On 18 September 2026, the State Tax Service issued an analytical opinion on the tax treatment of security deposit refunds by single-member LLCs (“YuOsoba-yedynyk”) upon lease termination. The opinion clarifies that the refund of a security deposit previously received from a lessee does not constitute taxable income, nor does it reduce previously recognized rental income. Instead, the deposit represents a liability (advance payment) until forfeited or applied to arrears. If the deposit is partially retained to cover unpaid rent or damages, only the retained portion is recognized as income in the period of retention.
Key Takeaways
- Liability Treatment: Security deposits must be recorded as liabilities (Account 631 “Advances received”) until the lease ends; they are not revenue upon receipt.
- Partial Retention: Amounts withheld for breach of contract are taxable as other operating income in the month of the decision to retain, per Article 138 of the Tax Code.
- VAT Implications: Retained deposits are subject to VAT at 20% if the underlying lease was VATable; the landlord must issue a tax invoice for the retained amount.
Disclaimer: This article is compiled and summarized by the AI based on publicly available information and is for general information purposes only. It does not constitute any form of formal tax advice, legal opinion, or basis for performance. Please consult a qualified professional tax advisor or legal counsel for tax advice.
Source: Read Official Announcement