How to optimize taxes when selling commercial real estate: 5 models with examples

The author of the article: Denis Korablyov

Modified date: 14 January 2026

Sale of commercial real estate in Ukraine is a complex tax and legal transaction in which the choice of the sales model directly affects the level of tax burden and legal risks. Unlike residential property, commercial real estate does not benefit from tax incentives, and tax authorities pay increased attention to such transactions due to the potential reclassification as business activity, the application of VAT, and taxation of investment income.

Therefore, even before signing a sale and purchase agreement, it is critically important to assess the owner’s legal status, the number of planned transactions during the year, and the mechanism for withdrawing funds. This article examines five key models for selling commercial real estate, with an analysis of the taxes, risks, and financial consequences associated with each of them.

The sale of residential and non-residential real estate is taxed differently. Certain benefits apply to transactions involving residential property. The sale of commercial property does not provide any benefits. That is why it is very important to carefully plan and optimize taxes.

This article is useful for: 

– developers who have built commercial (non-residential) properties (shopping malls, office centers, parking facilities, etc.)

– owners of non-residential premises who want to sell them (apartments, offices, parking spaces, etc.)

– accountants, lawyers, managers who support the construction and sale of non-residential premises.

If you are at the construction stage, it is worth thinking through a taxation strategy from the very beginning. We discussed this in more detail here. If you are already at the final stage of readiness of the properties, or you already own completed commercial real estate and are facing the question of how to optimize taxes when selling commercial property, this article will help you understand what options exist and the pros and cons of each.

Why it is important to choose the right model for selling commercial real estate

Are you selling commercial real estate – an office, warehouse, store, or shopping center? Be prepared for the tax authorities to analyze this transaction much more carefully than the sale of an ordinary apartment. Commercial real estate is one of the riskiest transactions from a tax perspective, and here is why:

• no tax benefits,
• higher taxation,
• tax authorities scrutinize transactions more closely,
• high risk of reclassification as entrepreneurial activity,
• and an incorrect choice of model can increase costs from 8% to 40% or more.

Therefore, before selling, it is important to assess:

• who the owner is (individual, sole proprietor, legal entity);
• how many properties are sold during the year;
• whether there is a risk of reclassification as entrepreneurial activity;
• how the funds will be withdrawn after the sale;
• whether it makes sense to donate, contribute to the authorized capital, or sell a share.

Next, we will analyze in detail what each model offers, what taxes will need to be paid, and what risks should be taken into account.

Models for selling commercial real estate

The choice of a sales model depends on the owner’s status, the number of transactions per year, and the desired tax burden. Below we will review 5 legal scenarios – from a direct sale by an individual to complex schemes involving company authorized capital.

An individual sells non-residential premises 

The first property that you sell during the calendar year (meaning the period from January to December) will be taxed as follows: 

*the state duty must be paid only to a state notary. With private notaries, the state duty is not paid. However, private notaries almost always charge a fee equal to 1% of the property value for their services (sometimes calling it a state duty). This is not a state duty, and these funds will not be transferred to the state budget. This is part of the cost of the private notary’s services.This is confirmed by a tax authority clarification. 

Thus, the total tax burden on the buyer and seller is 12%. 

(source – para. 1, clause 172.2, article 172 of the Tax Code)

The second and subsequent properties that you sell during the calendar year (meaning the period from January to December. That is, if you sold a property in December 2025, then from January 2026 a new calendar year begins and the property sold in January will be considered the first of the year) will be taxed as follows:

• 18% Personal Income Tax + 5% military levy (paid by the seller)
• 1% contribution to the Pension Fund (paid by the buyer)
• 1% state duty (usually paid by the seller, although by agreement this fee can be shifted to the buyer) 

Thus, the total tax burden on the buyer and seller is 25%.

(source – para. 2, clause 172.2, article 172 of the Tax Code)

Risk! After the third or fourth sale during the year, such activity of an ordinary individual may be recognized as entrepreneurial (at least such considerations may arise for the tax authority). As a result, there is a risk of additional tax assessments (20% VAT on the value of the real estate objects that will be sold) and penalties.

This risk is related to the fact that in the Supreme Court decision of October 6, 2020, in case No. 826/14391/16, the court indicated that a sign of entrepreneurial activity is systematic nature (3+ times per year). Tax authorities apply this practice. A real example is case No. 420/4018/19 (which concerns an appeal against a tax notice-decision on additional assessment of personal income tax, military levy, and VAT). Although the court sided with the taxpayer in this case, the very existence of such practice within tax authorities creates risks of such additional assessments. Moreover, no one is insured against changes in court practice. It is also worth remembering that even if the tax notice-decision is canceled, it still creates additional hassle for the property seller. Therefore, this risk should not be ignored.

A legal entity under the simplified taxation system sells commercial property 

You can establish an LLC under the simplified taxation system (single tax without VAT). You can make your contribution to the authorized capital of this LLC in the form of real estate assets. No taxes are paid on such a transaction. Of course, there will be certain administrative costs – establishing the LLC, notarizing documents, and valuing the real estate (we strongly recommend conducting a valuation at this stage, as the absence of a valuation creates risks of future disputes with tax authorities). 

Subsequently, an LLC under the simplified taxation system may sell real estate during the year in an amount within the limit of 1,167 minimum wages (as of 2025 this equals UAH 9,336,000). In this case, the following is paid: 

Thus, the total tax burden on the buyer and seller at the sale stage is 8%

For the subsequent withdrawal of funds from the LLC to an individual (the founder) in the form of dividend payments, it is necessary to pay 9% Personal Income Tax + 5% military levy. 

