The question of choosing between renting out a share and independently farming the land arises for most owners of agricultural plots. This was reported by the Land Fund of Ukraine, according to agronews.ua.
Some strive for stability and minimum hassle, while others aim for maximum income and full control over their land. To make an informed decision, it is important to understand the rights of a landowner and the consequences of each option.
What a landowner can do with their land
A person who owns an agricultural land plot of a certain area has the right to freely dispose of their land, as it is their private property.
However, there is an important "but": the land can only be used within its designated purpose.
For example, if someone owns a share of 3 hectares designated for commercial agricultural production, it is not allowed to use it for building residential objects, pools, or other construction, even if such cases occur in practice. Such land is intended exclusively for growing agricultural crops – wheat, sunflower, corn, soybeans, etc.
Unauthorized change of the land's designated purpose is a violation of the law, and owners must be aware of this.
Therefore, the owner of an agricultural land plot has the right to:
– farm the land independently;
– rent it out;
– sell it;
– exchange it;
– gift it;
– waive ownership rights in favor of the community or the state.
Independent land cultivation
A landowner can manage their plot at their discretion: grow agricultural crops, plant orchards, harvest and sell the produce.
In this case, they essentially become a farmer or entrepreneur who makes decisions on their own:
– what and when to plant;
– what fertilizers and plant protection products to use;
– what equipment to use for harvesting;
– to whom and at what price to sell the grown produce.
Independent land cultivation can bring higher income, but it also entails financial and tax responsibilities. From the profit received, the owner is obliged to pay 19.5% in taxes (personal income tax, social security contributions, and military fee).
Additionally, land tax remains mandatory.
Renting out the land
Not all share owners have the opportunity or desire to farm the land. In this case, the optimal solution is to lease the land to a farmer or agricultural enterprise whose main activity is agricultural production.
The benefit for the owner is obvious – the rent they receive for the use of their land. In practice, renting out a share is often equated to passive income: the land works and generates money without the owner's active participation.
Tax nuances depend on the tenant's status:
– usually, the tenant pays personal income tax and military fee;
– if the tenant is a payer of the unified tax of the 4th group, they also pay the land tax instead of the owner;
– if the tenant is not a payer of the unified tax of the 4th group or the lease agreement is not registered in the State Register of Property Rights, the obligation to pay the land tax falls on the landowner, and the relevant tax notification is sent by the tax authorities.
If the tenant is a natural person, the owner of the share pays personal income tax and military fee themselves.
It is also important to remember: no one has the right to force the owner to lease the land. The person chooses the tenant themselves, as the land rental market is competitive. The owner can compare the conditions of different agricultural firms, choose the most advantageous ones, and conclude a contract on acceptable terms.
There is no universal answer to the question of "what is better – renting out or independent cultivation."
Renting out provides stability and minimum risks. Independent cultivation offers potentially higher income, but also entails greater responsibility, expenses, and tax burden.
Therefore, before making a decision, it is important to assess not only the potential profit but also one's resources, time, readiness for risks, and legal consequences. Properly executed documents and understanding of tax rules are the key to ensuring that the land truly works for the owner, rather than creating problems.
