How to optimize taxes for developers in Ukraine: TOV, ZhBK, KIF – leveling up of models
In the construction industry, choosing the right taxation model is the foundation of a project’s financial success. A mistake at the structure planning stage can lead to loss of profit or prolonged legal disputes with tax authorities.
From the very beginning, it is worth building a clear, lawful, and economically efficient model that allows you to:
– reduce the overall tax burden;
– minimize the risks of audits and additional tax assessments;
– maintain flexibility for scaling future projects.
In this article, we will review four key models for structuring construction businesses and developers in Ukraine, analyze their advantages, risks, and areas of application. You may also be interested in information on tax optimization for the construction of cottages and commercial real estate, or our support and accounting services for developers.
LLC on the general taxation system with VAT
Who it is suitable for: Large-scale projects, residential and commercial construction with a high share of officially documented expenses.
An LLC on the general taxation system is a classic and most transparent option for systematic developers. This model is optimal when you plan to accumulate significant officially documented construction expenses.
Tax burden:
Corporate income tax – 18% (but only on the difference between income and expenses);
VAT – 20% (on the difference between VAT liabilities and VAT credit)
Operating principle
The main idea is to “offset” VAT tax liabilities (arising from real estate sales) with the amount of VAT credit received from general contractors and material suppliers. If 85-90% of purchases of goods and services for construction are made from VAT payers, this allows you to significantly reduce the taxable base (or even avoid paying VAT altogether).
In addition, under this model, corporate income tax is paid only on the actual difference between income and expenses, rather than on total turnover, as is the case with the single tax.
Advantages
Nuances and disadvantages
Using this model requires impeccable accounting management.
It is also necessary to consider the tax burden when distributing profits: when dividends are paid to an individual founder, 9% personal income tax and 5% military levy are payable (Clause 167.5.4 of the Tax Code of Ukraine).
*Sometimes, funds are withdrawn from an LLC through contracts with sole proprietors under the simplified taxation system (Group 3). Under such conditions, the tax burden on funds withdrawn from the legal entity will amount to 6% (of which: 5% is the single tax and 1% is the military levy).
However, it should be understood that tax authorities are well aware of this “scheme.” It is regarded as tax evasion or disguised employment relationships. Abuse may result in additional tax assessments and penalties.
Housing Construction Cooperative (HCC)
Who it is suitable for: Residential construction (cottage towns, townhouses, apartment buildings).
The use of an HCC is one of the most popular VAT optimization models in residential construction due to special provisions of the Tax Code of Ukraine (TCU).
Tax burden during operations: 0%
Operating principle
Members of the cooperative may contribute their land plots to it (this operation is not subject to taxation, Clause 165.1.44 of the TCU). Then the HCC, engaging contractors, constructs the facilities, and by attracting new members, receives financing (and again, contributions from new members are not taxed). After project completion, the member who contributed the land plot may withdraw their share in monetary form. If no income (positive difference) arises, then no taxation applies either.
The essence of the VAT exemption is as follows. According to Subclause 197.1.14, Clause 197.1, Article 197 of the TCU, transactions for the supply of housing (residential property) are exempt from VAT, except for the “first supply.”
The key point here is the correct interpretation of the concept of “first supply.” According to court practice and explanations of tax authorities, if an HCC engages a contracting organization for construction, then the first supply is considered to be the provision of construction services from the contractor to the cooperative. Accordingly, the subsequent transfer of apartments from the HCC to its members (buyers) is considered the second supply, which is exempt from VAT.
This allows the cooperative to operate without VAT registration even if the volume of transactions exceeds UAH 1 million, since VAT-exempt transactions are not taken into account when calculating the threshold for mandatory registration.
Read more about tax optimization specifically for residential projects in the article.
Advantages
With proper administration, an HCC allows achieving a tax burden of 0% both during operations and when withdrawing funds from the cooperative: 0%.
No other model can provide such an option.
Nuances and disadvantages
When it comes to an apartment building and, in addition to apartments, non-residential premises (commercial areas, storage rooms, parking spaces) are usually planned for sale, the HCC scheme requires refinement. Transactions involving the supply of non-residential real estate are not exempt from VAT.
If the HCC begins selling storage rooms or offices, it risks exceeding the threshold of UAH 1 million in taxable transactions and will be required to register as a VAT payer, which would destroy the entire optimization model.
