Real Estate 2021 Comparisons

Last Updated April 13, 2021

Contributed By Arzinger

Law and Practice


Arzinger is a premium independent Ukrainian law firm, which has been on the market for more than 18 years. The team includes ten partners and 70 legal professionals, based at three locations all over Ukraine: Kyiv, Lviv and Odessa. Having a presence in the major cities of Ukraine allows Arzinger to combine top-notch legal advice with regional market expertise. The firm has a strong focus on German-speaking clients and there is a dedicated German desk. Real estate and construction, property finance, privatisation and PPP belong to strategic areas of practice of the firm. Arzinger and members of the firm have been for years highly ranked by reputable international legal directories. The real estate and construction team at Arzinger comprises ten fee earners (including partners), located in all offices of the firm. The team has been handling the most sophisticated and complex transactions and litigations involving residential, commercial and corporate real estate assets for many years. The firm's client list includes global and domestic, private and listed hotel operators, developers, retailers, investment funds, banks, insurances, and major manufacturing and construction companies, and the service lines include due diligence, development and finance deals, acquisition and exit transactions, legal and tax structuring, regulatory approvals (including merger clearances, etc), and property construction.

The main and only source of real estate law in Ukraine is the statute.

The main market trend during 2020 was COVID-19 and related quarantine restrictions. The restrictions varied from strict lockdown to moderate limitations of activity.

Although at first the real estate business was shocked by the pandemic, from the second half of the year the situation began to stabilise. There was significant demand for legal consultation on COVID-related topics, in particular relating to leasehold.

Generally, the volume of transactions did not decrease. However, the velocity somewhat decreased, especially at first, when a lot of businesses were adapting to new online realities. Regular work of public authorities was also impeded.

The notable transactions include the successful privatisation of Dnipro hotel in Kyiv, the purchase of 51% in TIS' container terminal in Yuzhny sea port by DP World, the announced purchase of 101 Tower business centre and Falbi logistics complex by Dragon Capital, the purchase of Chornomorets stadium in Odesa by Allrise Capital Inc, etc.

Such technologies as blockchain, decentralised finance (DeFi), proptech and other disruptive technologies are in the initial stage of development in Ukraine. There may be some smaller tech start-ups working on the implementation of disruptive technologies in real estate; however, they are not widely known.

However, there is a case of blockchain usage in Ukraine, in particular in real estate, namely, the SETAM, the Ukrainian system for electronic auctions for arrested property. The SETAM provides an opportunity to conduct the electronic auctions based on blockchain technology where all bids are entered into a blockchain. However, the sustainability of the system is questionable.

Generally, it is not considered likely that disruptive technologies will have an important role in the Ukrainian real estate market.

There is an ongoing reform of the construction sector. It provides for reforming the licensing by replacing it with certification of individuals performing construction works (ie, construction supervisors) to enable personal responsibility for construction. It also stipulates the division of the construction authority into three different bodies. In addition, it is being discussed whether it is feasible to introduce self-regulating organisations that will issue construction permits in Ukraine. The reform has already started, but the concept is being changed during the process, so the outcome may vary. At the same time, it is believed that the result will be positive for the real estate market. It is estimated that the reform is likely to be completed in 2021. However, there is still a chance that it will be prolonged until 2022.

There are also several other reforms ongoing, such as a draft law on strengthening the protection of residential estate investors that is being considered by the Parliament, the draft law that is aimed at transferring the land-management functions from central government to local municipalities. The current view is that the two aforementioned reforms will likely be considered in the second quarter of 2021.

Freehold and leasehold are the main titles. There are, however, some "exotic” title forms, inherited from Soviet times, which sometimes emerge in transactions.

The main laws applicable to the transfer of title to property are the Civil Code of Ukraine, the Commercial Code of Ukraine, the Law of Ukraine "On State Registration of Property Rights to Immovable Property and Their Encumbrances", and the Law of Ukraine "On Privatisation of State and Municipal Property".

Special treatment of investment transactions involving residential properties is governed by the Law of Ukraine "On Investment Activity", and the Law of Ukraine "On Financial and Credit Mechanisms and Property Management During Residential Construction and Real Estate Transactions".

