Foreigners’ Guide to Buying Property in Ukraine
Banking crisis coupled with lack of access to credit funds has caused significant fall of prices in the Ukrainian real-estate market since 2013. Consequently, increasing number of foreign investors are considering Ukrainian real estate as an attractive investment at present. Most foreign investors buy residential properties in major Ukrainian cities only that include Kiev, Lviv, Odessa, and Kharkiv. A carefully selected property in Ukraine can be a great investment at current prices regardless whether you do it for investment purpose, rental income or your own use.
This article is a guide for buying real-estate property in Ukraine by foreigners (as individual, foreign legal entity, or a local subsidiary). It does not cover purchase of real-estate property by Ukrainian nationals.
What is Covered in This Guide?
This guide for foreigners on buying real-estate in Ukraine is divided into the following sections:
- Buy property as individual or legal entity?
- Real-estate due diligence
- Making payment for property
- Documents required from the buyer
- Real-estate agreement & title registration
- Taxes & Fees
- Working with real-estate agencies
It only covers purchase of real-estate which is already constructed and duly registered. It does not cover investment/participation in real-estate construction projects.
Deciding on Form of Ownership
Ownership as individual vs legal entity
At the stage of planning your purchase of real-estate, it is very important to decide on the most suitable form of ownership of the real-estate property. As a foreigner, you have the following options:
Option 1: you as foreign individual; or
Option 2: legal entity, registered overseas, where you are shareholder; or
Option 3: legal entity, incorporated in Ukraine, where you are shareholder.
In order to make the right decision, it is important to take into account several important factors:
- what type of property you are buying (residential or commercial, dwelling or land) and if Ukrainian real-estate law allows you to own the chosen type of property as mentioned in Option 1, Option 2 or Option 3;
- what is the cast of investors of the property: one or more, their residentship;
- what is the purpose of purchase of real-estate (own use, lease etc);
- what taxes are payable while buying, owning, and selling of chosen real-estate;
- what are inheritance and gift taxes in case of owning property as individual;
- which option allows you to sell real-estate and return your investment and investment profits the easiest way (taking into consideration currency control rules in Ukraine).
In general, it is better to own residential property as individual, whereas commercial property – as legal entity registered in Ukraine. Nevertheless, to decide on the most appropriate way to own real-estate in your particular situation will need to take into consideration all of the above factors.
It is worth to mention that in certain cases you will need to build your ownership structure taking into consideration limitations introduced by Ukrainian law in relation to real-estate ownership by foreigners and foreign capital legal entities (for example, in order to buy agricultural land you need to register in Ukraine two-scale legal entity structure etc).
In Ukraine, performing a thorough and detailed due diligence on the chosen real-estate property object is without a doubt the most crucial part of the transaction. 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 avoid fraud in your deal and conclude your deal safely, you should make sure that all the necessary checks have been completed to satisfaction. 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.
Real-estate Due-diligence generally consists of the following steps:
Real-estate Register Check
Starting from 2013, Ukrainian Government has adopted real-estate reform and implemented the unified State Registry of Real-Estate Property Rights and Their Encumbrances (hereinafter – Real-estate Register) which includes information on all the property rights and liens, related to real-estate. Note that all the property rights or liens on real-estate (ownership, mortgage, lease, tax pledge, arrest etc) come into force from the moment of their registration in the Real-estate Registry. The exception is lease of dwellings for less than 3 years.
Therefore while considering buying real-estate in Ukraine, proper title credentials must be checked in the above-mentioned Real-estate Registry. Note that if the property was previously registered on paper (i.e. before 2010), an inquiry has to be made to the respective registration authority that holds such paper register.
Additionally, you should receive written letter from the seller with indication of all the property rights and liens, available on real estate (including lease for less than 3 years, which is not registered in Real-estate Register as mentioned above).
At this stage, it is important to check if title & registration documents for real-estate are in compliance with legislation, valid at the time of issue of such documents. Furthermore, in Ukraine, general limitation of court action is 3 years, so if property was bought by seller less than 3 years ago, it is advisable to check also lawfulness of all previous deals for the last 3 years.
Court Decisions Register Check
In order to minimize risks of disputes, it is important to check Register of Court Rulings (available online) to determine if there are any current disputes related to the chosen real-estate property.
Technical Inspection of Real-estate.
Ukrainian law does not require to perform technical inspection of the property while buying/selling real-estate. Regardless, we highly recommend that a technical inspection of the property be performed by a qualified professional before the purchase in order to avoid any unpleasant surprises after the deal. Moreover, in cases, when real-estate object was built/reconstructed/remodeled without respective permit(s), ownership and purchase of such real-estate can be disputed through court.
Therefore, it is advisable always to perform necessary technical check before buying real-estate.
Seller’s Legal Capacity Check
If seller is an individual:
In order to check legal capacity of the seller individual you should check his/her passport, tax number and residence permit (if any). Additionally, it is necessary to make sure that person is of full legal age (above 18 year old), in clear mind (especially in cases when person is of old age) and have no tutorship over his actions (otherwise additional approvals may be required; for example, if the seller is child under 18, for sale of such real-estate the consent of the Child Protective Service has to be provided, etc).