In practice, dividends are sometimes not paid in order to optimize taxes. Instead, funds are withdrawn from the LLC to sole proprietors of the third group (that is, the LLC pays the sole proprietors for services rendered). In this case, the sole proprietors pay 5% single tax + 1% military levy on the received income. It is important to understand that this should not be a tax evasion scheme. Tax authorities are well aware of such schemes. Therefore, payments to sole proprietors should be made for genuinely provided services.

Thus, the total tax burden for the seller and buyer at the stage of withdrawing funds from the LLC: from 6% (withdrawing funds from the LLC through payments to sole proprietors) to 14% (withdrawing funds from the LLC by paying dividends to the founder). 

A legal entity under the general taxation system sells commercial property 

You can establish an LLC under the general taxation system. 

If this is done at the beginning of construction, construction costs will allow the formation of input VAT and reduce the corporate income tax base. 

In such a situation, this option is advantageous.

If, however, we are talking about an already completed property, then this option is possible but economically disadvantageous. You can, of course, contribute completed real estate objects to the authorized capital of the LLC. No taxes are paid on such a transaction. Naturally, there will be certain administrative costs – establishing the LLC, notarizing documents, and valuing the real estate (we strongly recommend conducting a valuation at this stage, as its absence creates risks of future disputes with tax authorities). 

However, it should be taken into account that input VAT was not formed in the LLC, since construction was obviously carried out by another entity before the LLC was established. Accordingly, the LLC (seller) will be forced to pay VAT to the budget in full – 20%. In addition, the LLC under the general system will pay corporate income tax – 18% of net income. Since the LLC did not form an expense component (construction costs), the 18% income tax will have to be paid on the entire income.

Additionally, the sale transaction is subject to a 1% state duty and a 1% contribution to the Pension Fund (paid by the buyer). 

Thus, the total tax burden on the buyer and seller at the sale stage is 40%

To withdraw funds from an LLC under the general taxation system through dividend payments, it is necessary to pay 5% Personal Income Tax and 5% military levy. 

As in the previous option, it is also possible to optimize the tax burden by making payments from the LLC to third-group sole proprietors, which will be taxed at a rate of 5% single tax + 1% military levy. 

Thus, the total tax burden for the seller and buyer at the stage of withdrawing funds from the LLC: from 6% (withdrawing funds from the LLC through payments to sole proprietors) to 10% (withdrawing funds from the LLC by paying dividends to the founder). 

Sale of a share in the authorized capital of a legal entity that owns real estate 

In practice, the following situation sometimes occurs:

An LLC under the simplified taxation system is established. The founder and sole participant of the LLC is the real estate owner, who contributes this real estate to the authorized capital of the LLC. At this stage, no taxes are paid. There will only be administrative costs related to the establishment of the LLC, notarization of documents, and valuation of the real estate (we strongly recommend carrying out a valuation at this stage). 

Subsequently, if the founder wishes, they may sell 100% of their share in the authorized capital of the LLC to another person. In this case, the LLC owns the real estate. Therefore, the real estate is transferred together with the LLC. 

The real estate may subsequently remain on the balance sheet of the LLC and be used for business purposes. Or, if the new owner of the LLC wishes to own this property as an individual, they may withdraw the property from the balance sheet of the LLC by reducing the authorized capital and transferring the property in kind to the founder. The decision to reduce the authorized capital and transfer the property in kind, as well as the property transfer and acceptance act, will serve as the basis for registering ownership rights in the State Register of Property Rights in the name of the individual. 

Provided the following requirements are met, such disposal of property is possible at all stages without accruing any taxes at all: 

– if the value of the property contributed to the authorized capital of the LLC, expressed in hryvnias (based on valuation), is greater than or equal to the value for which the share in the authorized capital of the LLC is sold, then the seller of the share does not receive any investment income and, accordingly, no taxation arises. That is, if the real estate is valued at UAH 1 million and the share in the LLC is sold for UAH 1 million, the seller receives nothing extra. They contributed property worth UAH 1 million to the LLC, and when they sold their share in the LLC for UAH 1 million, they received no income; 

– if the value of the appraised property upon reduction of the authorized capital and transfer of the property in kind is less than or equal to the amount paid (in hryvnia terms) for the purchase of the share in the authorized capital of the LLC, then the new owner also does not receive any investment income and no taxes arise. That is, if the buyer purchased a share in the LLC for UAH 1 million and then withdrew real estate worth UAH 1 million from the LLC into their ownership, they did not receive any additional income.

This model is risky in terms of attracting the attention of tax authorities.

In any case, one should not enter into transactions that conceal the real deal. And, of course, it is advisable to consult individually with a lawyer in order to choose the correct and lawful way to optimize taxes.

Comparative table of commercial real estate sale models

If you want to calculate a model for your specific case, we do this regularly for developers, investors, and commercial property owners.

Legal risks to pay attention to

• Reclassification of activity as entrepreneurial. More than 3 sales per year – a risk that it will be recognized as a business → 20% VAT + penalties
• VAT when sold by an individual. In case of reclassification, tax authorities assess 20% VAT on the value of all sold properties.

• Investment income when selling a share. If the valuation does not match the actual value, tax authorities will assess 18% personal income tax + 5% military levy.
• Fictitious gifting. Gifting without a real purpose may be reclassified as a concealed sale.
• Court practice may change. The Supreme Court sometimes revises positions on entrepreneurial activity and gifting – this affects risks.

Conclusion

There is no universal model for selling commercial real estate that suits everyone. The optimal option depends on the owner’s status, the condition of the property, the transaction amount, and how many times per year you plan to sell real estate. What is beneficial for a one-time sale of a warehouse by an individual may be completely unprofitable for a company that regularly buys and sells commercial premises.

If you need to select the optimal model for selling commercial real estate and calculate taxes, the team of lawyers and accountants at buh.ua will help you do everything correctly from the first time, because a mistake can cost 20–40% in excess taxes.