipate potential claims by supervisory authorities after a legal entity sells real estate. That is why involving lawyers from Dominion Law Firm helps preserve capital and complete the transaction as safely as possible.

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1. Contribution of Real Estate to the Share Capital of an LLC

One of the most common ways for a legal entity to acquire real estate is for a founder to contribute the property to the company’s share capital.

Legal aspects:

• The founder adopts a decision to contribute the real estate, formalised in minutes (a resolution).
• A notary certifies and registers the transfer of ownership from an individual or legal entity to the LLC.
• From the moment of state registration, the real estate becomes the company’s property.

Taxation:

• For the founder, such a transfer is not treated as a purchase and sale, and therefore, no personal or corporate income tax is paid on this transaction.
• For the LLC, receiving property as a contribution to share capital is not recognised as taxable income, so the company does not pay corporate income tax on it.

However, in the future, the tax base on the sale of real estate by a legal entity may depend on its appraised value as of the date it was contributed.

It is therefore crucial to properly prepare the valuation report and accompanying documents to avoid disputes with the tax authorities regarding the “fictitious” nature of the transaction or attempts to conceal assets.

2. Sale of Corporate Rights in an LLC that Owns Real Estate

Instead of selling a building or land plot directly, businesses often sell corporate rights (shares) in the company that owns the real estate.

Tax implications for the seller:

• If the seller is an individual tax resident of Ukraine, they pay:
  18% personal income tax (PIT) + 5% military levy on the investment income (the difference between the sale price and the acquisition price of the share).
• If the seller is a foreign person, taxation depends on the Double Taxation Avoidance Agreement between Ukraine and their state of residence.

Advantages of this mechanism:

• VAT is not charged, since the object of the transaction is corporate rights, not the real estate itself.
• For the buyer, this option may be beneficial, as it allows them to acquire a company with all its assets and ongoing business operations.

At the same time, it is essential to conduct legal due diligence on the LLC, including debts to the budget, outstanding obligations, criminal references, and ongoing litigation, as all of these risks pass to the new owner together with the company.

3. Sale of Real Estate by an LLC: Taxation Depending on the Tax Regime

In Ukraine, there are two main tax regimes for legal entities:

• general regime (corporate income tax);
• simplified regime (single tax).

The choice between them determines the tax burden and the financial reporting rules.

General regime (corporate income tax)

Under the general regime, the sale of real estate by a legal entity is taxed at an 18% corporate income tax rate. The tax base is the difference between:

• income from the sale; and
• the book (residual) value of the asset.

In addition, the transaction is generally subject to VAT at 20% if the object is taxable (exception: certain residential real estate that has been in use for more than 3 years).

Simplified regime (single tax)

For single taxpayers of group 3 (legal entities):

• Income from the sale of property is included in total income and taxed at a 5% single tax rate.

However, there is a key restriction:
Single taxpayers are not allowed to carry out real estate sale transactions as a regular, registered business activity (NACE type of activity) permanently. A one-off sale is possible, but if such transactions become systematic, the tax authority may treat this as a violation of the simplified regime.

Thus, when a legal entity sells real estate, taxation depends on the chosen system:

• under the general regime — more complex accounting but greater flexibility;
• under the simplified regime — more straightforward rules but stricter limitations.

4. Exit of a Participant from an LLC and Transfer of Real Estate In Kind

When a participant decides to exit the business, they may receive payment for their share in cash or by way of in-kind transfer of company property (for example, an apartment or office).

Tax implications:

For the LLC:
The transfer of real estate is treated as a sale at market value, which:

• forms taxable income, and
• may give rise to corporate income tax and VAT obligations (depending on the object and regime).

For the participant:
The property received is qualified as investment income.
If the participant is an individual, they must pay:

• 18% personal income tax (PIT); and
• 5% military levy.

Such a transaction almost always attracts increased attention from tax authorities, as it is often viewed as a way of “distributing” or “withdrawing” assets from the company.

5. Liquidation of an LLC and Transfer of Property to the Founder

Upon a company’s liquidation, after all creditors’ claims are satisfied, any remaining assets are transferred to its participants. This may be in cash or in the form of real estate.

Taxation:

For the LLC:
It is deemed that the company has disposed of the property at market value, generating:

• corporate income tax obligations; and
• potentially VAT, depending on the asset and regime.

For the participant:
The property received is treated as investment income and taxed similarly to an exit from the company.

Due to this “double taxation”, such a model is often the least advantageous. Therefore, lawyers usually recommend structuring the transaction differently before initiating the liquidation process.

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Why Is It Important to Plan Transactions in Advance?

Whether we are dealing with the purchase or sale of real estate by a legal entity in 2025, tax planning is crucial. The cost of tax mistakes can easily exceed the economic benefit of the transaction itself.

In legal practice, the most frequent issues arise due to:

• incorrect determination of the tax base;
• additional tax assessments of VAT and other taxes when transferring assets to participants;
• disputes with the tax authorities over “understated” valuations of real estate;
• risks for the buyer when acquiring corporate rights in a problematic LLC.

Advantages of Involving a Lawyer in Real Estate Transactions

Real estate transactions involving legal entities are always high-stakes and complex. An incorrectly drafted agreement may cost the company millions of hryvnias if statutory requirements, including tax consequences, are not correctly taken into account. Engaging a lawyer helps the business avoid these risks and proactively protect itself against unforeseen situations.

Firstly, the lawyer analyses the legal status of the asset:

• whether it is subject to arrest or other encumbrances;
• whether ownership is duly registered;
• whether there are any hidden burdens or restrictions.

This helps avoid acquiring problematic property or entering into a transaction that might later be challenged.

Secondly, it is crucial to build the tax strategy correctly.
For an LLC, different transaction structures (contributions to share capital, sales of corporate rights, direct sales of property) result in different tax burdens. A properly chosen structure allows more efficient use of funds and minimises the risk of inspections.

Thirdly, the lawyer supports negotiations and the drafting of documentation, protecting the client’s interests at every stage. This is especially critical in large-scale deals or where foreign companies are involved.

Fourthly, in the event of disputes or claims from tax authorities, the lawyer helps to resolve the matter at the pre-trial stage through administrative appeal procedures (objections/complaints), thereby reducing time and costs. If pre-trial mechanisms fail, the lawyer represents the client in court, ensuring adequate protection of rights and enforcement of court decisions.

Thus, professional legal support from Dominion Law Firm is not an additional expense, but an investment in the safety and profitability of the transaction.

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Conclusion

Real estate transactions in a business context always involve complex legal and tax considerations. The sale of real estate by a legal entity in 2025 requires consideration of both the latest legislative changes and the company’s specific circumstances. Every transaction should be carefully analysed — from checking the legal status of the asset to proper document drafting and selection of the optimal tax model.

It is essential not only to know tax rates but also to understand how to structure the transaction correctly in order to avoid claims from tax authorities and prevent the loss of assets.