The transfers are most commonly effected by entering into sale and purchase agreements or other bilateral documents (eg, acts of transfer and acceptance for contribution to share capital). The agreements providing for transfer of title to real estate are subject to notarisation. The notary also validates the agreement's provision for compliance with the law. The property rights are subject to registration with the property register, which can also be done by a notary. Title insurance as a product is not very popular on the market.

Due diligence (DD) usually includes verification of various public registers (including, but not limited to, litigation and insolvency registers, title register, etc), review of the title validity, encumbrances, title-transfer history, effective urban-planning documents, disputes, leases, etc. The corporate status of the property holding a special-purpose vehicle (SPV), as well as its permits, contracts, etc, is also reviewed.

The coronavirus pandemic did not have a significant impact on the due diligence process as it is most commonly done via electronic data rooms. Having said this, it has been noticed that the potential investors usually start the investigation with the very basic red-flag DD, to ensure that there are no obvious skeletons in the closet.

Ukrainian statutory law does not properly regulate representations and warranties; this is the reason why the majority of commercial property deals are structured as share deals outside of Ukraine, with the use of foreign holding structures to allow application of foreign law.

Typical representations and warranties are clear title, absence of third-party rights and encumbrances, absence of disputes and necessity for capital repair. Other ones may depend on the industry or position of the parties. For instance, a purchaser with a strong negotiation position usually requires warranties and/or indemnities on the title history.

Ukrainian law provides for very basic protection of the buyer against the seller's misrepresentation. There is a rule that an agreement concluded as a result of a lie (ie, the agreement would not have been concluded if not for the lie) may be invalidated in court. However, buyers rarely rely on this rule, as in Ukraine it may be quite complicated to prove the above circumstances.

This is one of the main reasons why English law is often chosen as the governing law of the majority of large real estate transactions.

Civil law, land law, banking and tax are the most important areas of law for an investor to consider when purchasing real estate in Ukraine. For merger control while acquiring major real estate assets and yielding properties, some transactions are subject to approval by the local Competition Agency.

Ukrainian law does not impose environmental responsibility on a buyer if it did not commit any violations. However, the controlling authorities usually just record the fact that the soil is polluted (or another violation has been committed) and issue a fine for the owner of relevant property. It is then the buyer's responsibility to challenge the fine in court or by an administrative procedure. However, sometimes it may be quite hard to prove that the violation was in fact committed by the seller, as the burden of proof is on the buyer. To this end,  a comprehensive review of the purchased property is recommended, including conducting technical or ecological due diligence if necessary, and making a record of its condition in the agreement or transfer act.

In order to ascertain the applicable zoning regulations, the buyer may request the relevant information from the seller and the authorities. The zoning regulations are most commonly contained in the master plan of the city/village, the zoning plan and/or the detailed plan of the territory. There is no option to enter into a development agreement with public authorities to facilitate a private project.

There are several grounds for the government to take the land or real estate. Firstly, if a person acquires the land which that person is not entitled to own (such as if a foreigner acquires agricultural land) and does not dispose of it within one year. Second, a compulsory purchase of land or real estate for public needs is possible. This may include construction of roads of state significance, airports, etc. In both cases, this is done through a court and a compensation should be paid.

An asset deal is subject to 20% VAT. The sale of an undeveloped land plot is VAT-exempt. In the case that the buyer is an individual, the pension duty of 1% of the property value applies. Stamp duty is 1%.

For both land and real estate, notarisation costs will apply, in particular to certify the contract. Also, there is an administrative fee for registration of title to the purchased asset.

A share deal (acquisition of shares of a property holding company) is VAT-exempted, and no further transaction taxes and notary fees apply. However, withholding tax may be payable by the seller (see 8.4 Income Tax Withholding for Foreign Investors for more detail).

The distribution of transactional costs between parties may vary. However, it is common for each party to pay its own taxes and duties, notarial fees to be paid by both parties equally, and the registration fee is most commonly paid by the buyer.

