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💰Tax aspects of investment and construction projects: focus on future real estate objects (FREO), forward contracts, and VAT

The nuances of taxation and the use of new financial instruments in construction projects were discussed at the meeting of the CBU Tax Policy Committee, held on September 5, 2025, chaired by Dmytro Mykhailenko, Managing Partner of Crowe Mikhailenko and member of the Board of directors of CBU.

🏛️ During the meeting, key issues of tax regulation in the construction sector were discussed, in particular: the cash method and long-term contracts, the application of fair market value when disposing of property rights to future real estate objects (FREO), as well as practical aspects of using forward contracts in development projects.

🎤 Dmytro Mykhailenko stated: «The complexity of tax regulation in the construction sector requires close cooperation between businesses, tax authorities, and legislators. Our task is to develop clear practical approaches so that developers can plan projects without the risk of double taxation and uncertainty».

Issues discussed at the meeting:

🔹 Whether the acquisition of completed non-residential real estate objects by an investor through CIIs (Asset Management Companies) or by the Ministry of Education and Science of Ukraine falls under concentration according to antimonopoly legislation.

🔹 The relevance of the construction scheme through housing cooperatives (risks of its implementation).

🔹 The current use of «mixed/gray» contracts (investment, equity participation, commission agreements, etc.) for non-residential real estate.

🔹 The practice of applying Real Estate Operation Funds and prospects of granting tax benefits to such an instrument.

🔹 Counteracting the illegal leakage of data from the State Tax Service of Ukraine and the State Customs Service of Ukraine.

🔹 The problem of applying the cash method in FREO transactions.

🔹 The possibility of using forward contracts for FREO.

🔹 VAT issues in the sale of FREO in cases of construction with the involvement of a general contractor.

💡 One of the key topics was the discussion of the cash method and long-term contracts. It turned out that when simultaneously constructing residential and non-residential premises, difficulties arise with the formation of tax credits and determining the first and second supply.

📜 Significant attention was paid to the application of fair market value when disposing of unfinished construction projects and property rights to future real estate. Currently, the tax base is often formed based on inflated data from the State Property Fund of Ukraine, which leads to an overstatement of personal income tax and VAT. Participants discussed ways to minimize risks through individual requests to the STS and judicial practice.

Another important topic was the issue of confidential data leakage from the STS and the State Customs Service. Meeting participants noted that illegal access to databases creates risks for businesses and shadow competition schemes. The CBU Committee proposed to strengthen responsibility for unauthorized data leaks, reduce the number of authorities with access to tax registers, and ensure transparency in their use.

💬 «We must not only analyze tax risks but also propose practical solutions for the construction business. The cash method, FREO, and forward contracts are instruments that can work effectively if applied correctly and supported by a team of specialists», - emphasized Dmytro Mykhailenko.

👤 Victoria Biriuchenko, Director of Qudos Ukraine LLC, explained that the key problem lies in the allocation of tax credits when a project includes areas subject to different tax regimes. She stressed the need for teamwork among accountants, estimators, engineers, and lawyers to develop practical solutions and prepare well-argued positions for the tax authorities.

📊 Forward contracts were also in the spotlight. Risks related to ambiguous definitions in tax legislation and accounting, as well as practical solutions for protecting the interests of developers and investors, were discussed. It was noted that profits from derivative operations are not subject to corporate income tax, which allows this instrument to be used effectively if accounting and legal practices are properly managed.

👤 Iryna Tretiak, Partner at Crowe Mikhailenko, noted that the forward contract instrument in Ukraine is still at the stage of forming application practice. She highlighted that predictable tax rules are extremely important for developers and investors, as this ensures the effective and risk-free use of such an instrument in construction projects.

👤 Iryna Ohodronikova, Deputy Managing Partner for Legal Affairs at Crowe Mikhailenko, stressed that for the safe use of forward contracts and the cash method, it is necessary to have a clearly defined accounting policy that considers the specifics of construction projects and allows lawful distribution of tax credits even during litigation.

💡 Legislation regarding FREO and VAT requires clarification and amendments to avoid double taxation, increase transparency, and ensure business security. The CBU Tax Policy Committee will initiate further consultations with the State Tax Service of Ukraine, the Ministry of Finance of Ukraine, and parliamentary committees, and will continue joint work with legal, accounting, and economic specialists to develop practical solutions.

The outcome of the meeting was an understanding that effective cooperation between business and government authorities, active use of judicial practice, and the proper application of tax mechanisms will reduce risks and create predictable conditions for implementing investment and construction projects.

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