Many of the new rules related to the coming into force of the Civil Code of Ukraine as of 1 January 2004 are considered positive and create fair and favorable conditions for the development of real estate market in Ukraine. Foreign citizens or legal entities have the right to buy and own property in Ukraine. These property rights are set forth in the Constitution of Ukraine and Law of Ukraine On Property. The law permits owners of property not only to own property but also to use such property for commercial purposes, lease property, keep the revenues, profits, and production derived from its use.

To purchase residential or office premises, the buyer should verify the seller’s title by reviewing the title documents. Title documents which should initially be presented by the seller include:

- a certificate of privatization, a purchase contract (notarized as a rule) or evidence of gift or inheritance
- a proof showing the seller is the owner
- a certificate from the Unified Register of Prohibitions on the Disposal of Immovable Property on the absence of mortgages, arrest or other encumbrances

In case you deal with the legal entity the most common title documents that provide proof of ownership rights of companies are:

- Contracts (sale contracts, deeds of a gift, barter contracts, etc.)
- Certificates on acquisition of real estate by public tenders issued by notaries
- Court and arbitration court awards recognizing property rights
- Certificates of Ownership Rights as to Real Estate issued by local authorities, etc

Property rights must be registered in the All-Ukrainian Real Estate Ownership Rights Register. Registration of the title of real estate can be confirmed by an Extract from the Real Estate Ownership Rights Register distributed by the local Bureau of Technical Inventory (BTI).

Thus, when buying real estate in Ukraine you should check title documents and registration of property rights.

In order to enter into a sale-purchase agreement, a foreign individual needs to have the following documents:

- passport with a valid visa
- tax payer number on the territory of Ukraine (which is obtained at the regional Tax Administration)

A corporate buyer (as well as the corporate seller) will need to prove also that the legal entity still exists and its representatives are duly authorized to enter into the purchase transaction. It is rather important as management system of companies in Ukraine often is not simple. Charters of many Ukrainian companies provide that sales of fixed assets (including real estate) are within the competence of the General Meeting of Shareholders and are not related to the Executive Body’s power. It means a director may not have the power to sell real estate. However, sometimes directors go beyond the limits of their powers that mean such contracts may be recognized void by courts.

It’s recommended to conduct a due diligence of title before a buyer completes acquisition of real property in Ukraine. The main purpose is to ensure that a seller of real estate is its real owner. In practice there are a number of sale contracts invalid by the reason seller was not the owner.

Another important issue is property encumbrance. The general register of all kinds of real estate encumbrances does not exist in Ukraine today. Although the corresponding law was passed on 1 July 2004 and came into force, the appropriate bodies of state registration and databases have not been created yet as required.

The basic property encumbrances are:

- Lease contracts
A lease agreement for a building or any other capital structure or a part thereof concluded for the period of at least one year shall be subject to state registration.

- Judicial restraining order
According to the Commercial Procedure Code and Civil Procedure Code courts of general jurisdiction and commercial courts of Ukraine can carry judicial restraining orders as a provisional remedy for a claim. It’s a usual practice in Ukraine when, for instance, some court institution prohibits alienation of real estate for a certain period of time. Such resolutions are temporary and should be cancelled after the trial is finished. However, while they are effective any sale of real estate is not legal.

- Contractual mortgage
In Ukraine there is a certain procedure to register hypothec (as a special kind of mortgage of real estate). All hypothecs should be registered at the State register of hypothecs supported by Ministry of Justice.

- Tax lien
Such liens are subject to the procedure for registration of movable property mortgages as there is no special procedure for registration of tax liens. An extract from such a register is a proof of the absence of the tax lien.

A contract for the sale and purchase of a land plot, an integral property complex, a residential house (apartment) or other real property must be executed in writing, certified by a notary and registered at the state register.

The Civil Code does not envisage exceptions allowing entities to execute real estate purchase contracts without notarization. However, the New Civil Code does not solve the title registration problem completely. A purchase agreement will have to be notarized and registered but certain period of time is required to register such a contract and the transfer of title. An unscrupulous seller may still, using duplicate title documents, sell the same real estate to other buyers over a period of several days and arrange it before the first sale appears publicly in the registry. Therefore, in order to minimize this risk, a purchaser needs to apply for registration of the purchase contract immediately after the execution of the contract. Of course it’s better to stipulate that full payment is made only after the registration.

