The housing rental market in Ukraine has operated “in the shadows” for years, but the state has decided to change the rules of the game through taxes, contracts, and control. Is it really about new fines, who will be affected, and can the reform bring the market “to light” without impacting landlords – we analyze in this material.
Photo: freepik.com
The topic of housing rental has once again come to the forefront following statements from government officials about the need for stricter control and legalization of this market. In the media, this quickly transformed into loud headlines about “fines for Ukrainians” who rent out apartments.
However, the real situation is much more complex. Fines for non-payment of taxes have existed for a long time, but they are not actually applied en masse. At the same time, the taxation model itself makes legal rental unprofitable for most property owners.
Against this backdrop, the state is proposing a new approach: reduce the tax burden but increase control. And this is where the main question arises – will such a combination work in conditions of war and economic instability.
The Rental Market in the Shadows: Why the System Doesn’t Work
Scale of the Problem
Despite the huge demand for housing rentals, official statistics show a paradox: only a small fraction of Ukrainians declare income from renting out apartments.
This effectively means that the market operates predominantly outside the tax system. Most transactions are conducted informally – without contracts, without income registration, and without paying taxes.
Why Landlords Avoid Legalization
The main reason is financial. Under the current model, a property owner must pay:
- 18% personal income tax (PIT);
- 5% military levy.
A total of 23% of the rental income – and this is without considering repair costs, periods when the apartment is not rented out, or utility payments. In other words, the tax is levied not on profit, but on gross income.
In such conditions, for many property owners, legally renting out an apartment means a significant loss of income. This is particularly critical for those who rent out one apartment as an additional or even sole source of earnings.
The Grey Zone as the “Market Norm”
As a result, a situation has formed where informal rentals have become the de facto standard. And the state has long turned a blind eye to this due to the difficulty of control and the lack of effective tools.
However, it is precisely this “grey zone” that has become the main target for the new policy – and it is around this that the discussion about fines, taxes, and new rules of the game is unfolding.
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Fines for Rentals: What’s Real and What’s Myth
Will New Fines Appear?
Following statements from government officials, some media outlets began writing about “new fines for landlords.” This created the impression that the state is introducing a separate penalty specifically for renting out housing.
In reality, it’s not about new sanctions, but about the more active application of existing norms. The legislation has long provided for liability for non-payment of taxes on income, including from rent.
In other words, the penalty is not for the act of renting out an apartment itself, but for concealing income.
What Fines Are Already Provided
The penalty system is quite strict even without new initiatives.
Specifically:
- a fine can be 25% of the tax amount (50% for a repeat offense);
- penalties are additionally charged for each day of delay;
- in case of significant amounts, a criminal investigation may be initiated;
- administrative liability in the form of a fine up to UAH 850.
For systematic violations, sanctions can reach tens of thousands of hryvnias.
Photo: freepik.com
Why the Topic of Fines Became Relevant Now
The intensification of rhetoric around fines is linked not so much to a desire to punish, but to an intention to change the behavior of market participants.
The state is signaling:
- control will be stricter;
- it will become more difficult to ignore taxes;
- “grey” rentals will no longer be overlooked.
In effect, fines serve as a pressure tool to encourage landlords to legalize their operations.
Where the Main Manipulation Occurs
The key distortion in the public discourse is a substitution of concepts.
Instead of explaining that it’s about tax discipline, a narrative is being formed about “punishment for renting.” This simplification works well for headlines but does not reflect the essence of the changes.
As a result, public discussion shifts from the main question – how to make the system fair – to an emotional perception of fines as a new threat.
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New Model: Fewer Taxes in Exchange for Legalization
What the Authorities Propose
The key idea voiced in parliament is to change the approach to taxing rentals itself. Instead of the current 23%, the state is considering a significant reduction in the rate – to approximately 7%.
This is intended to incentivize property owners to come out of the shadows and start declaring their income.
In parallel, it is proposed to:
- make official rental agreements mandatory;
- strengthen control over their existence;
- formalize the relationship between landlord and tenant.
Essentially, it’s an attempt to build a transparent market with clear rules of the game.
However, not everyone shares the optimism about reducing the tax amount:
“I hear arguments from deputies that the tax rates are too high, so landlords are simply afraid to rent out apartments officially. But I have personally been renting housing for over 10 years and can say from experience that landlords, in principle, do not want to enter into relations with the state, even if the tax rate were 1%. And what to do in such a case?” – Olena Shulyak, Head of the Verkhovna Rada Committee on State Building, Regional Development, and Urban Planning, told ‘Telegraf’.
According to her, work on reducing taxes is a priority, and the next step will be mandatory registration of the contract in the relevant system.
“While discussions are ongoing about whether a notary will be needed for every rental agreement, some form of mandatory registration must exist: through Diia, synchronization with other registries,” Shulyak notes.
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The Logic of “Carrot and Stick”
The proposed model is based on a classic approach: a combination of incentives and pressure.
On the one hand:
- a lower tax rate;
- simpler income legalization;
On the other hand:
- the risk of fines;
- increased attention from tax authorities.
The idea is that it will be more profitable to pay less officially than to risk significant sanctions while operating in the shadows.