To sell non-residential premises, it is advisable to involve a separate legal entity (an LLC contractor). The scheme may look like this:
- The HCC acts as the construction client.
- The LLC (contractor) receives property rights to non-residential premises (for example, through an investment agreement, a sale and purchase agreement for property rights, or as payment for work performed).
- The LLC independently sells these premises to end buyers. This allows financial flows to be separated and preserves the cooperative’s non-VAT payer status.
LLC under the simplified taxation system
Who it is suitable for: construction of small projects, situations where there are no officially documented expenses, or construction of commercial property that will not be sold but instead leased.
Tax burden during operations: 5% – single tax (on turnover), 1% – military levy.
Income limit: Annual income must not exceed 1,167 minimum wages (as of 2026 – approximately UAH 10 million), which allows the LLC to remain under the simplified taxation system without VAT registration.
Operating principle
There are projects where there are no documented expenses (for example, when the land is already owned, and the work is carried out using own resources and materials). In such a situation, the general taxation system will be economically disadvantageous. In addition, there are projects for the construction of commercial real estate that will not be sold but will remain owned by the LLC for further leasing, generating stable but time-stretched income (again, without significant expenses).
Advantages
Using an LLC under the single tax (Group 3) is attractive due to the simplicity of administration, accounting, and a relatively low tax burden.
Nuances and disadvantages
- Additionally, to withdraw funds from the legal entity in the form of dividends, it will be necessary to pay 9% personal income tax and 5% military levy. Thus, the total tax burden (during operations + at the stage of withdrawing funds to the individual founder): 20%.
As mentioned above, sometimes the tax burden on withdrawing funds from a legal entity is optimized not through dividends but via contracts with sole proprietors under the simplified taxation system (Group 3): 5% – single tax and 1% – military levy. Thus, the total tax burden in this case will amount to 12%. However, this option carries risks of disputes with tax authorities.
- Turnover limitation: If you plan to sell even a few high-value premises, you will quickly reach the limit, after which you will be forced to switch to the general taxation system.
Corporate Investment Fund (CIF)
Who it is suitable for: Large developers, large-scale residential complexes.
This is the most complex, but also one of the most effective schemes for large businesses. It is widely used by market leaders to structure sales.
Tax burden during LLC operations (depends on the taxation system chosen for the LLC):
Operating principle
The scheme provides for splitting the buyer’s payment into two parts:
- Purchase of real estate: Payment of funds to the developer’s (LLC) account for the real estate object (often at cost or with minimal markup).
- Purchase of a derivative (option): Payment of funds to the CIF’s account for a security (forward contract or option) that grants the right to receive the real estate in the future.
Funds received by the CIF are taxed under special rules, which allows deferring corporate income tax until dividends are paid to fund participants or the fund is closed.
Advantages
- Corporate income tax optimization: Profit accumulated within the CIF is exempt from corporate income tax during the fund’s operation.
- Delegation of sales: Allows transferring part of the sales and fund accumulation functions to a separate structure.
Disadvantages
- Organizational complexity: Requires the establishment or involvement of a CIF and an Asset Management Company (AMC), which entails significant administrative costs.
- Double contracts: Buyers are required to sign two separate contracts and make two payments, which requires additional explanations from the sales department.
- Cost of fund withdrawal: Dividend payments from the CIF to individual participants are taxable (9% personal income tax + 5% military levy).
Important: the above models are general examples of tax structuring. Each project requires an individual analysis taking into account funding sources, asset structure, and court practice.
Which taxation model should a developer choose in 2026?
- Building a residential complex and want to avoid VAT? Choose an HCC, but be careful with commercial premises.
- Have significant official VAT expenses? An LLC under the general system will be a reliable choice.
- Implementing a large-scale development project? Consider a CIF.
- Building a small property for leasing? An LLC under the single tax will ensure simple accounting.
Read more about tax optimization when selling commercial real estate in the article.
Conclusion
There is no universal “magic pill” for tax optimization. The choice between an LLC, an HCC, or a CIF depends on the specifics of your property (residential or commercial), planned turnover, and cost structure.
Keep in mind that tax legislation is dynamic, so before starting a project it is always advisable to obtain an individual consultation and calculate the financial model for your specific case.
That is why, before starting a construction project, it is advisable not only to choose a taxation model, but also to calculate the financial model, tax implications, and risks for a specific case. This allows you to maintain control over profits, avoid mistakes at the implementation stage, and calmly scale the business in the future.
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