What is more, by Ukrainian law, all the property acquired during registered or factual marriage is considered as joint property if otherwise is not prescribed by marriage agreement (even if in Real-estate Registry only one of spouse is indicated). For this reason, in cases when the seller is married or lives as one family with other person without registration of marriage for sale of real-estate notarially certified consent of his/her husband/wife is required.
Be careful when executing the deal if your counter-party-individual is acting under the power of attorney: according to Ukrainian law, in cases when the person who issued POA dies by the day when deal is executed, the POA is void.
If seller is legal entity:
In order to confirm legal capacity of legal entity and its representative, it is necessary to check registration and title documents of legal entity as well as information is the Companies Register (so called the Unified State Registry of Legal Entities, Private Entrepreneurs and Public Formations). Additionally, in certain cases Ukrainian Company law states that deal may be concluded only under decision of General Shareholders Meeting of the company.
While checking powers of director, among others you need to check his appointment documents (minutes, order) and employment contract. In cases, when sale-purchase agreement is signed by representative under power of attorney, it is necessary to confirm that it is valid under the Registry of Powers of Attorneys (such extract will be made by notary, certifying the deal).
Depending on type of real-estate you are buying, the following additional inspections are necessary:
- for buildings (house, construction, building):
- documents, confirming title of seller for the land plot under such house, construction, building and its cadastral number (note that buyer by law (subject to registration in Real-estate Register) receives title for land plot under purchased house/construction/building on the same terms as the seller had before the sale)
- check if dwelling is object of cultural heritage (if yes, approval of authorized cultural heritage state authorities is required for sale; note that in future new owner has to sign agreement on protection of such object of cultural heritage with respective cultural heritage authority and perform repair, alienation of real-estate only upon consent of such authority)
- for residential property (apartment/house):
- check of all persons, registered in the apartment (it is highly advisable that at the moment of sale no persons are registered in the property)
- if seller has children under 18, you should make sure that they are not registered in the residential property plus that they are registered in other residential property;
- in cases when owner of real-estate is child under 18, consent of the Child Protective Service has to be provided
- for land plot:
- check of the limitations of use of land in the Land Cadastre Register (respective extract from the Land Cadastre Register has to be provided)
- check if there is any real-estate on such land plot and what rights on your land plot has the owner of the building
Note that sale-purchase agreements of real-estate in Ukraine have to be concluded in written form and notarially certified. Notary by law is obliged to perform certain due-diligence and make sure that sale-purchase agreement complies with Ukrainian law (see below in Section Real-estate Deal & Registration of Title) . However the notary will perform such due-diligence on the date when you sign real-estate sale-purchase agreement (just before signing) and only to the extent which is required by law (so due-diligence will not cover many of the above-mentioned aspects).
For these reasons, in order to make right decision and take into account all potential risks, it is better to have full due diligence report prepared in advance by a professional real-estate advisor.
Mode of Payment
Payment options for foreigners
By law, payment for purchase of real-estate in Ukraine can only be performed through a bank in Ukraine (cash deals are not allowed).
Depending on how you buy real-estate (as individual-non-resident, legal entity, registered overseas or legal entity, registered in Ukraine), your allowed mode of payment will differ, namely:
- If you buy real-estate as a foreign individual or legal entity, you are allowed to pay for real-estate:
- either in foreign currency of 1st or 2nd Group of Classifier of Foreign Currencies (including US Dollars, EUR, GBP and others) from overseas or to account of the seller; or
- through an investment bank account opened with one of Ukrainian banks in 1st or 2nd Group of Classifier of Foreign Currencies (including US Dollars, EUR, GBP and others) to the account of seller; or
- through an investment bank account opened with one of Ukrainian banks in national currency of Ukraine Hryvna (UAH).
- If you buy property as legal entity registered in Ukraine, you can pay only in UAH from your business bank account to account of the seller.
Interestingly, despite provisions of the law, payment for real-estate in Ukraine is often performed in cash. Most of the property sellers (especially individuals) prefer to receive foreign currency in cash as payment rather than money in 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 in Ukraine which were applicable in past, etc.
However, as a foreign investor please note that the procedure of repatriation of foreign investment and investment profits from Ukraine is regulated strictly by Ukrainian banking law. Among others, after you sell your property, in order to repatriate your investment back to your country of residence, you will need to provide Ukrainian bank with lawful proof of payment for real-estate at the time when you made investment to Ukraine. For this reason, you should act strictly in accordance with Ukrainian Banking & Investment law while injecting capital to Ukraine at the time of investment.
