Land issues

Source: The State Service of Geodesy, Cartography and Cadastre of Ukraine 

After the collapse of the Soviet Union, when Ukraine has gained its independence, one of the first reforms was the land reform. From 1991 to 2002 significant changes to the structure of land ownership took place. Lands within a settlement were recognized as communal property, lands and property of collective enterprises were divided among their employees and transferred into their private property, whereas all other land was recognized as state property. As a result of that reform, about 27.5 mln ha were transferred into private property of approximately seven million citizens (6.92 mln). Such land pieces were called shares; their average area is 4 ha.

Since the beginning of the land reform and till 2001 there were significant changes, but in 2002 the new Land Code of Ukraine has entered into force and banned the alienation of agricultural land. Since then the situation with property distribution in agriculture has not been a subject to any major changes, and the land reform is still ongoing. 

Source:The State Service of Geodesy, Cartography and Cadastre of Ukraine

Source:The State Service of Geodesy, Cartography and Cadastre of Ukraine 

Because of the current moratorium it is forbidden to sell, give away, transfer, pledge as collateral or otherwise dispose of 96% of agricultural land, which owned privately, collectively or by the state. The exceptions are the lands granted for private farming, private gardening, or obtained through the privatization of state agricultural enterprises etc. There is about 1.7 ha of such land, or 4% of total.

It was planned that the moratorium will be in effect until 2005, while giving time for development of appropriate legislation and establishment of market infrastructure; but since then the Parliament has continued it 8 times. The last time the moratorium was extended until 1 January 2018.

Lease relations

The active ban on selling agricultural land in Ukraine contributes to the development of leasing market. Enterprises that have little or none land in their ownership use land under lease agreements, and recently the use of land under the emphyteusis (perpetual lease) has been gaining increasing popularity. Ukraine has a special law “On Land Lease”, which governs the rules of leasing of agricultural land. The law does not set any restrictions on who subjects who can rent agricultural land. Requirements for land lease are that the contract is in written from and has such essential terms specified, as the object of the lease (the cadastral number, location and size of the land piece), the duration of the lease and payments. Also for such a leasing contract to come into force it is required to register it in the State Register of rights on immovable property and their encumbrances. When calculating the amount of rent for the land it should accounted for the inflation rates, unless otherwise is specified in the contract.

By agreement of the parties the rent can be paid in kind. The amount in kind must be equal the money equivalent of goods at market prices on the payment date. Rent payments for land plots in state and communal property can be carried out only in monetary form.

A general rent period for agricultural land cannot be less than 7 years, whereas for agricultural lands where amelioration is carried out no less than 10 years. The maximal rent period cannot be longer than 50 years.

Procedure of renting land in state or communal property differs from that for privately owned land. First of all, the right to lease agricultural land in state or communal property can be acquired exclusively on special auctions, where the winner has offered the highest rent price per year. Such auctions are held on the location of the land, anyone who is willing can participate.

Moreover, the Tax Code specifies the minimum size and terms of rent payments for land in state or communal property. Accordingly, the annual amount of the payment cannot be less than the size of the land tax for the relevant category of land in the respective area, and cannot exceed 12% of the normative estimated monetary value, unless there is a competition.

Agricultural land area leased and average annual lease price (as of the end of 2017)

Area, mln. ha

Average annual lease price

Private lands

~19,7

1369 UAH/ha

State lands 

~4,9*

4062 UAH/ha

* Data from the State Service of Ukraine for Geodesy, Cartography & Cadastre

 Also, the law “On Land Lease” provides the ability to transfer land into a sublease or termination of the lease right on the consent of the tenant or if it is specified by the contract. After the lease expiry, the former leaseholder has the preferential right to lease renewal or purchase of the land, if it is allowed by then.

Normative monetary valuation of land

In March 2017 the Cabinet of Ministers of Ukraine has put into force a new Method of normative monetary valuation of agricultural land. According to this Method the territory of Ukraine is divided into natural-agricultural areas, where using indicators of rental revenue and grade of yield the value 1 ha is defined. This index of normative monetary valuation (NMV) is used to determine the amount of land tax, legal fee for exchange, inheritance or donation of land, the rent for the state and communal land, loss of agricultural and forestry production, and by the development of indicators and mechanisms for economic stimuli of sustainable land use and its protection. According to the tax law NMV is annually adjusted by the inflation rate. In 2017 it was decided to set NMV at 1.0 to protect the agricultural producers from spontaneous rise in rent prices. As of 01.01.2018, the average rate of NGOs in Ukraine is  27 520,38 UAH/ha

Land tax

Subjects to the land tax are the landowners and land users. The tax base is the normative monetary valuation index of agricultural land.

The tax rate for agricultural land plots for which normative monetary valuation has been conducted, is set by decision of a local authority on yearly basis - not less than 0.3% and not more than 1% of NMV index. Basis tax (reported) period for rent payments is a calendar year. Agricultural producers, which are the taxpayers of the 4^th category, have a special taxation regime for land tax. For more detail on that see the section “Taxation”.

Legislative changes that are planned for land legislation

On the Parliament’s agenda are currently three main issues to be resolved to complete the land reform:

1. Abolition of the ban on the sale of agricultural land and initialization of the land market. Now, there two legislative initiatives registered in the Parliament aiming to end the prohibition of land sales, as well the Cabinet of Ministers is expected to submit its own draft law. The end of 2017 expects the solution of this problem, if the Parliament of Ukraine will vote one of the drafts into force.
2. The transfer of lands in collective ownership into private of municipal ownership, including field roads and field shelterbelts, which currently have an uncertain legal status.
3. Implementation of the policy of consolidation of agricultural land to create optimal sets of land. Because of significant parceling of land between private owners, leaseholders have certain administrative costs for organizing their cooperation with a large number of landowners. Implementation of consolidation policy will eliminate the problem of strip farming and the like.