There are no restrictions for foreign investors to acquire bricks-and-mortar real estate (buildings, etc), but some restrictions apply with regard to the land acquisition, which is legally treated as a separate real estate asset.

Foreign investors are banned from acquisition of agricultural land in Ukraine, either directly or indirectly.

Acquisition on non-agricultural land is subject to some restrictions, in particular:

  • in settlements – along with purchasing real estate located on it, or for construction purposes;
  • outside settlements – only along with purchasing real estate located on it.

However, there are also certain structures that enable foreign investors to purchase non-agricultural land in other cases.

There are no special regulations for acquisitions of commercial real estate, just the usual ways of financing, ie, equity and debt. Funds' legislation is not very much advanced in Ukraine.

The most common type of security for the acquisition of existing real estate is a mortgage. Depending on the property's valuation, the bank may also require additional security. In this case, there are various options, including pledge of shares, pledge of funds on deposit, mortgage of additional real estate (including a second tier in some cases), an ultimate beneficial owner (UBO) personal guarantee, (third party’s) surety.

In the case of financing of development, the options above are also applicable; however, there are certain peculiarities. In large transactions, the lender will likely be required to provide evidence of the construction in progress, as well as other collateral property in the mortgage, shares of the developer in the pledge, as well as to conclude direct agreements with the designer, the general contractor, etc, in order to be able to intervene in the transaction instead of the developer in the case of enforcement. In this regard, quite important is whether the land underlying the construction is leased or owned. The owned land plot will also be considered for the mortgage while the pledge of lease right has certain restrictions and limitation. 

Foreign lenders cannot foreclose on the agricultural land. Having said this, the agricultural land is not considered for security.

There are no restrictions on repayment of loans, but the loan agreement and all addenda thereto are subject to registration with the National Bank of Ukraine.

There are notarial fees for the notarisation of mortgage contracts, and administrative fees for the registration of mortgages and pledges.

There are no other taxes or fees for taking security.

Regarding enforcement of security, this is considered as acquisition, therefore the taxes, duties and fees apply the same way as described in 2.10 Taxes Applicable to a Transaction.

There are no special requirements. However, general requirements, such as, for instance, obtainment of corporate approvals, shall apply.

The formalities may depend on the enforcement option provided in the mortgage agreement. However, the common and most important rule is to comply with the procedure of serving the borrower with the default notice. This notice will be served at least 30 days prior to enforcement, and this term is also a mandatory cure period, during which the borrower may perform the breached obligation. If the obligation is performed within the cure period, the lender may not enforce the mortgage.

The priority of the lender's security interest is procured by registering the mortgage upon its conclusion. The mortgage registered earlier has priority over the mortgage registered later.

If the debt is secured, it will be considered senior to unsecured debt by operation of law, regardless of any agreements.

However, if the new debt is also secured, the lenders may agree to make the existing debt subordinated to the new one. To effectuate this, the existing lender will have to de-register the mortgage, allow the new lender to register its mortgage, and then re-register its mortgage as a second-tier security.

Ukrainian law does not impose any liability under environmental laws on lenders.

A borrower's security interests do not become void in the case of its insolvency. However, a debt-restructuring plan, which is approved by court, may provide for release of certain debts. Once the debt is released, all security instruments shall also automatically terminate.

Also, any agreements of the borrower concluded while the insolvency procedure is open or within three years before that may be invalidated by a court at the request of the receiver or a lender if they damaged the borrower's solvency (eg, the borrower prematurely performed its obligations, undertook excessive liability which led to insolvency, etc).

Close co-operation and fruitful negotiations between the borrower and the lenders are of paramount importance in the case of the expiry of the LIBOR. It is advisable for the parties to a loan to reach a mutually satisfactory agreement on the replacement of the LIBOR.

However, if the parties are unable to reach an agreement, it is necessary to refer to the contract itself. The Loan Market Association templates, for instance, contain the clauses that set out the procedure on determination of the relevant rate when the LIBOR expires.

However, since such clauses are generally heavily negotiated, the exact procedure varies from case to case.

