Major Housing Repairs, Ramp Installations, and Shelter Repairs Are Not VAT Exempt

The VAT exemption on the construction and repair of housing funded by budgetary allocations has long been a point of contention for contractors. Questions frequently arise: Does it apply to major repairs, the installation of ramps, the repair of shelters within residential buildings, and building materials? Furthermore, when do tax liabilities commence if payment is processed through the Treasury? The "Judicial-Legal Newspaper" has undertaken a comprehensive analysis of the individual tax consultation issued by the State Tax Service on 8 July 2026.

The queries originated from a construction company engaged in repair and construction works under contracts with a budgetary institution. These works are financed exclusively from budget funds channelled through the State Treasury Service. The issue specifically pertained to two categories of work: major repairs, including the installation of a ramp in a residential building; and major repairs of a basement room utilised as a simple shelter.

Additionally, the contractor sought clarification on whether the VAT exemption extended to building materials procured for these works and when tax liabilities would arise if payments were made from budget funds.

When Works May Be Exempt from VAT

The State Tax Service reiterated that, in accordance with paragraph 185.1 of Article 185 of the Tax Code of Ukraine, the supply of goods and services within the customs territory of Ukraine constitutes the object of VAT taxation.

Concurrently, paragraph 197.15 of Article 197 of the Tax Code establishes a specific exemption: VAT exemption applies to operations involving construction and installation works for the construction of affordable housing and housing built with state funds.

Ramps and Shelters – Not Always Covered by the Exemption

The most significant conclusion of the consultation pertains to the nature of the works. The tax authority noted that if the contractor is indeed performing construction and installation works related to major repairs or reconstruction of housing, and payment is made directly from the state or local budget via the accounts of the State Treasury Service, such operations may be exempt from VAT in accordance with paragraph 197.15 of Article 197 of the Tax Code.

However, the State Tax Service simultaneously highlighted a crucial caveat. According to the tax authority's conclusion, the exemption regime does not apply to works involving major repairs or reconstruction of individual elements of a residential building, even if funded from budget allocations.

The consultation explicitly cited examples such as the installation of a ramp in an entrance hall and the repair of a basement room (shelter or technical floor). Thus, the mere fact of budgetary funding does not automatically trigger the application of the exemption.

Final Determination of Work Type Not Within State Tax Service Competence

The tax authority also stressed that it is not authorised to determine whether specific works qualify as major repairs or reconstruction of housing. On this matter, the State Tax Service recommended contacting the Ministry of Communities and Territories Development of Ukraine, which, by law, formulates state policy in construction, urban planning, and housing.

Furthermore, the concept of construction is defined by Part One of Article 1 of the Law of Ukraine "On Regulation of Urban Development Activities" No. 3038-VI, which states that construction encompasses new construction, reconstruction, restoration, and major repairs of an object. Additionally, the Rules for Maintenance of Residential Buildings and Adjacent Territories, approved by Order of the State Housing and Communal Services No. 76, provide definitions of major repairs for residential buildings.

Does the Exemption Apply to Building Materials?

Another query concerned the taxation of materials procured by the contractor for the works. Paragraph 197.15 of Article 197 of the Tax Code specifically exempts operations involving construction and installation works from VAT, not individual goods. Therefore, even if building materials are included in the estimate and reflected in the acts of completed works, the exemption regime itself does not apply to their cost as a separate object of supply.

The consultation also emphasised that when determining the taxation procedure, it is essential to consider not only the legal form of the contract. The State Tax Service referenced Article 4 of the Law of Ukraine "On Accounting and Financial Reporting in Ukraine," which establishes the principle of substance over form. This implies that for taxation purposes, the real economic content of the business transaction is assessed, rather than merely its name or method of documentary registration. Consequently, when applying the exemption, the controlling authority analyses the actual nature of the works performed.

When Tax Liabilities Arise

The State Tax Service separately addressed the question regarding the determination of the date when tax liabilities arise. As a general rule, the "first event" principle applies; however, for operations paid from budget funds, a special rule is in effect. According to paragraph 187.7 of Article 187 of the Tax Code, if payment is made from budget funds, tax liabilities arise on the date the funds are credited to the taxpayer's account or compensation is received in another form.

Confirmation that the works are paid from the budget is provided by the relevant contract condition concerning settlements through the account of the State Treasury Service. On the date tax liabilities arise, the taxpayer must issue a tax invoice and register it in the Unified Register of Tax Invoices, in accordance with paragraph 201.1 of Article 201 of the Tax Code.

Implications for Contractors

The new individual tax consultation indicates that performing works funded by budget allocations alone is insufficient to apply the exemption. The tax authority essentially concludes that it is necessary to assess the nature of specific construction and installation works. If they pertain only to individual structural elements of a residential building, such as ramps or basement rooms, the VAT exemption provided by paragraph 197.15 of Article 197 of the Tax Code may not apply.

At the same time, the State Tax Service reminded that, in accordance with paragraph 52.2 of Article 52 of the Tax Code, this individual tax consultation is specific to the taxpayer to whom it was issued and may be used exclusively by them. Nevertheless, the legal position outlined therein may serve as a guideline for other contracting organisations undertaking repair works funded by budget funds.

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