Mandatory Contracts as a Key Element
Separate emphasis is placed on rental agreements. They are intended to form the basis for control.
In theory, this provides several effects:
- recording the landlord’s actual income;
- protecting the tenant’s rights;
- enabling the state to track the market.
However, in practice, this is one of the most controversial points.
“What does ‘mandatory’ contract registration mean? A landlord rents out an apartment, how will the state see this? What will force the landlord to register the contract?” – explains Olena Shulyak. – “When we talk about mandatory things, there must be some responsibility. If a person does not register their rental agreement, they will face significant penalties. For example, in the form of a substantial fine. And people will no longer take risks because you always have neighbors who can report you, or tax authorities who can conduct checks.”
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She emphasized that when people realize they can face a high fine, they will start registering rental agreements.
“We can find many things that will motivate the registration of such rental agreements. I am sure we will reach this mandatory registration. Furthermore, there are people who rent out apartments and would like to receive ‘white’ income, because when you have official income, it is easier to work with banks, get loans, mortgages. Even to buy a car on credit, you will always need to show your legal ‘white’ income. And people will want to have it,” – explained the Head of the Verkhovna Rada Committee on State Building.
According to her, for those who do not want to declare rental income, other incentives will be developed – a motivation system will be created.
Discussion Around Long-Term Contracts
Among the ideas being discussed is the introduction of a minimum contract term (e.g., up to 3 years). And this raises the most questions.
In conditions of war and high population mobility:
- people often change their place of residence;
- landlords are not ready to commit to long-term obligations;
- the market remains unstable.
Therefore, the risk is that excessive regulation might not legalize the market, but rather push it even deeper into the shadows.
Risks of Reform: Will Legalization Harm the Market Itself?
Social Factor: Rent as a Means of Survival
For a significant portion of Ukrainians, renting out property is not a business in the classic sense, but a way to support their financial situation.
This includes:
- people who rent out one apartment;
- internally displaced persons;
- families who have lost part of their income due to the war.
In such conditions, even a reduced tax rate might be perceived as an additional burden. And the risk of fines – as pressure, not an incentive for legalization.
This creates a risk that the reform will affect not large players, but small landlords.
Limited Control Capabilities
Another problem is practical implementation.
Even with new rules in place:
- a significant portion of payments will remain in cash;
- contracts may be concluded formally or not at all;
- auditing every transaction requires significant resources.
This means that without effective control tools, the reform may remain declarative.
Risk of Further “Shadowing”
If the rules are too strict, the market may react contrary to expectations.
Instead of legalization, scenarios may include:
- a shift to even more informal arrangements;
- avoidance of written contracts;
- splitting payments or using circumvention schemes.
This is a classic effect: excessive regulation → growth of the shadow segment.
Photo: freepik.com
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How to Declare Rental Income
If you rent out real estate as an individual, you must submit an annual tax declaration of property status and income. This must be done by May 1st of the year following the reporting period. The calculated tax must be paid by August 1st. This is detailed in a material from the State Tax Service of Ukraine.
You can declare income and pay taxes online using the Electronic Cabinet for Taxpayers on the STSU website.
What the STSU Says About the Importance of Rental Agreements
The tax service emphasizes that a written rental agreement is not just a formality but legal security and a mandatory condition for legal housing rental. Without it, you cannot control tax liabilities, significantly increasing the risk of fines in case of an audit.
“Since 2024, cooperation between government bodies and HOAs/management companies has strengthened. Now they have effective tools to detect cases of illegal rentals. Therefore, hoping that ‘renting without a contract means no one will find out’ is no longer possible,” – explain STSU representatives.
Renting Out Housing for Short Terms Through Platforms
If you rent out housing for short terms, for example, through Booking.com, and this is a systematic source of income for you, the tax authorities may consider such activity as entrepreneurial. In this case, you need to:
- register as a sole proprietor (FOP);
- pay a single social contribution (SSC) and taxes according to the chosen taxation group.
For example, if you choose FOP Group 3 on a single tax system, you will pay 5% of your income, plus the minimum SSC monthly. In 2025, the minimum SSC is UAH 1870/month.
What’s Next: Scenarios for Market Development
Most likely, there will be no drastic changes in the form of mass fines in the short term. The state is unlikely to pursue a harsh, forceful implementation of new rules during wartime.
Instead, a gradual scenario can be expected.
Firstly, the emphasis will shift towards creating incentives – primarily by reducing the tax burden. If the rate truly approaches 7%, some landlords may voluntarily come out of the shadows.
Secondly, control will be strengthened not through mass inspections, but through indirect tools – bank transactions, digital services, interaction with rental platforms, etc.
Thirdly, the market will remain partially “grey.” Even in an optimistic scenario, complete legalization seems unlikely due to structural features – cash payments and high population mobility.
Ultimately, the key factor for the reform’s success is balance. If the state can offer clear rules and a moderate tax burden without excessive pressure, a portion of the market will indeed become more transparent.
If the emphasis is on control and fines, the effect may be the opposite – and the shadow segment will only strengthen.
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Auxiliary materials: news.telegraf.com.ua; ck.tax.gov.ua; 24tv.ua; minfin.com.ua.