Individual entrepreneurs under the general tax system (the main type of economic activity is renting out real estate) purchased non-residential premises for their further rental.

At the same time, the party to the sale and purchase agreement is not a business entity (individual entrepreneur), but an individual. In this case, is it possible to include depreciation of the purchased property in the expenses?


First of all, let us say a few words about the execution of the sale and purchase agreement. In particular, the fact that its party is an individual — a citizen and not a business entity (entrepreneur), is not an obstacle, but the only possible and correct option.

So, the STS once in a letter No. 8523/B/99-99-17-02-02-14 dated September 8, 2015, noted:

“Subjects of private property rights under Article 325 of the Civil Code shall be individuals. Article 26 of the Civil Code of Ukraine establishes that an individual has all personal non-property rights and is able to have all property rights provided for by the Constitution of Ukraine, the Civil Code of Ukraine and other laws.

An essential aspect of the implementation of the rights of an individual shall be the right to carry out an entrepreneurial activity governed by the Law of Ukraine No. 755-IV dated May 15, 2003 “On State Registration of Legal Entities and Individual Entrepreneurs”.

For the obligations related to entrepreneurial activity, an individual entrepreneur shall be liable with all their property, except for property that cannot be foreclosed on by law (Article 52 of the Civil Code of Ukraine).

Participants in civil relations and subjects of property rights shall be individuals (Part One of Article 2 and Part One of Article 318 of the Civil Code of Ukraine). However, the Civil Code of Ukraine does not separately define such a subject of property rights as an individual entrepreneur, the acquisition of such status only allows one to carry out economic activities.

Regardless of what status an individual chooses for oneself in the future, including in the case of making a decision to carry out any activity (entrepreneurial or independent professional), the subject of property rights shall be an individual, but not an entrepreneur“.

A similar position is set out in the current explanation from category 106.01 of the Section “Q&A from the knowledge base” of the Public Reference Resource ( Providing an answer to the question about real estate taxpayers, the supervisors confirmed that according to the Civil Code of Ukraine, subjects of private property rights shall be individuals and legal entities:

“Clause 1, Article 320 of the Civil Code of Ukraine No. 435-IV dated January 16, 2003, as amended (hereinafter referred to as the Civil Code of Ukraine), stipulates that the owner shall have the right to use their property for carrying out business activities, except in cases established by law.

Subjects of private property rights shall be individuals and legal entities.

Individuals can be owners of any property, including commercial real estate, except for certain types of property that, according to the law, cannot belong to them (Article 325 of the Civil Code of Ukraine).”

Finally, the Ministry of Justice once stated in the explanation “Status of an individual entrepreneur: issues of applying legislation” dated January 14, 2011:

“An interesting issue from the point of view of practical application is that of the registration of ownership of immovable property by individual entrepreneurs.

<…> it should be noted that the current legislation does not distinguish such a subject of property rights as an individual entrepreneur and does not contain rules regarding the ownership rights of an individual entrepreneur. The legislation only establishes that an individual entrepreneur is liable for obligations related to entrepreneurial activity with all their property, except for property that cannot be foreclosed on by law.

So, the subject of property rights is recognized as an individual who can be the owner of any property, except for property that cannot be owned by an individual. At the same time, the legal status of an individual entrepreneur does not affect the legal regime of the property owned by him/her.

Thus, real estate must be registered by an individual“.

So, it remains to find out if, by chance, the TCU itself happens to contain some restrictions on the depreciation of non-residential real estate.

First of all, please note that the object of taxation for the individual entrepreneurs under the general tax system is net taxable income, that is, the difference between total taxable income (revenue in monetary and non-monetary form) and documented expenses related to the economic activities of such an individual entrepreneur (clause 177.2 of the TCU).

At the same time, according to clause 177.4.5 of the TCU, the entrepreneur’s expenses shall not include the following:

  • expenses not related to the implementation of economic activities by such an individual entrepreneur;
  • expenses for the acquisition, independent production of fixed assets and expenses for the acquisition of intangible assets subject to depreciation;
  • expenses for the acquisition and maintenance of fixed assets defined by paragraphs 8-10, clause 177.4.6 of the TCU;
  • undocumented expenses.

In turn, clause 177.4.6 of the TCU stipulates that entrepreneurs shall have the right (at their own request) to include depreciation charges in the expenses related to implementing their economic activities, with appropriate separate accounting of such expenses. At the same time, depreciation is subject to:

  • expenses for the acquisition of fixed assets and intangible assets;
  • expenses for the independent production of fixed assets, reconstruction, modernization and other types of improvement of fixed assets (except for routine repairs).
  • Expenses for the reporting period are not subject to depreciation and are fully included in the expenses of the reporting period:
  • performing routine repairs;
  • liquidation of fixed assets (in terms of residual value).

The following fixed assets are not subject to depreciation:

  • land plots;
  • residentialreal estate objects;
  • passenger cars.

Since, in our case, we are talking about non-residential real estate, we can conclude that:

restrictions set out in clause 177.4.6 of the TCU do not apply to the situation in question, and at the same time to be guided by the principle “everything that is not explicitly prohibited by law is allowed”, which follows from Part 1 of Article 8 of the Constitution of Ukraine (the principle of the rule of law).

And the TCU itself clearly mentions residential real estate: both in clause 177.4.6 of the TCU and clause 177.4.3 of the TCU (in the context of the fact that the amounts of tax paid on immovable property other than a land plot cannot be attributed to expenses from objects such as residential real estate). And therefore, taking into account the presumption of legitimacy of the taxpayer’s decisions enshrined in clause 4.1.4 of the TCU, we believe that there is no reason to talk about restrictions in terms of depreciation of non-residential real estate objects (if the latter will be used in economic activities, and the cost of its acquisition will be documented). At the same time, please note that according to clause 177.4.9 of the TCU, the minimum allowable depreciation period is 10 years.