Changes in the Ukrainian Real Estate Framework for 2014
→ Dmytro Biryuk
Ukrainian law is rapidly evolving to catch up with international standards in the real estate market.
Ukraine is among the top 10 most attractive countries in the world for purchasing land, according to the WTO World Trade Report 2013. Implementation of this and much more potential largely depends on the Ukrainian legal framework. Its developments are outlined below.
Development of registration system
The main advancement for 2014 derives from the new system of state registration of real estate rights in Ukraine. Introduced in 2013, the new system has completely overhauled the mechanism of creation, alteration, and termination of real estate rights.
As a going concern, the registration law is now extensively tested in practice. To this end, it has been undergoing numerous developments. Some of them are essential but may still be in a draft law awaiting adoption. Relevant amendments include:
- Opening access to the new register to any individual or legal entity. They would be able to obtain excerpts from the register on certain data that it contains. To prevent abuses of this right, the request is to be paid, recorded in the register, and notified to the real estate owner.
- Allowing notaries not only to enter changes to the register but also to provide excerpts from it. This would significantly reduce the time necessary for individuals or legal entities to obtain excerpts from the register.
- Simplification of the procedure for registration of agricultural land lease rights by allowing notaries to access the State Land Cadastre and to register land title and derivative (eg, lease) rights concurrently.
- Arrangement of automatic transfer by the government of the records from the old State Register of Lands to the new single register by 1 January 2015.
- Introduction of registrars’ liability in fines from ca EUR 31 to EUR 77 for violation of the terms of recording in the new register or request of any documents that the law does not provide for.
Introduction of real estate tax
Another modification of the Ukrainian real estate framework is the introduction of a residential real estate tax. Originally designated to take effect in 2013, this tax was postponed to the next year. So, starting from 1 January 2014, Ukrainian residential real estate is subject to taxation.
Luckily for taxpayers, this tax is subject to certain benefits (deductibles) and has a differentiated rate depending on the property’s living area. In particular, the taxation basis (ie, living area) is reduced by:
- 120 sqm for apartments;
- 250 sqm for houses; and
- 370 sqm for apartments and houses.
These benefits essentially mean that the tax does not cover any residential real estate of a total living area up to the above deduction thresholds. Therefore, the real estate tax primarily targets large (luxury) properties. As such, many Ukrainian apartments and houses may apparently avoid the real estate tax due to their living areas falling below the set thresholds.
The tax benefits are not, however, allowed for real estate used by owners to earn a profit, for example, leased or used in business.
The real estate tax is generally to apply at the following differentiated rates:
- 1% of the minimum wage (eg, ca EUR 104 effective from 1 January 2013 until 30 November 2013) per sqm for (i) apartments whose living area is up to 240 sqm, (ii) houses whose living area is up to 500 sqm, and (iii) apartments and houses whose living area is up to 740 sqm; and
- 2.7% of the minimum wage per sqm for (i) apartments whose living area is over 240 sqm, (ii) houses whose living area is over 500 sqm, and (iii) apartments and houses whose living area is over 740 sqm.
Something new in the Ukrainian legal framework, the real estate tax is yet to undergo testing, which will show how well it serves the purpose.
Above all, there are many amendments aiming to facilitate real estate projects and transactions in Ukraine. They include:
- Allowing to transfer state or municipal land into ownership or lease even without relevant city planning (eg, zoning) documentation until 1 January 2015. Such documentation is generally required to be present throughout Ukraine, but is still absent in many cities and other inhabited areas.
- Extension of the list of entities entitled to own non-agricultural land in Ukraine. This would explicitly allow foreign-owned Ukrainian companies to own non-agricultural land in Ukraine.
- Increasing the maximum term of agricultural land short-term lease from five to 10 years. This should support agricultural producers, reduce their risks, and create a favourable climate for investment in the agricultural business in Ukraine.
To conclude, Ukrainian law is vigorously adapting to the vibrant demands of the real estate market. The goal: make Ukrainian real estate more attractive for investment.