The state registration of a real estate agreement is performed by a notary who must submit the necessary information regarding the very agreement to the State registry of agreements computer system. If an agreement on alienation of property must be registered, then, a purchaser acquires the title to such property as of the moment of registration which is carried out by the State Real Estate Ownership Rights Register.

To get full picture of the real estate deal one should pay attention to the Land Code of Ukraine and Commercial Code of Ukraine (both effective as of 1 January, 2002), the Law on Mortgages of 5 June 2003, the Law on State registration of proprietary rights to real property and their limitations. Besides the sale and purchase agreements the Codes, for instance, introduced some new types of real estate agreements such as rent agreement and management agreement. The main difference between them is according to the rent agreement the title to real property passes to the rent payer whereas it remains with the settler of the management under the management agreement. So, the nature of the management agreement is similar to trusts and beneficial ownership under common law.

All potential problems concerning real estate deals under existing legislative rules are successfully solved by professionals. Frishberg & Partners law firm based in Kyiv, Ukraine can help with all necessary legal procedures.

Land use and consent to construct are two separate areas of legal regulation and are governed by different laws. The land use system is governed by the Land Code of Ukraine adopted on October 25, 2001, as amended. Construction is governed by a number of regulations, rules, decrees, etc., adopted by different governmental authorities.

Land plots in Ukraine can be owned by the State or municipal community or can be privately owned. There are nine types of land, depending on designated use. Foreign individuals or foreign legal entities cannot purchase land plots designated for agricultural use.

The general rule for building/planning in Ukraine is that one must obtain all respective permits for the use of land (and, if necessary, change the designated purpose of the land plot) and for construction, prior to commencement of construction. Where a change of land use is required, the process can be long and complicated.

Planning authority
Depending on the ownership of the land (state, municipal community or private person) and the designated purpose of the land, different authorities will be involved in issuing a permit or concluding a lease agreement or land purchase agreement. Investors usually conclude long-term lease agreements for the use of a land plot (the law permits long-term land lease agreements for the period of up to 50 years).

Applications for licenses to conduct construction/building activity are filed with Ministry of Building and Architecture, or the local state administrations. Where the application is filed with the Ministry of Building and Architecture, the special Licensing Commission will review the application and issue a decisive opinion.

The planning authority, which issues permits to build specific projects, would be the local council (rada); such powers can be delegated to executive bodies, for example to the city administration.

Planning consent
Persons (both individuals and legal entities) that are licensed to conduct construction activity can apply to the authorities specified above for a permit to construct a specified building or project. Where the local council dopts a decision to lease a land plot for the purposes of constructing a specified scheme, this decision will be regarded as the construction permit.

The receipt of the construction permit does not entitle the recipient to commence construction works straight away as there is still the need to obtain, among other items, approval of the local inspector of state architecture control.

Once the construction permit is received, the holder should apply for a permit to start building activity. Such a permit entitles the holder to the right to commence construction, connect to central utility systems and pipelines, etc. This permit can only be issued after receiving the construction permit.

Planning application process
Applications for a license to enable persons to conduct construction activity generally are normally reviewed by the competent authority within 10 days. Upon expiration of such period, the licensing authority is required to issue a license for carrying out construction works or reject the application, indicating the reasons for such rejection.

Applications for a construction permit are filed as described above and should be reviewed within two months. Along with the application, one must submit a copy of the relevant document evidencing title to the land plot. The list of other documents necessary for submission is specified separately by the relevant local rules of building planning.

Applications for a building activity permit are filed with local inspector of state architecture control and should be reviewed within one month.

Terms of consent
The term of the license to enable individuals and companies to conduct construction activity is specified in each individual license. The license can be cancelled in case of violation of license rules.

Construction permits lose their validity if the construction work does not commence within two years from the date of issuance the permit.

Appeal process
If an application is turned down, the applicant may apply to the Administrative Court to question any decision of any governmental authority with respect to construction and/or building permits issuance. Any applicant may apply to the Administrative Court within one year after the decision has been rendered.