The government and municipalities develop and approve various urban-planning documents that regulate zoning of territories. Businesses must comply with the regulations when allocating land and developing any real estate.

There are state standards approved by Ministry of Regional Development, Construction and Public Utilities of Ukraine. These standards regulate requirements to the design and method of construction of real estate. Certain parts of the appearance of real estate, such as facades, may be regulated by municipalities, eg, the appearance of advertisements and naming signs.

The development and designated use of a real estate object is done by the designer at the developer's request. There is a requirement that it must comply with the urban-planning documents and designated use of the underlying land plot. Also, there may be other restrictions, such as protection zones, sanitary protection zones, cultural heritage areas, etc. Some of the restrictions may prohibit the construction of residential real estate, others may prohibit any construction whatsoever.

Depending on the project, there may be several stages of development. The developer may need to prepare a detailed plan of the territory and get it approved, conduct an environmental impact assessment procedure, design the project, undergo expert valuation of the design, and obtain a construction permit.

Therefore, there may or may not be stages where third parties might be involved and may raise an objection. The greatest likelihood of third parties' objections is on the stages of development of the detailed plan of the territory and conducting an environmental impact assessment, as these procedures imply public hearings. However, there are cases when the public object at later stages of construction.

There is a right to appeal to a higher administrative body and to challenge the decision in court.

There is no requirement to enter into any facilitation agreements. However, the developer will likely need to conclude agreements with utilities' suppliers to connect the project to relevant networks.

First of all, when leasing or purchasing public land, relevant authorities will ensure compliance with urban-planning documents and refuse to allocate the land if the intent of construction contradicts the aforementioned documents. Second, the controlling authority may refuse to issue the construction permit. Lastly, depending on the restriction, there may be a certain controlling authority that can inspect the facility. For instance, there is an authority which inspects land, which may establish a violation of the designated use.

The most common and viable investment vehicles are the limited liability company and the joint-stock company.

However, there are, of course, various entities that may be registered by an investor. Besides those already mentioned, there are additional liability companies, full liability companies and commandite companies (types of entities close to full and limited partnerships), private enterprises, co-operates, etc.

A limited liability company (LLC) is a company where the investor's liability is limited to its contribution to the company's share capital. It is a straightforward type of entity, which is easy to establish and operate. The membership in a limited liability company is registered in the Companies Registry.

A joint-stock company (JSC) is a company limited by shares of a certain nominal. This is a more advanced type of entity, which is more suited to larger structures with elaborate corporate governance. There are different types of shares that the JSC may issue. The shares of a JSC are securities and are stored by a depository institution. The procedures of conveying the general shareholders' meeting, formulation of agenda, etc, are more complicated in the JSC. JSCs may conduct a public offering of shares.

The minimum capital required to establish an LLC is UAH0.01, and to establish a JSC it is UAH7,500,000 (approximately EUR225,000).

The main body of both the LLC and the JSC is the general shareholders' meeting.

An LLC may be managed by a single director or a board, and may have a supervisory board, depending on the investor's choice. There may be limitations of the director's powers provided by the LLC's charter.

The management body of the JSC may also be a single director or a board. A JSC with ten or more shareholders, as well as a public JSC (ie, of which shares are publicly traded on a stock exchange) are required to establish a supervisory board. There are also corporate governance requirements for public JSCs, including the requirement to appoint independent directors to the supervisory board.

For an LLC, these costs may vary greatly, depending on the volume of operations of the company. For instance, if there are not too many transactions per month (ie, up to 50 or 100 transactions), and a small number of employees, accounting can be outsourced for a rather reasonable fee. If the company is more active, hiring an accountant, or several, may be necessary.

As JSCs have more complicated accounting and reporting, relevant costs are significantly higher for this type of entity.

The main types of agreements to use the real estate are leasehold and easement.

There is no special treatment of commercial leases; the lease is very generally regulated by the Civil Code of Ukraine, while the lease of public assets (state and communal properties) is regulated by a separate, dedicated law.

As stated above, the lease is regulated by a general provision of the Civil Code of Ukraine and there is a significant amount of discretion in practice.

