A foreign investor can invest in Ukrainian real estate either by directly purchasing the real estate (asset deal) or by purchasing a company holding the asset (share deal).
The advantages of asset deals include:
The disadvantages of asset deals include:
The advantages of share deals include:
The disadvantages of share deals include:
Last modified 22 Mar 2024
The buyer pays no taxes in the case of an indirect purchase of real estate or shares through a local company. If the seller is a non-resident, which owns real property through a local company (either directly or indirectly), the withholding tax (WHT) may be applied subject to local company being a real estate rich company. Generally, the company is a real estate rich where 50% and more of value of its shares derives from real estate located in Ukraine. Please note that the definition of real estate under the Ukrainian tax legislation for these purposes as well as the application of such rules require detailed examination of each particular case.
VAT does not apply to share purchases where the consideration is cash or share-for-share.
Last modified 22 Mar 2024
Asset deals are normally subject to VAT. However, the sale of undeveloped plots of land and residential real estate (apart from the first sale) is exempt from VAT. The buyer can recover input VAT provided it is registered for VAT and the input VAT is attributable to its VATable supplies in the course of its VATable commercial activities. Importantly, a non-resident may not be registered for VAT in Ukraine other than through its representative office registered in the country. Therefore, where a non-resident directly – in its own name – acquires real estate in Ukraine, VAT charged by a resident seller would become the non-resident's cost with no possibility of recovery.
A VAT refund can be claimed if the company's VAT position for the relevant tax period has been negative. The amount of VAT which can be refunded is limited to input VAT actually paid to suppliers or to the state budget in preceding periods. It cannot exceed the registration amount which is calculated using a special formula. A refund can be applied for to be sent directly to the company's bank account and/or to settle the tax debt formed by non- VAT tax liabilities.
Last modified 22 Mar 2024
In the case of a direct purchase of real estate, notary's fees, state duty and pension fund duty are normally payable.
Pension fund duty is paid by the purchaser of real estate at 1 percent of real estate value (excluding VAT) indicated in the sale and purchase agreement. Pension fund duty is not payable on the purchase of plots of land.
State duty, also applies, at 1 percent of the contractual value of the real estate being transferred. The notary's fees are divided between the parties subject to their agreement.
When real estate is acquired via the purchase of shares in the entity holding the asset, a token amount of state duty is paid to the registrar for registering changes to the statutory documents. In addition, in the case of a joint stock company, fees are payable to the company's registrar for entering the relevant record in the shareholders' register, if this is maintained by an independent entity.
Last modified 22 Mar 2024
Legal entities and individuals pay property tax in respect of real estate assets. Property tax applicable to real estate consists of:
The rates of immovable property tax are set by municipalities and may not exceed (per square metre of the area of the property):
The taxable value for immovable property tax includes the total area of residential/non-residential property.
Immovable property tax on individuals is assessed by tax authorities. Legal entities self-assess the tax and file the relevant tax return annually.
Land payment consists of:
The value for land tax purposes is:
The amount of land tax in regions with an established normative valuation cannot exceed the following thresholds (irrespective of where the property is located):
The amount of land tax applicable to plots of land which have not undergone normative valuation cannot exceed 5% of the normative valuation of a standard unit of arable land established for the relevant region (oblast). For agricultural land plots which have not undergone normative valuation land tax cannot be less than 0.3% and cannot exceed 5% of the normative valuation of a standard unit of arable land established for the relevant region. For forest plots which have not undergone normative valuation land tax cannot exceed 0.1% of the normative valuation of a standard unit of arable land established for the relevant region.
The amount of land rent is stipulated in the lease contract between the lessee and state/municipal state authority. The land lease contract is subject to registration.
The law stipulates that land rent cannot be less than the amount of land tax for respective plot and more than 12% of the normative valuation.
Land tax is assessed annually for the following year and is paid monthly by the owners or users of land. Land rent is also paid monthly.
Specific tax exemptions apply to land plots and immovable property located within temporary occupied territories.
Last modified 22 Mar 2024
Ukrainian companies owning commercial (ie non-residential) real estate do not pay any specific charges other than the normal taxes paid to the state. Utility costs are payable to state, municipal or private suppliers.
Last modified 22 Mar 2024
Typically, the income from ownership of real estate consists of rental income.
Shareholders or participants in companies which generate income from real estate are entitled to receive a share of the company's profits (dividends), including those from leasing or selling real estate. Profits are distributed by way of a dividend repayment.
