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Country - Ukraine
Taxes
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A. AVAILABLE INVESTMENT STRUCTURES
Which legal structures are available for an investment in real estate in Ukraine?
- direct acquisition of the asset from abroad;
- direct acquisition of the asset from abroad through a local permanent establishment;
- indirect acquisition through a local company;
- indirect acquisition using a foreign entity;
- indirect acquisition using a local permanent establishment;
- indirect acquisition through a local holding company.
B. TRANSFER TAXES, NOTARY FEES AND OTHER ACQUISITION COSTS
How is the purchase of a real estate asset taxed?
Depending on the structure of the deal, the following taxes may apply to real estate investments:
When the asset is acquired directly, the following may apply:
- VAT (podatok na dodanu vartist, PDV);
- CPT (corporate profit tax, podatok na pributok pidpriemstv), where assets are sold at a value which is higher than the balance sheet value;
- state duty (derzhavne myto);
- pension fund duty (pensiynyi zbir);
- withholding tax.
Do any specific rules for transfer taxes apply if the asset is a shopping centre or another asset used for retail activities?
No.
How is the purchase of shares in an SPV holding real estate taxed?
The transaction is not subject to VAT if the consideration is either in cash or securities.
A non-resident seller of shares in SPV assets which principally consist of immovable property must pay withholding tax on capital gains derived from the sale of the shares.
Who normally pays the transfer taxes, the buyer or the seller?
The buyer pays 1% pension fund duty and the seller pays 1% state duty.
Are notary fees determined by law or should they be negotiated?
Notary fees related to real estate transactions are determined by law. State duty at 1% must be transferred to the notary's bank account prior to the execution of a notarised agreement.
Are there any other costs related to the purchase of real estate assets or SPVs?
Other costs include the fees for professional advisors, securities traders and estate agents.
C. TAXATION OF CURRENT INCOME
How is income generated from the letting of real estate taxed in the Ukraine?
(a) Direct investment through a permanent establishment
Ukrainian legislation stipulates that the letting of real estate by non-residents must be carried out either through a permanent establishment or through a legal entity representing the non-resident. The income derived from such a permanent establishment is subject to 25% corporate profit tax (CPT).
(b) Direct investment without a permanent establishment
If a non-resident lets real estate without a permanent establishment in Ukraine this is regarded as tax evasion. Direct letting by a non-resident is not permitted under Ukrainian law.
(c) Indirect investment through a corporate entity
A Ukrainian legal entity is taxed on profits from letting through CPT at a rate of 25% and is charged 20% output VAT on rental payments.
How can income generated by investment be transferred to a foreign investor?
(a) Direct investment through a permanent establishment
Once the profits have been taxed in the Ukraine, they can be transferred by the permanent establishment to the foreign investor without further taxation, but, if the profits are transferred by a permanent establishment with a head office in a country with which Ukraine has not concluded a double tax treaty, the profits are subjected to a withholding tax of 15%.
(b) Direct investment without a permanent establishment
15% withholding tax applies to certain types of passive income (including capital gains from the sale of immovable property), unless otherwise agreed by the relevant double taxation treaty.
(c) Indirect investment through a corporate entity
Distribution of dividends to shareholders
Distribution of dividends is subject to:
- 25% corporate profit tax to be paid prior to, or at the same time as, the payment of dividends; and
- 15% withholding tax, unless the relevant double taxation treaty provides for a lower rate.
If withholding tax is applied on the basis of a double taxation treaty, it is normally treated as a tax credit in the shareholder’s country of residence.
Taxation at the level of the shareholder
If a resident shareholder (including the permanent establishment of a foreign entity) receives dividends from a non-resident, the dividends are subject to tax at the level of the shareholder. If dividends are received by one Ukrainian resident from another, the recipient is not liable to pay corporate profit tax.
Are there local taxes on the possession of real estate assets?