During the pandemic, a law was adopted that provided for a decrease of rent in the case that the leased real estate or part of it could not be fully used due to quarantine restrictions. The amount of rent for the relevant period could not exceed the amount of expenses the lessor had to pay the land tax and property tax and pay for utilities, pro rata to the area used.

There is a high level of discretion. The length of lease is not regulated and largely depends on the business cycle of the tenant. The usual length of an office lease is five years, for retail it is five to ten years, and for residential, one to three years. Anchor tenants usually insist on 20 to 25 years. Also, the lessee commonly wants to have the prolongation option.

The day-to-day maintenance is usually done by the lessee, while the capital repair is usually done by the lessor. However, the initial adaptation may include capital repair as well, if the premises are accepted in a shell and core state. This is relevant for hypermarkets, cinemas and other lessees that have their special requirements to the premises and designated construction teams.

The rent is usually subject to indexation to address inflation.

For a lease of premises in a new shopping mall, the lessee will usually request a discount before the shopping mall is fully occupied.

The parties may further agree on the staged increase of the lease within the term of the lease.

There is usually a formula pre-determining how the rent is changed, eg, a 5% increase per year plus the rate of inflation plus the currency exchange rate.

VAT applies to rent payments.

Costs at the start of a lease usually include an advance payment for the first month or two, which may also serve as a security deposit. This advance payment usually consists of all payments under the agreement, except for the utilities and the turnover fee, ie, the rent, operating expenses, marketing fee, etc.       

Common-area maintenance and repair costs are usually covered by the category of operating expenses (OPEX), which is charged on top of the principal rent.

Usually, the utilities consumed in the premises are paid by relevant utilities' metering devices, while the utilities consumed in common areas are paid by all tenants, pro rata to the rented area.

The costs of insuring the real estate that is the subject of a lease and of events causing damage will depend on the negotiations of the parties. There have been cases where the lessors demand that the lessee insure the leased premises, and vice versa. Most commonly, there are no requirements with regard to the insured events in the lease agreements.

It is quite common for the lessor to stipulate the designated use of the real estate in the agreement. There are also certain legal restrictions for different types of real estate. For instance, there are strict restrictions for residential real estate. However, as regards commercial property, the law does not provide for many requirements, except for the general requirements on fire safety, sanitation, etc.

The most common approach is that the lessee is allowed to improve the real estate, subject to the lessor's written consent and pre-approval of design documents. Also, often, the lessees are not compensated for the inseparable improvements of the real estate unless there is a specific arrangement between the parties.

The leases of all types of privately owned real estate assets are treated equally.

There is a special treatment of the lease of public assets, which is quite solidly regulated.

There is a special statute regulating land lease, which [the land] is considered and treated as a special real estate asset in comparison to bricks-and-mortar properties.

Coronavirus legislation did not establish any distinction between leases of different asset classes.

Insolvency proceedings against the tenant can trigger termination of the lease by the lessor.

The most common form(s) of security are an advance payment (ie, a security deposit) in the amount of one or two months' rent, and/or a bank guarantee.

The law provides that if the lessee continues using the real estate for a month after the termination of the lease without the lessor's objections, the lease is renewed for another term on the same conditions.

To avoid this, the lessors usually explicitly prohibit this in the lease agreements. Also, the law provides for a penalty in the amount of double daily rent for each day of delay in returning the real estate. The lease agreements tend to duplicate this provision. Finally, it is recommended that the lessor serve a notice to the lessee on the expiry of the lease, and, if the lessee does not return the property, that the lessor serve another notice that the effect that the lessor is objecting to the continuation of the lease.

Ukrainian law only allows assignment subject to the other party's written consent. The lease agreements usually duplicate this provision or prohibit any assignment whatsoever. On a related note, the lease agreements may allow sub-leasing, but also subject to the lessor's consent.

This largely depends on the parties' negotiations. It is common for a strong lessee to seek a unilateral termination right without having to justify the decision.

The law provides that the lessor may terminate the lease if the lessee:

  • uses the property against the designated use or in breach of the agreement;
  • has sub-leased or assigned the lease to a third party without the lessor's consent;
  • by their negligence poses a threat to the property;
  • did not conduct a capital repair if it was obliged under the agreement.

