While making decision on buying or selling real-estate, it is important to take into consideration tax regulations and tax rates, applicable on purchase, sale and possessing real-estate in Ukraine.

Even if you are still at the stage of searching for appropriate property in Ukraine, good understanding of taxation rules of real-estate transactions can greatly save your time and money.

This article is a foreigner’s guide to applicable taxes and fees in Ukraine when buying and selling residential real-estate as an individual (i.e. not a corporate entity).

• 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 required to check payment of applicable taxes & duties by the parties (unless the seller is a legal entity).
• Taxes apply on the higher of the sale price of the property as listed in the sale-purchase agreement or the appraisal price, whichever is higher.
• Real-estate agency commissions are negotiable.
• Hiring a legal professional to conduct legal checks and proper due diligence on the property and the seller is crucial in Ukraine given the weak and still evolving legal framework in the country.

Key Expenses on Buyer’s Side

Pension Fund Fee

The law requires the buyer to pay 1% of the real estate sale amount as Pension Fund fee.

Notary Fee

Notary fee for preparation of sale-purchase agreement, registration of ownership title in Real Estate Register and extract from the Real Estate Register will depend on fees of the specific notary and it is usually in the range of 100-200 USD.

Notarial fees are paid based on mutual arrangement by the buyer and seller and are often split 50:50 between the two parties.

Bank Charges

Ukrainian law requires that payment for real-estate to be performed through a bank transfer.

In most cases, foreigners pay through investment bank account opened in Ukraine. In such a transaction, typically the following bank charges apply:

• Bank charges for sending funds from your bank account overseas to your Ukrainian investment bank account in USD/EUR or other foreign currency (amount is defined by your servicing bank overseas as per bank’s tariffs). Generally, crediting funds to your investment bank account, received from overseas is subject to 0% commission by the receiving bank.
• Commission for conversion of currency from USD/EUR to Ukrainian currency Hryvna – usually around 0.5 % from the amount of conversion.
• Sending funds to the seller in UAH depends on bank’s tariffs, but as a rule, it will be up to UAH 1,000, provided the seller has bank account with the same bank as you do.

Real-estate Agent commission

Real-estate agencies’ commissions in Ukraine 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.

Agencies normally do not earn any commission unless you buy the property. Make sure your service agreement with the agency reflects this.

Note that in certain cases there are two real-estate agencies involved in the transactions: one from the buyer’s side and the other from the seller’s side. It is better to avoid such situations because you may end up paying more in commission.

Legal Support

The most crucial part of the purchase transaction is performing a thorough and detailed due diligence on the property and the seller. 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.

In order to minimize potential fraud and ensure the safety of your transaction, you should hire a professional real estate legal consultant to assist you with your real-estate transaction. . Do not rely solely on checks made by the real-estate agency since their main interest lies in making the deal happen and earning their commission. Moreover, it is highly advisable to hire a legal consultant who has extensive experience with real-estate transactions involving foreigners.

The fee for legal due-diligence and support of real-estate transaction would greatly depend on the type of property you are buying, but usually it will be around USD 1250-2000.

Key Expenses on Seller’s Side

If the seller is an individual-resident of Ukraine, the following taxes will apply on the sale amount of the property

• 5% personal income tax; plus
• 1.5% military fund tax; plus
• 1% state duty

The following exception apply to the above:

• If residential property was owned for 3+ years by the seller and this is the only sale within a tax reporting year, 0% personal income tax and military fund tax will apply (in this case only 1% state duty applies).

If the seller is an individual non-resident of Ukraine, he following taxes will apply on the sale amount of the property

• 18% personal income tax; plus
• 1.5% military fund tax; plus
• 1% state duty

The following exception apply to the above:

• If residential property was owned for 3+ years by the seller and this is the only sale within a tax reporting year, 0% personal income tax and military fund tax will apply (in this case only 1% state duty applies).

If price of the real-estate under independent appraisal is higher than the sale price, taxes will apply on the price defined under independent appraisal. Taxes has to be paid before notarial certification of the deal and notary professional will check bank receipts confirming this fact.

Therefore in general it’s better to buy real-estate from a seller-individual who owned residential property for more than 3 years since the seller won’t have to pay taxes on the property sale and thus can often result into savings for both sides.

Key Expenses of Real-estate Owner

Annual taxes when owning real-estate

Owners of real-estate (residents and non-residents) are required to pay annual property tax in the amount, set by local authorities but not more than 1.5% of minimum wage effective on the 1st of January of the reporting year per square meter (in 2018 it is 55.80 UAH per square meter). However, the first 60 square meters of apartment and 120 square meters of a residential house are not taxed.

Owners of residential real-estate will pay additional 25,000 UAH per year if total area of owned residential real-estate exceeds 300 square meters for apartments and 500 square meters for residential buildings.

Tax on Rent & Commission to the Lease Agent

As required by Ukrainian Tax Code, foreign nationals who are owning real-estate in Ukraine, can rent out their real-estate only through an agent (legal entity or a private entrepreneur, registered in Ukraine).

Rental income of the foreign national is subject to 18% personal income tax and 1.5% military tax (so total 19.5 % tax), payable from the amount of lease by the agent as tax agent at the cost of the owner of real-estate.

For these reasons, if you plan to officially rent your real-estate, you will need to take into consideration the above taxes and agent’s remuneration.

Other Expenses

When buying real-estate, it is important to learn about monthly / yearly expenses on owning real-estate. Apart from prices for utilities such as water, heating, electricity etc (which do not differ greatly as they are usually fixed by the municipal authorities), price for servicing of house where your apartment is located can greatly depend on whether the apartment is part of the house, serviced by municipal utility servicing utility organizations (Zhek) or a private organization. In luxury residential complexes servicing fee usually range from UAH 15 to UAH 60 per square meter monthly. For this reason, it is advisable to check maintaining costs before making final decision.

In order to choose a suitable property for you, you should do your homework before buying a property in Ukraine and calculate the expenses associated with the purchase and define possible profits in future. Good knowledge of real-estate tax law will help you to save time when viewing properties, have better understanding on what should be your property search criteria and make the right business decision at the end.  

Here are some additional resources about Real-estate Property Law in Ukraine that you might find useful :

• Quick Guide to Buying Property in Ukraine
• Ukraine Real-estate Investment – Opportunity & Challenges
• Opening an Investment Bank Account in Ukraine

For further information, please contact us.