Searching for Real Estate
Searching for real estate property in Ukraine is one of the most difficult parts of the purchase process. The process is usually time-consuming, and often even basic information is not readily available, so you may need to be patient.
Ukrainian real estate is generally sold through real estate agencies. There is no consolidated property listing database in Ukraine. Each agency has their own database with in-house listings however they may advertise their properties on various marketing websites. Below are few important points that you should note about real estate agencies in Ukraine:
- Real-estate business is not licensed in Ukraine. In other words, there is no regulatory authority that oversees them. This situation coupled with the fact that these agencies do not earn money unless they make a sale, means that buyers have to be vere careful when selecting a real estate agent.
- It’s very common that little due diligence is done upfront on the listed properties. Therefore you may end up wasting time in viewing and making offer on a property, only to find out later that there are some issues with the property such as disputed title, etc.
- Agencies’ commissions vary from 1% to 5%, but you can often negotiate this to 2–3%. Normally, they ask the buyer to pay their commission, although exceptions exist when the seller is willing to pay the commission.
Bottom line:Do your homework when choosing your real estate agent in Ukraine.
Real Estate Due Diligence
The most crucial part of the purchase transaction is performing a thorough and detailed due diligence on the property. Unlike in most developed countries, where the legal framework for regulating the real estate transaction is well established, the laws in Ukraine are still in infancy and often even contradict each other.
Real estate due diligence generally consists of the following steps:
- Real Estate Registers Check
- Court Decisions Register Check
- Technical Inspection of Real Estate
- Seller’s Legal Capacity Check
- Other checks as appropriate depending on type of real estate (for example, the rights of spouse and children under 18 for the property; a check if a dwelling is an object of cultural heritage; for residential property, a check of all persons registered in the apartment etc.)
Based on the results of property due diligence, you may need additional approvals and/or consents to perform the deal legally. In order to avoid fraud and conclude your deal safely, you should make sure that all the necessary checks have been completed by the professional legal consultant to satisfaction.
Bottom Line:Don’t just rely on your real estate agency for this because their liability is minimal and their interests are often not aligned with yours.
At the planning stage, you must decide on the most suitable form of ownership of the property. You can own real estate as an individual or through a legal entity, registered in your country of residence. Additionally, in certain cases, it can be reasonable to register a company in Ukraine and buy property here as a Ukrainian legal entity (where you are a shareholder).
You’ll need to take into account several important factors, such as the following:
- the type of property you are buying, and if the chosen form of ownership allows you to own the chosen type of property under Ukrainian law;
- the number of investors in the property and their residentship;
- the purpose of the investment (personal use, lease etc.);
- applicable taxes while buying, owning and selling the chosen real estate;
- inheritance and gift taxes in the case of owning property as an individual;
- easiness of selling and repatriation of your investment and investment profits (taking into consideration currency control rules in Ukraine).
Bottom Line:As a general rule, it’s better to own residential property as an individual, whereas commercial property is best owned through a legal entity registered in Ukraine. Nevertheless, it’s highly advisable to take into consideration all of the above factors before deciding.
By law, payment for a purchase of real estate in Ukraine can only be performed through a bank in Ukraine (cash deals above UAH 50,000 are not allowed by Ukrainian Banking law). Depending on how you buy real estate (as individual nonresident, legal entity registered overseas or legal entity registered in Ukraine), the allowed mode of payment will differ.
If you buy real estate as a foreign individual or legal entity, you are allowed to pay for real estate either a) directly from your foreign bank account in a major currency; or b) through an investment bank account in Ukraine in national currency of Ukraine Hryvna (UAH). If you buy property as a legal entity registered in Ukraine, you can pay only in UAH from your business bank account to account of the seller.
Despite provisions of the law, most property sellers (especially individuals) prefer to receive US dollars in cash as payment rather than money in their bank account. Such situation is a direct result of lack of trust in Ukrainian bank system, instability of local currency Hryvna (UAH), strict currency control measures, limits on daily withdrawal of foreign currency in cash etc.