The lessor may also sue the lessee for termination in the case that the lessee systematically violates the payment obligations.

The lessee may terminate the agreement if the property in fact does not correspond to the requirements set out in the agreement or if the lessor does not perform its obligation on capital repair of the property.

A lease relating to a building, capital structure or a part thereof exceeding three years is subject to mandatory notarisation and to registration with the property register for its validity. The lease and other property rights are registered in the State Register of Property Rights to Immovable Property and their Encumbrances. The land lease is also registered in the State Land Cadastre.

The fees include a notarisation fee and a registration fee. It is common for the lessee to pay the fees, but the notarisation fee can also be paid by the parties in equal parts or by the lessor. However, this is rather rare.

The lessee may be evicted after termination of the agreement (either by the lessor unilaterally or by expiry of the term of the lease).

If done outside of court, this is subject to the agreement's regulation. A common procedure established in the agreement is as follows. the lessor collects the lessee's property from inside the leased real estate and stores it at the lessee's cost. If the lessee does not collect its property within the term stipulated by the agreement (usually around ten business days), the lessor may dispose of the property at its discretion.

However, there are cases where the lessee resists an out-of-court eviction. In this case, the lessor may file a suit on eviction. If the dispute is won, the lessor may evict the lessee, with the involvement of an enforcement officer and the national police.

Ukrainian law does not allow a third party to terminate an agreement.

However, the agreement may be invalidated by a third party if its interests were violated. For instance, if necessary corporate approvals or spousal consents were not obtained.

The law also provides that an agreement may be invalidated if it contradicts the interests of the state and the society, or moral principles of the society. However, this is an exceptional measure and the number of instances when this right has been exercised is extremely low.

In the majority of cases, the price for the works will be fixed, but the price for materials may be flexible.

The designer and the contractor may be either different companies or the same one. This varies from case to case. The major international companies often also involve an independent supervisory entity.

In addition, the developer must appoint the person responsible for technical supervision (for compliance of the construction with applicable regulations), who must not be the same person as the contractor.

From an organisational point of view, there is technical supervision and author's supervision, expert valuation of design documents, certification of construction materials and the developer's control over the process.

The suppliers of materials and the contractor shall give warranties on the quality of the goods and works and undertake to compensate any damages. A warranty of quality of works is also established by law for ten years after the commissioning of the facility. There may be a cap for damages' compensation of 100% of the contract price, which, however, should not cover the gravest defects/violations.

Indemnifications, waivers, and elaborated limitations of liability are not very common in Ukrainian practice.

There are penalties and fines in the majority of agreements, whether for delay in the delivery of milestones and/or in completion of construction.

There may be a retention of a portion of the contract price, for instance, 5%, which is payable within one, or several, years if no defects are discovered. Alternatively, a bank guarantee or a holding-company guarantee may be acceptable if the contractor is a reputable party. Escrow accounts and third-party sureties are not quite as common.

The contractor is permitted to lien the property in the case of non-payment. However, it should be noted that it is not often used in practice. After the payment is made, the contractor shall submit an application to de-register the lien, which is registered as an encumbrance under Ukrainian law, within five days from the date of the developer's request. If the contractor does not de-register the lien, it is liable for all damages resulting from it, and the developer may sue the contractor on the termination of the lien, after which the developer may itself de-register the lien.

There are no requirements to inhabit or use the constructed object except for the general requirement to commission it.

According to the general rule, the asset deal is subject to a standard VAT rate of 20%. Transactions involving the sale of the developed land plot are also subject to VAT.

However, there are certain exemptions:

  • the transaction of an undeveloped land plot is VAT-exempt;
  • the transaction involving a residential building (premises) may also be VAT-exempt (depending on the reflection of the building and plot of land in the accounting system).

The amount of VAT is usually included in the purchase price and is paid by the buyer.

