War-Damaged Real Estate: When Owners May Be Exempt from Property Tax

The full-scale war has left thousands of owners of residential and commercial real estate in a situation where their property formally remains under their ownership but cannot actually be used due to damage or destruction. As a general rule, ownership of real estate entails tax obligations. However, Ukrainian legislation provides a special tax regime for property affected by hostilities.

Under certain conditions, owners of damaged residential and non-residential properties may be exempt from paying the tax on immovable property other than land. However, the mere fact that a building has been damaged by a missile strike, shelling, or other hostilities does not automatically terminate the tax liability.

Proper documentation of the property's condition and the entry of the relevant information into the State Register of Property Damaged and Destroyed as a Result of Hostilities, Terrorist Acts and Sabotage Caused by the Armed Aggression of the Russian Federation against Ukraine are of key legal importance.

When Property Tax Is Not Charged on Damaged Real Estate

Ukrainian tax legislation distinguishes between different situations depending on the nature and extent of damage to the property.

If residential or non-residential real estate has been damaged to such an extent that it requires major repairs, reconstruction, or restoration, property tax is neither assessed nor payable for the period prescribed by law.

For properties damaged from 1 January 2023 onwards, this period begins on the first day of the month in which the fact of damage was recorded according to the data contained in the Register of Damaged and Destroyed Property.

The exemption period ends on the first day of the month following the month in which, according to the same Register, the property was overhauled, reconstructed, or restored and declared fit for habitation or use for its intended purpose.

Therefore, two legally significant events determine the tax treatment of such property: the official recording of the damage and the official recording of its restoration.

For example, if a commercial building was damaged on 18 March and the relevant information was duly entered into the Register in March, then, provided that the statutory requirements are met, property tax should not be assessed from 1 March. Once the property has been restored, taxation resumes from the month following the month in which the property is declared fit for use.

The Register Is of Critical Importance

One of the most important practical aspects of this mechanism is that the tax status of real estate depends not only on its actual physical condition. A house, apartment, warehouse, office, or production facility may have clearly suffered damage as a result of a missile strike or shelling. The owner may have photographs of the destruction, inspection reports, expert opinions, and other evidence. However, for the purposes of applying the special tax rules, the information contained in the State Register of Damaged and Destroyed Property is of fundamental importance.

The procedure for submitting an information notice concerning such property is established by Resolution No. 380 of the Cabinet of Ministers of Ukraine dated 26 March 2022. It applies to real estate owned by individuals and legal entities that has been damaged or destroyed as a result of Russian aggression since 19 February 2014. Accordingly, an owner should not rely solely on the obvious fact that the property cannot be used. It is necessary to verify whether the damage has been properly reflected in the relevant state information systems.

This is particularly important where the tax authority continues to assess tax liabilities for a property that cannot actually be operated or used.

Damaged and Destroyed Property Are Not the Same

Ukrainian legislation distinguishes between damaged and destroyed property. A property is considered damaged if it can be restored through repairs, reconstruction, or restoration and such recovery is economically feasible. A destroyed property represents a fundamentally different situation: the property has become unfit for its intended use, while its restoration through repair or reconstruction is either impossible or economically unreasonable.

In its clarification, the State Tax Service draws attention to the classification of properties according to the extent of damage. The first category includes properties with relatively minor damage that can be restored through routine repairs. The second category covers properties requiring major repairs or reconstruction. The third category comprises properties that are unfit for use and subject to demolition. It is primarily with respect to properties classified within the second or third categories that grounds for applying the statutory non-assessment of property tax may arise, provided that the necessary information has been entered into the Register.

What Changes If the Building Has Only Minor Damage

A different mechanism applies where real estate has been affected by hostilities but remains suitable for habitation or use for its intended purpose and requires only routine repairs.

In such cases, there is no general automatic exemption from property tax. However, village, settlement, and city councils, as well as the relevant military or military-civil administrations, are authorised to establish reduced property tax rates for such properties or to grant their owners a full exemption.

Consequently, two properties with similar levels of damage may theoretically be subject to different tax treatment depending on the municipality in which they are located and the decision adopted by the competent local authority. Owners of property with minor damage should therefore check the decisions of the relevant local council or military administration rather than assume that the fact of damage automatically eliminates their tax obligations.

Property owners may also apply to the competent authorities regarding the establishment of a preferential tax rate for a damaged property.

Property Tax Resumes After Restoration

The exemption from taxation for damaged real estate is not indefinite. Its rationale is linked to the owner's inability to fully use the property as a result of hostilities. Once the property has undergone major repairs, reconstruction, or restoration and is again declared fit for habitation or use for its intended purpose, the tax obligation resumes.

Tax assessment starts from the month following the month in which the relevant information on the restoration of the property is reflected in the Register. This is important for both the owner and the tax authority: the same Register effectively determines both the beginning of the period during which the tax is not payable and the moment when that period ends.

What to Do If Property Tax Continues to Be Assessed

In practice, a situation may arise where a property has in fact been damaged and the relevant information has been entered into the Register, but the owner continues to receive property tax assessments. In such circumstances, the first step is to verify what information is contained in the Register, the date on which the damage was officially recorded, and the current status of the property. An individual should also review the tax notice-decision received from the tax authority and the period for which the tax liability has been assessed. For a legal entity, the issue may arise when independently calculating and adjusting its tax liabilities.

If the data contained in the state registers confirm the right to non-assessment of the tax, but the controlling authority has nevertheless determined a tax liability contrary to that information, the assessment may be challenged through administrative or judicial proceedings. In such disputes, it is important to distinguish between the actual physical condition of the property and the legal recording of that condition. Photographs of a destroyed or damaged building may prove the fact of damage, but tax legislation expressly links the application of the special tax regime to the information contained in the relevant Register.

Owners Should Check More Than the Physical Condition of the Property

For owners of real estate affected by the war, the taxation issue effectively involves several consecutive steps.

The owner should determine the nature of the damage, verify that it has been properly documented, establish the property's status in the Register, and compare this information with the tax assessments. If the property has sustained only minor damage, it is also necessary to check decisions adopted by the relevant local authorities concerning tax rates and exemptions.

Particular attention should be paid to commercial real estate owned by individuals and legal entities, including warehouses, production facilities, offices, shops, and other properties that may remain unused for extended periods following shelling while still being formally registered in the owner's name. Ukrainian tax legislation allows the consequences of the war to be taken into account and provides a mechanism under which an owner is not required to pay property tax on real estate requiring substantial restoration.