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💰 Tax Aspects of Investment and Construction Projects: Focus on Investment Funds, Forward Contracts, and VAT

The nuances of operations involving investment funds were discussed during the meeting of the CBU Committee on Tax Policy, held on July 17, 2025, under the chairmanship of Dmytro Mikhailenko, Chair of the Supervisory Board of Crowe Mikhailenko and Member of the Board of Directors of the CBU.

🏛️In particular, the discussion addressed articles of the Tax Code of Ukraine regulating the activities of investment funds, including tax benefits and the chronology of changes related to corporate income tax.

As Mr. Mikhailenko noted, the issue of potential tax risks related to operations with asset management companies (AMCs) within investment and construction projects arose in 2024, following changes in legislation governing financial institutions.

Thus, the Code does not provide for differences to adjust the financial result before taxation for interest payments on loans granted by residents. Such operations are accounted for according to accounting standards when forming the financial result before taxation and, accordingly, the corporate income tax base.

✔️The application of royalty mechanisms in the construction sector was also considered. Since investment funds are corporate income taxpayers, only certain transactions carried out by investment funds are exempt from taxation. Therefore, the tax difference that adjusts the licensee's expenses does not apply.

The meeting also compared the specifics of taxation of investment funds depending on whether the owner is an individual or a legal entity.

📜Tax aspects of forward contracts in development projects were analyzed as well. Specifically, the fact that income received by collective investment institutions (CIIs) from transactions involving unfinished construction objects or future real estate objects will be exempt from corporate income tax, provided such objects are formed using collective investment funds.

At the same time, examples of common issues in the application of forward contracts were presented, along with practical solutions to avoid them.

💰The potential tax implications of involving loans in investment and construction models were analyzed. Among the new challenges that may arise in 2025 are:

❌ penalties under FATCA;

❌ lending to borrowers whose corporate rights have not been paid to the seller;

❌ disallowance of expenses due to the affiliation between asset management companies (AMCs) and borrower companies.

Dmytro Mikhailenko shared materials that could be useful for establishing business processes with venture funds.

💰Issues related to AMCs–mutual investment funds (MIFs) and VAT were addressed by Iryna Tretiak, Deputy Head of Crowe Mikhailenko for Economic Affairs. Since mutual investment funds (MIFs) are not legal entities, the reporting obligation lies with the AMC. Accordingly, accounting is maintained separately, while VAT reporting is consolidated, creating a high risk of penalties due to discrepancies between accounting and tax records concerning the VAT portion.

There was also a discussion on reporting and non-reporting entities under FATCA and CRS, and how to correctly identify a company’s status.

Iryna Ohorodnikova, Deputy Head of Crowe Mikhailenko for Legal Affairs, outlined the key obligations for Ukrainian entities under the Common Reporting Standard (CRS):

✔️ implement due diligence procedures;

✔️ determine clients’ tax residency;

✔️ collect and store the full set of data on reportable accounts;

✔️ declare foreign income and assets;

and more.

First and foremost, a company must determine whether it qualifies as a Financial Institution (FI). Under CRS, a financial institution is an entity that is a depository (bank), custodial (depository), investment (investment fund, AMC), or a specified insurance company. Then, it must be determined whether the company is a Reporting FI or a Non-Reporting FI that qualifies for an exemption.

Problematic issues related to the accounting of real estate bonds in residential and commercial projects were also discussed — in particular, the valuation of the forward contract and the procedure for applying VAT at the first sale of the property.

Special attention was given to the potential use of the cash method for tax accounting, as well as the taxation of personal income tax (PIT) on income of non-residents from the sale of real estate in Ukraine.

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