There is currently no property tax in the Ukraine. [However, draft legislation on a proposed property tax is under consideration by the Ukrainian Parliament.]
Is land tax payable in the Ukraine?
Under the law entitled "on payment for land" tax is paid by land owners ("land tax") and land users ("lease payment"). The rate of land tax is calculated as a percentage of the value of the land, or determined by reference to the size and location of the plot.
Land tax is tax deductible against corporate profits.
D. DEPRECIATION
What are the basic rules for the depreciation of real estate assets?
CPT law distinguishes between the depreciation of fixed assets and intangible assets. Fixed assets are divided into four groups, each with a different depreciation rate. Real estate is in the first category of fixed assets, which includes buildings, [constructions and transmitting terminals.]
Depreciation rates are applied to the net book value of the asset by using the declining balance method (i.e. a percentage rate is applied to the underappreciated balance rather than to the original book value).
The depreciation rate for the first category of fixed assets is 2% per quarter.
Can land be depreciated?
Land itself cannot be depreciated, however, land with buildings located on it may be depreciated.
In this case the land is subject to the same rate of depreciation as the first category of fixed assets set at 2% per quarter.
Can a participation in an SPV holding real estate be depreciated?
No.
E. VAT
Is the purchase of real estate assets subject to VAT?
VAT on the sale of property is charged at 20%. Input VAT is also allowed if the property purchased is intended to be the subject of further transactions which involve VAT.
How can VAT paid on the purchase price be recovered?
VAT paid can be offset against VAT charged to suppliers. Where the VAT paid exceeds the VAT charged, the difference is refunded by the state.
A request for the refund of VAT can be submitted provided that for two consecutive months the VAT payer has collected VAT exceeding VAT paid out. Following this, the VAT payer may request a refund only for the amount of VAT actually paid to suppliers.
The following legal entities are not eligible for a refund:
- companies which were registered less than 12 months before applying for a refund; and
- [companies where the refund claimed would exceed the amount of taxable business over the last 12 months (excluding the accrual of VAT paid for the purchase of fixed assets or for construction projects).]
F. LEVERAGE, THIN CAPITALISATION RULES
If interest payments are to be tax deductible, is it necessary for the financing to be taken out simultaneously with the purchase of the asset?
No, but the financing must be used by the company only for company business activities.
Are there rules which limit the deductibility of interest for third party (bank) financing?
The law on corporate profit tax (CPT) establishes thin capitalisation rules for the deduction of interest paid by a Ukrainian company with a foreign shareholding of 50% or more to a non-resident lender or to a lender controlled by a non-resident.
Are there thin capitalisation rules in Ukraine and if so, how do they work?
Under the corporate profit tax law, the tax deductibility of interest is subject to certain limitations. These apply where 50% or more of the [corporation's] capital is owned or managed by non-residents of Ukraine or by not-for-profit institutions and organisations.
Does Ukraine apply any withholding taxes on interest paid to foreign financing banks or to foreign shareholders?
Yes. The rate of withholding tax on interest is 15%, irrespective of the recipient's status, unless the relevant double taxation treaty provides otherwise.
G. TAXATION OF CAPITAL GAIN
How are capital gains deriving from the sale of real estate assets taxed in Ukraine?
(a) Real estate assets held by a foreign investor directly without a permanent establishment in Ukraine.
Capital gains derived from the sale of a real estate asset are subject to a 15% withholding tax unless the relevant double taxation treaty provides otherwise.
(b) Real estate assets held by a foreign investor through a permanent establishment in Ukraine.
Profit from the sale of property is subject to general corporate profit tax. Capital gains are also regarded as taxable income in the relevant reporting period.
How are capital gains deriving from the sale of shares or other interests in a property company or partnership taxed in Ukraine?
Capital gains derived by a resident company from the sale of shares or other interests are subject to corporate profit tax within the relevant reporting period.
Are there any rules regarding participation exemptions in Ukraine?
The Ukraine has not yet introduced any participation exemption rules.
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