New regulation on normative monetary valuation of lands within settlements: a hidden threat
New “Regulation on normative monetary valuation of lands within settlements” was approved by the Order of the Ministry of Agrarian Policy and Food of Ukraine No. 489 as of November 25, 2016. Since January 1, 2017 the order has come into force and has been applied everywhere.
The important novel in the new regulation on valuation of lands is the unification of the types of “functional use” of lands (which determine the key coefficient in the calculation on normative monetary valuation (hereinafter – “NMV”) of a land plot) with categories and types of the designated purpose of lands according to the Land Code. As a result, the category of functional use “lands for commercial purposes” (with maximum coefficient of 2.5), not mentioned in the Land Code, was canceled. Earlier this category was usually assigned not only to lands of trade or financial services, but also to any land plot with leased real estate (regardless its actual purpose). Moreover, almost any land plot used by the private company “with the purpose to get profit” could be classified as the “land for commercial purposes”.
Now list of coefficients of functional use is unified with the Classification of types the of the designated purpose of lands, which was approved by the Order of the State Committee on Land Resources of Ukraine No. 548 as of July 23, 2010. The maximum 2.5 coefficient of functional use is provided only for lands with certain types of designated purpose, namely: for the construction and maintenance of trade buildings, tourism infrastructure and catering establishments, credit and financial institutions, market infrastructure, buildings of consumer services. The significantly lower coefficients are applied for all other types of designated purpose of land. For example, most types of industrial lands have rate 1.2, transport lands – 1.0, lands of recreational purpose – 0.5.
A hidden threat of the new regulation concerns lands which were not registered with the electronic State Land Cadaster, or which were registered without indication of the code under the Classification of designated purpose of land plot (2010). Coefficient 2.0 is automatically applied for such lands during NMV calculation. For most types of lands, except previously accounted with a coefficient of 2.5, this coefficient is significantly higher than the one corresponding to the designated purpose of the land plot.
As far as we know, this year the tax authorities especially insist on getting new excerpts from NMV of land plots. In order to avoid a “surprise” in form of overrated 2.0 coefficient of functional use, it is highly recommended to verify in advance the completeness of information on the land plot at the State Land Cadaster, and if so required to correct information on land plot at the Cadaster.
If company had received the excerpt from the State Land Cadaster before, please pay attention to the line “designated purpose” on the first page of the excerpt – it must contain code number in format of XX.XX, and the following name must coincide with the established by the Classification of types of designated purpose of lands as of 2010. Lack of any code number or availability of code in another format (for example, X.X or X.XX.X, which are typical for the Ukrainian classifier of designated purpose of land as of 1998) – means a high risk that coefficient 2.0 will be applied in the new excerpt from NMV.
In case the excerpt from the State Land Cadaster was not received or received long before, it is recommended to verify information on land plot at the public cadastral map. If there is no result during the search of the land plot under its cadastral number or no code of designated purpose of land in format of the classification in 2010 at information on the land plot, it also means a high risk of 2.0 coefficient application.
In such cases, it is recommend filling the State Land Cadaster with full information on the land plot the before obtaining the new excerpt from NMV of land plot. For this the landholder should apply to the local authorities of the State Service of Ukraine for Geodesy, Cartography & Cadaster (hereinafter – “StateGeoCadaster”), which should register the land plot with electronic Cadaster and/or determine code of its designated purpose. Usually, the applicant is required to submit a copy of the existing land surveying documentation.
Also, please pay your attention, that there are grounds to challenge an excerpt of the NMV, issued under the new regulation. Currently there are no new technical documentations on NMV of lands within settlements approved under the new regulation. The effective decisions of the local councils on approval of technical documentations on NMV of lands were adopted under the old regulation on valuation as of 2006. The legislation provides the frequency of updates of such decisions – once at 5-7 years. However, the new excerpts from [technical documentations on] NMV are already issued with “hybrid” application of the new regulation on valuation: the new coefficients are applied under the new regulation to the basic indicators provided by the technical documentation, drawn up under the old regulation on valuation. The practice of issuing NMV “excerpts” in early 2017 with application of the new regulation of 2016 was more doubtful due to the fact the old regulation of NMV as of 2006 had not been canceled and remained valid until 17.02.2017.
Moreover, application of the new regulation on valuation of lands breaks a principle of the stability of the tax legislation, under which amendments to any elements of taxes and duties can be introduced no later than 6 months before the starting new budget period, in which the new rules and rates will operate. The changed approaches for determination of coefficients of the functional use directly influence the size of NMV of land plot, which is the base of taxation of land tax, and they began to apply little more than in a month after approval of the new regulation. Therefore the stability principle of the tax legislation was violated.
Additionally we should note that the NMV of agricultural lands (even those located within the settlement) are not regulated under the new regulation of NMV for lands within settlements. The new “Methodology on normative monetary valuation of agriculture lands”, approved by the Resolution No. 813 of the Cabinet of Ministers of Ukraine as of November 16, 2016, comes into force for agriculture land as of February 2, 2017. This methodology does not involve application of the coefficients of functional use; instead, the normative monetary valuation will be determined according to amount of the capitalized rental income at agricultural lands. The new standards of the capitalized rental income are differentiated depending on the type of agricultural lands and agricultural areas within the region.
The above commentary presents the general statement for information purposes only and as such may not be practically used in specific cases without professional advice.
Concerning the provisions of the Draft Law of Ukraine “On the State Budget of Ukraine for 2018” (No. 7000 as of September 15, 2017) regarding the normative monetary valuation of lands (updated on January 26, 2018)
To improve valuation
[Unlawful] significant land fee payments, which are not under the Tax Code
Change of allowing procedures in construction
Presentation on “Normative monetary valuation of lands in 2017”
In pursuit of justice. Lease payment for lands of state or municipal property
Volition of taxation of land