Documents Required from the Buyer
The following documents are required from the buyer to complete the real-estate transaction in Ukraine:
If Buyer is foreign individual:
- foreign passport copy
- Ukrainian tax number (note that if you plan to buy real-estate in Ukraine you have to obtain Ukrainian tax number before the deal)
- wife’s consent in notarial form, if married
- if agreement will be signed by individual’s representative – notarially certified Power of Attorney for the deal
If Buyer is a foreign legal entity:
- Extract from Company Registry (other relevant state registry in which registration of legal entity is performed) or other documents, issued by government authorities, confirming registration of foreign company, its registered address, directors, shareholders and good-standing
- Company Charter / Articles of Association/Company Constitution/other statutory document
- documents, confirming appointment of company’s director (minutes on appointment etc)
- if agreement will be signed by representative under POA – notarially certified Power of Attorney for the deal
- if under Company’s statutory document or legislation of country, where company-buyer is registered, any additional resolution of Company’s governing bodies is required to conclude the deal – such resolution has to be provided
- passport of Company’s representative
Please note that in certain cases (for example, purchase of of state owned or municipal land), in order to buy real-estate in Ukraine, foreign legal entity has to first register permanent establishment in Ukraine.
If Buyer is a Ukrainian legal entity:
- extract from the Unified State Register of Legal Entities, Private Entrepreneurs and Public Formations (hereinafter – Company Register)
- Company statutory document (charter, articles of association) or access code to Company statutory document (in cases, when such statutory document was registered after 1st of January, 2016 and is available online). This document is not filed if LLC is acting based on model charter
- if under Company’s charter or Ukrainian law resolution of the General Shareholder’s Meeting (the GSM) is required to conclude the deal – respective minutes of the GSM has to be filed
- documents, confirming appointment of company’s director: minutes on election by the GSM, order on appointment and labor contract
- if agreement will be signed by representative under POS – notarially certified Power of Attorney for the deal
- passport of Company’s representative
Note that all documents, issued overseas (other than passport) have to be duly legalized or apostilled, if otherwise not stipulated by international treaty between Ukraine and the respective country. For example, apostille and legalization is not required for documents, issued in Poland, Czech Republic and some others.
It is advisable to check with your real-estate advisor the exact list of documents as notaries may require additional documents in addition to the above-mentioned (particularly if buyer is a legal entity, registered overseas).
Agreement & Registration of Title
Real-estate sale-purchase agreement in Ukraine is concluded from the moment of its notarial certification, therefore it is important to find experienced and reliable notary to certify the deal. As mentioned above in section Real-estate Due Diligence, notary is obliged to check the following before certifying the deal:
- compliance of sale-purchase agreement with Ukrainian law
- legal capacity and powers of parties’ representatives
- payment of taxes by parties, related to sale/purchase of real-estate
- check independent appraisal report of real-estate (if required by law)
- check information on real-estate in the Real-estate Register (which starting from November, 2016 will contain among others information, received from the Unified Register of Court Rulings)
- check information on land plots in the State Land Cadastre Register
- if necessary, check information in the Unified Register of Permits for Construction
- check legal capacity of legal entities-parties of sale-purchase agreement (if any) under the Companies Register;
- check civil status of individuals-parties of sale-purchase agreement (if any) under the Unified State Demographic Register, the State Register of Civil Acts
Taxes & Fees
Taxes and fees, payable by the property buyer
Please note that taxes and state duty, applicable to real-estate deal, have to be paid before notarial certification of the deal (but can be on the same day), as notary by law is obliged to check payment of applicable taxes & duties by the parties.
On the buyer side, the following taxes and fees are applicable:
- Pension Fund fee in the amount of 1% from 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.
Working with real-estate agencies in Ukraine is challenging
Searching for real-estate property in Ukraine is probably one of the most difficult part of real-estate purchase process. The process is usually time-consuming, often basic and necessary information is not readily available, and requires a lot of patience.
As a general rule, real-estate in Ukraine is sold through realtors and real-estate agencies with each one having their own real-estate database. They show properties to potential buyers and provide basic real-estate due-diligence before the deal. The real-estate agency will show you available properties under your specific criteria (price, size, location etc) however in most cases, no preliminary due-diligence is performed by them. The commission charged by the real-estate agencies varies from 1% to 5% but in most cases you can negotiate it to 3%. Normally, they ask the buyer to pay their commission although exception exist when the seller is willing to pay the commission.
One of the challenges when working with real-estate agencies in Ukraine is that the real-estate agencies are not regulated by any governing authority (ie they are not licensed) and as such they don’t carry the risk of loosing their license if they act in bad faith. As such, they hardly serve the interests of their clients and are mostly interested in receiving their commissions. Therefore, it’s hard to be sure that they will perform a thorough due-diligence and point out all the risks associated with the chosen real-estate and the deal itself. In most cases, you will not get any proper legal opinion in writing or due diligence report from the real-estate agency.
Working with a professional real-estate advisor is essential
Due to significant fall of prices in the real-estate property market, buying real-estate in Ukraine today can be an attractive investment. In order to choose a suitable property, minimize risks associated with the deal, avoid fraud and save on taxes in future, 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.
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