A share deal (the acquisition of shares of a property-holding company) may be used in this regard, as the sale and purchase of the shares is not subject to VAT. There are also no strict requirements regarding expert valuation of the real estate property before making such a transaction, thus the contractual price depends only on parties' agreements and could be lower than the market price.

That makes such transactions more attractive from the taxation perspective, even if it involves a higher volume of transactional work (legal and financial due diligence, merger control, SPA-structure, etc).

At the same time, it should be borne in mind that profits derived from sales (alienation) of shares in Ukrainian property-rich companies may be subject to withholding tax in the territory of Ukraine. See 8.4 Income Tax Withholding for Foreign Investors for details.

All owners of business premises are payers of real estate tax except for certain exemptions (for state-owned premises, dormitories, orphanages, etc).

This is a local tax applied on both residential and non-residential premises (buildings, apartments, etc) and is calculated based on their area.

The rate is determined by local councils and cannot exceed 1.5% of the minimum wage established as of 1 January of the tax year per square metre.

The maximum rate of the real estate tax for the year 2021 is equal to EUR2.68 per square metre. Based on the decisions of the local councils, certain privileges/exemption may be applicable for specific locations.

Generally, foreign private individuals are subject to personal income tax (including income from a lease, the sale of real estate) at a rate of 18% and military duty at the rate of 1,5%. Receipt of the rental income for foreign private individuals is only possible through an agent (either a legal entity or a private entrepreneur) located in the territory of Ukraine. Such an agent shall be involved in terms of an agency agreement to conduct rental activity on behalf of the foreign individual. Personal income tax and military duty shall be withheld from the rental income and paid to the state budget by the agent. Failure to have an agent for a foreign individual could be considered tax evasion and is subject to prosecution.

Legal entities are subject to corporate profit tax, which is levied at a rate of 15%, unless the relevant Double Tax Treaty, to which Ukraine is a party, rules otherwise. This tax rate also applies to income from transactions (lease, sale and purchase) with real estate located in Ukraine. The amount of withholding tax is deducted by the buyer from the purchase price before payment to a non-resident.

Capital gains derived from the sale or other disposal of shares, corporate rights in a Ukrainian legal entity (as well as in a foreign legal entity that owns corporate rights of the legal entity in Ukraine), the value of which is for 50% or more formed by the real estate located in Ukraine, shall be taxed in Ukraine with withholding tax at the rate of 15% unless the relevant Double Tax Treaty rules otherwise. For the purposes of clarification, this rule also applies in the event that the sale or disposal transaction is carried out between two non-residents abroad.

If the seller is non-resident with the representative office (RO) in Ukraine, the tax is paid by that RO. If there is no RO, the tax shall be paid by the purchaser (including a non-resident purchaser).

With the exception of land, the cost of fixed assets used in business activities is capitalised and depreciated for corporate income tax purposes. Each fixed asset is accounted for separately and is depreciated on a monthly basis.

Legal entities can determine the period of useful economic life of fixed assets in their internal accounting policies, provided that this period is not less than the minimum period prescribed by the Tax Code of Ukraine.

Land and shares are not depreciable.


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Law and Practice in Ukraine


Arzinger is a premium independent Ukrainian law firm, which has been on the market for more than 18 years. The team includes ten partners and 70 legal professionals, based at three locations all over Ukraine: Kyiv, Lviv and Odessa. Having a presence in the major cities of Ukraine allows Arzinger to combine top-notch legal advice with regional market expertise. The firm has a strong focus on German-speaking clients and there is a dedicated German desk. Real estate and construction, property finance, privatisation and PPP belong to strategic areas of practice of the firm. Arzinger and members of the firm have been for years highly ranked by reputable international legal directories. The real estate and construction team at Arzinger comprises ten fee earners (including partners), located in all offices of the firm. The team has been handling the most sophisticated and complex transactions and litigations involving residential, commercial and corporate real estate assets for many years. The firm's client list includes global and domestic, private and listed hotel operators, developers, retailers, investment funds, banks, insurances, and major manufacturing and construction companies, and the service lines include due diligence, development and finance deals, acquisition and exit transactions, legal and tax structuring, regulatory approvals (including merger clearances, etc), and property construction.