Ukraine’s real estate market has seen extensive development in recent years and many investors both locally and foreign have benefited greatly by recent soaring property prices. Real estate in Ukraine is a great investment whether you are planning on reselling or renting. Several real estate agencies in Ukraine can be contacted online, which is a great way for people from around the world to invest in property in Ukraine.

Property prices hit a low in the early 1990s, but since then property appreciation has just grown. This is seen particularly in the larger cities such as Kyiv, Lviv and Odesa. Real estate prices in smaller towns and villages have however remained quite low. Why has real estate in Ukraine had such a boost? There are several reasons. When the Soviet regime ended many people moved to the cities. Capital and opportunities are concentrated in Ukraine’s cities. Income levels have increased in the resorts and cities. It is easier to obtain bank loans and mortgages. Although interest rates are high, demand is still great for real estate in Ukraine.

People from any country may purchase Ukrainian real estate excepting agricultural land and property that has not been privatized. If you are interested in purchasing residential real estate in Ukraine you will require the following documentation: A valid passport; Ukraine taxpayer ID code certificate; marriage certificate; spouse’s passport and letter of spouses consent (last three apply only if married and attending Ukraine without your spouse). It is possible to purchase property through an Ukrainian real estate agency without being physically present. Common practice amongst foreign real estate buyers is to open a bank account in Ukraine and then transfer money for the purchase into this account.

When purchasing real estate in Ukraine certain costs need to be paid. A 1% of the sales amount goes to tax whilst another 1% has to be paid in to the Ukraine Pension fund. Real estate agencies in Ukraine charge between 3 and 5% commission. The option is available to pay 1% to the agency for property insurance.

If you are planning to build on your newly acquired Ukrainian property you will need to get a building permit. Many building firms will take care of all the necessary paperwork for you. Utilities in Ukraine are quite low in cost and maintenance will not take up too much of your budget. If you are planning on renting you can consider charging 5 to 10% of the property’s value annually, which amounts to around 0.8% a month. Real estate agencies in Ukraine offer a rental service where they will take care of everything. Tax must be paid for rental earned in Ukraine.

So why not look around for a great piece of real estate in Ukraine. Whether you rent it out or keep it as a holiday home, it is a great investment, one that you are unlikely to regret.

Taras Shevchenko

Taras Shevchenko was in Kyiv on 25 February 1814. He was the son of Hryhoriy and Kateryna Hrushivsky-Shevchenko. He showed his intelligence by reading and writing at an early age, and he attended Imperial Academy of Arts School located in St. Petersburg. He studied art, music and literature. He   … more

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Money earned from renting out real estate is taxable in Ukraine. If owners are not Ukrainian tax residents, they must pay 26% on earnings from real estate rental — twice the rate of 13% (flat tax on income) for residents.Owners of higher-end apartments or multiple properties may find it worthwhile to register as private entrepreneurs and pay a fixed monthly tax instead of percentage-based income taxes on money earned from rent. This standard tax of around $40 USD does not change for any level of income related to entrepreneurial activities that amounts to less than 500 thousand UAH (nearly $100,000) per year.

Foreigners can also create a Ukrainian firm that will be a tax resident of Ukraine. This firm will pay different kinds of taxes on earnings and, in addition, will be able to legally acquire non-privatized and agricultural land which non-residents are not able to acquire by law. After land has been privatized and developed, ownership may be transferred to the foreign owner through legal means.

Money that can be proved to having been legally earned in Ukraine may be transported or transferred out of the country with the necessary documentation. However, most foreigners prefer to leave their earnings in a Ukrainian bank and use it inside Ukraine.

Renting out property in Ukraine

Typical rental prices in Ukrainian cities are usually 5-10% of the property value per year, or 0.8% per month. In other words, an apartment that would currently sell for $40,000 USD would probably cost $160-320 per month to rent (closer to the middle of this range would be most typical).Many real estate agencies offer rental and property care services, allowing foreigners owners to not have to worry about their property at all. Owners can agree to pick up rent from the agency periodically or have the money deposited to their Ukrainian bank account.