Be careful! Remember the following if you are considering a full or part cash deal:
- Under Ukrainian law, when you sell your property in the future, in order to repatriate your investment back to your country of residence, you will need to provide the Ukrainian bank with proof of lawful payment for your real estate at the time when you purchased it. However this requirement to provide payment proof applies only if you repatriate your investment within 5 years of your initial purchase.
- If your sale-purchase agreement reflects a reduced price than the actual price you are paying, all the risks are on the buyer’s side. If the purchase deal is later disputed for any reason, you as a buyer will have the legal right only to the amount mentioned in the sale-purchase agreement.
For these reasons, we advise you to act in accordance with Ukrainian Banking & Investment law while injecting capital to Ukraine at the time of investment and make sure the sale-purchase agreement complies with the law.
Documents Required from the Buyer
While preparing for the deal, make sure you have collected all the necessary documents for the deal. As a foreign individual buyer, you will need:
- foreign passport copy
- residence permit in Ukraine (if any)
- Ukrainian tax number
- wife’s consent in notarial form, if married
- notarially certified Power of Attorney for the deal (if the deal will be signed by representative)
If the buyer is a legal entity (Ukrainian or foreign), you will need documents, issued in the country of registration of such legal entity, confirming the powers of the company’s representative. For the exact list of documents, it is better to check in advance with the notary who will certify the deal.
Note:All documents issued overseas have to be duly legalized or apostilled unless otherwise stipulated by international treaty between Ukraine and your country of residence. For example, apostille and legalization are not required for documents issued in Poland, Czech Republic and few others.
All real estate sale-purchase agreements in Ukraine have to be concluded in writing and notarially certified. A notary by law is obliged to make sure that sale-purchase agreement complies with Ukrainian law and check official registers in respect of property and parties to the deal just before the signing of the agreement.
Note:Real estate sale-purchase agreement in Ukraine is concluded from the moment of its notarial certification; therefore, it is important to find an experienced and reliable notary to certify the deal.
Taxes and Fees
Ukrainian law requires that all taxes and state duty applicable to the real estate deal be paid before notarial certification of the deal (but can be on the same day). Notary is legally obliged to check payment of applicable taxes & duties by the parties.
On the buyer’s side, the following taxes and fees are applicable:
- pension fund fee of 1% of the real estate sale amount
- notary fee for preparation of sale-purchase agreement, registration of ownership title in Real Estate Register and extract from the Real Estate Register. This is usually in the range of 100-200 USD.
On the seller’s side, the applicable taxes may range from 1% to approx. 20% depending on:
- The type of the property (residential vs commercial)
- The ownership structure (individual, foreign entity, local entity)
- For how long the real-estate property was held in possession
- How many properties are being sold by the seller in a 12 month period
A detailed discussion on the seller’s applicable taxes is beyond the scope of this article.
Important to know:Ukrainian tax law provides great tax exemption for individuals, who are selling residential property: providing such residential property (apartment/house) has been owned by the seller for 3 + years and this is only real-estate sale within a reporting year, the seller does not pay individual income tax (5-18%) and military tax (1.5%) when selling real-estate (in this case only 1 % state duty for sale of real-estate applies).
While a detailed discussion on the seller’s applicable taxes is beyond the scope of this article, it is always better to buy real-estate from the seller who owned residential property for more than 3 years, complies with the above requirements and pays minimum tax on sale of property (as it will greatly influence the price for the real-estate).
Summing up, in order to choose a suitable property, minimize risks associated with the deal, avoid fraud and save on taxes, you should perform proper planning and due diligence. Taking into consideration the complexity of purchasing real estate property, safety of repatriation of your investment and profits, and optimization of your tax liabilities, we highly recommend that you hire a professional real estate consultant in Ukraine for this purpose.
Our firm has extensive experience in providing legal and investment support to foreign investors in their real-estate and business transactions in Ukraine. For more information on Ukraine’s real estate market and regulations, please visit our website at www.contactukraine.com, or contact us directly at email@example.com.