Last modified 22 Mar 2024
Income from real estate is included in taxable income and taxed at the standard corporate profit tax (CPT) rate which currently is 18%.
The taxable profit of the company is equal to the accounting profits calculated in accordance with either local or IFRS standards subject to certain adjustments established by the Tax Code.
Income may be reduced by deducting allowable expenses (costs) including depreciation charges.
The rate of depreciation applicable to real estate depends on the depreciation method chosen by the taxpayer as well as on the period of useful life of the real estate defined in accordance with the applicable legislation, except in the case of plots of land which cannot be depreciated.
The rental income of a non-resident derived from Ukrainian real estate is subject to withholding tax at the rate of 15% and, in most cases, may not be avoided under double tax treaties.
Starting from 2021, if the non-resident receives rental income from Ukrainian resident and such transaction is treated as ‘controlled’ for transfer pricing purposes, the part of the non-resident's rental income exceeding the market value (which is determined under the arm's length principle) should additionally be taxed at 15% unless otherwise stipulated by the relevant double tax treaty.
Last modified 22 Mar 2024
Income generated can be distributed to shareholders/participants in the company. A Ukrainian company paying dividends is generally required to pay advance corporate profits tax at the applicable rate (except in specific cases where advance tax should not be paid). Such advance tax can further be credited against corporate profit tax (CPT) due in future periods.
The CPT rate is 18 percent.
A distribution of dividends from a Ukrainian company to a non-resident shareholder is subject to 15 percent withholding tax, unless a relevant double tax treaty provides for a lower rate or an exemption.
Last modified 22 Mar 2024
A company is not required to pay any costs/charges (apart from taxes) in respect of income generated from real estate.
Last modified 22 Mar 2024
A company is not required to pay any costs/charges (apart from taxes) in respect of income generated from real estate.
Last modified 22 Mar 2024
Income from the disposal of real estate exceeding its book value (ie capital gain) is treated as taxable income and is subject to corporate profit tax (CPT) at the applicable rate (18%). Such taxable income may be offset against any allowable deductible expenses of the seller. Therefore, no specific opportunities are available to offset or reduce the tax on a disposal of real estate.
If the non-resident directly owns Ukrainian real estate and sells it to Ukrainian resident, the non-resident's income is subject to Ukrainian withholding tax at 15%. In this regard, Ukrainian resident should withhold the respective sum of taxes and transfer it to Ukrainian budget unless otherwise stipulated by the relevant double tax treaty.
For CPT purposes consideration for transactions which are treated as ‘controlled’ for transfer pricing purposes cannot be lower than arm's length price.
A sale of real estate is normally subject to VAT at the standard rate of 20%. The VATable consideration in respect of such transactions cannot be less than the book value of the property asset as of the beginning of the tax period during which it is disposed of (or the usual price – if the property asset is not recorded in the books). Sales of undeveloped plots of land and residential real estate (except for the first sale) are exempt from VAT.From the share deal perspective, if the non-resident sells the qualified shares of Ukrainian entity or another non-resident to other non-residents and such shares derive their value mostly from Ukrainian real estate, the seller's capital gains are subject to Ukrainian withholding tax at 15%. To this end, the non-resident buyer should withhold the respective sum of taxes and transfer it to Ukrainian budget unless otherwise stipulated by the relevant double tax treaty.
Last modified 22 Mar 2024
Notary's fees, state duty (based on the value of the transaction), a pension fund duty and a state registration fee are normally payable.
Pension fund duty is paid by a purchaser of real estate at 1% of the value of the real estate (excluding VAT) indicated in the sale and purchase agreement.
State duty, also applies, at 1% of the contractual value of the real estate being transferred, if the transaction is notarized by a public notary. If the transaction is notarized by a private notary, only notary fees are payable.
The notary's fees are divided between the parties as agreed. The state registration fee varies depending on the title registered and time for registration of title. The state registration fee for the registration of title (ie the ownership) is from UAH227 (which applies to the standard registration procedure – which takes up to five business days) to UAH11,350 (which applies to registration within two hours). The registration of an encumbrance (eg a mortgage) is circa UAH113.
Last modified 22 Mar 2024
How can investment in real estate by an individual/organization/company be set up?
A foreign investor can invest in Ukrainian real estate either by directly purchasing the real estate (asset deal) or by purchasing a company holding the asset (share deal).
The advantages of asset deals include:
The disadvantages of asset deals include:
The advantages of share deals include:
The disadvantages of share deals include:
Last modified 22 Mar 2024