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

In 2021, Ukraine was gradually overcoming COVID-19. Although the vaccination rates in the country were moderate, the number of severe illness cases and mortality rate dropped, leading to the gradual weakening or even lifting of quarantine restrictions in each region of Ukraine.

Despite the complications, Ukraine had the highest GDP in its history in 2021, reaching approximately USD195 billion. It is safe to say that business has successfully adapted to the COVID era, especially in Kyiv and other cities with higher vaccination rates. The 2021 M&A market more than doubled 2020 by volume. The majority of transactions were in the IT, agriculture, food (thanks to the privatisation of alcohol factories), mining, financial and logistics sectors. The most notable (purely) real estate transactions of 2021 include the acquisition of PrJSC "Ivano-Frankivsktsement" by NEQSOL Holding for USD400 million and the acquisition of the shopping centre Sky Mall by LLC "Slavian" for reportedly USD150 million.

The privatisation of public (state- and communal-owned) properties of various kinds has been ongoing for the past two years all across the country and has significantly contributed to the transaction pipeline.

The Large Construction national programme launched in 2020 by President Volodymyr Zelenskyy with the support of the World Bank, the European Bank for Reconstruction and Development, and others brought significant results in the renovation of the infrastructure sector of Ukraine. Thanks to such programme, more than 14,000 km of roads, over 600 bridges, and many other social objects (schools, pre-schools, etc) have been upgraded and built over the past two years. This programme provides for even more ambitious goals for 2022, including the restoration of cultural heritage objects. However, because of Russia's invasion, it is obvious that all efforts will be aimed at rebuilding the destroyed real estate and infrastructure in Ukraine.

Technologies such as blockchain, decentralised finance, 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, but they are not widely known.

However, there is blockchain usage in Ukraine, particularly in real estate; namely, the SETAM, the Ukrainian system for electronic auctions for arrested property. The SETAM provides an opportunity to conduct 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.

Construction Reform

There is an ongoing reform of the construction sector, including reforming the licensing system by replacing it with certification of individuals performing construction works (ie, construction supervisors) to enable personal responsibility for construction. It also stipulates the establishment of a new construction authority, the State Inspection for Architecture and Urban Planning of Ukraine, instead of the notorious State Architectural and Construction Inspection. The introduction of the new body was aimed at restarting state–business relations in the construction sphere by adopting more transparent procedures and introducing an electronic construction system aimed at significantly reducing the level of corruption.

The past year has also been significant in terms of an even greater introduction of digitalisation in the construction industry and the reduction of paperwork. In particular, almost all services in construction (the issuance of town planning conditions, permits on construction, commissioning, etc) are provided through the Unified State Electronic System for the Construction Sector launched in 2021. This system allows the automation and elimination of human influence on decision-making processes in the industry.

Urban Planning and Land Decentralisation Reform

Another important reform that was implemented in 2021 provides for:

• transferring previously government-owned land to local municipalities;
• the simplification of changing the designated use of land plots and related procedures;
• the approval of detailed plans of territories outside settlements by municipalities instead of local state administrations (which are central government bodies); and
• the introduction of a new type of urban planning document – a complex plan of spatial development of the community, and numerous other changes in urban planning.

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".

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 performed by a notary. Title insurance as a product is not very popular on the market.

Despite the difficulties with notarisation caused by COVID-19, the procedure was not changed.

Due diligence (DD) usually includes the verification of various public registers (including litigation and insolvency registers, and title register), review of the title validity, encumbrances, title transfer history, effective urban planning documents, disputes and leases. The corporate status of a property holding a special-purpose vehicle – as well as its permits, contracts, etc – is also reviewed.

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

Warranties were only introduced into Ukrainian law in July 2021 and no case law has occurred since then; this is the reason why the majority of commercial property deals are structured as share deals outside Ukraine to allow the application of foreign law.

Typical representations and warranties in real estate transactions are clear title, absence of third-party rights and encumbrances, absence of disputes and necessity for capital repair. Others 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. There are usually no specific COVID-related warranties/representations.

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 chosen as the governing law in the majority of large real estate transactions.

Ukrainian insurance practice does not offer representation and warranty insurance.

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 the 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 land that that person is not entitled to own (such as if a foreigner acquires agricultural land) and does not dispose of it within one year. Secondly, a compulsory purchase of land or real estate for public needs is possible. This may include construction of roads of state significance and airports. 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 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 exempt, 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, with 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 land acquisition, which is legally seen and treated as a separate asset in the majority of cases.

Foreign investors are banned from the 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; and
• outside settlements – only along with purchasing real estate located on it.

However, in practice, there are certain legal 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 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, and (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, and 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, it is important 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 limitations.

Foreign lenders are not entitled to foreclose on agricultural land. That said, agricultural land is not considered for security for international lenders. Domestic lenders can use agricultural land as a security, subject to some restrictions.

There are no restrictions on the 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 taxes (including VAT) or fees for granting a security.

Enforcement of security is treated as acquisition, therefore taxes, duties and fees apply the same way as described in 2.10 Taxes Applicable to a Transaction. In certain cases, adjusting of tax differences may be applicable.

There are no special requirements. However, general requirements, such as the 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.

There were no restrictions on foreclosure implemented in response to the COVID-19 pandemic.

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 deregister 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 event of its insolvency. However, a debt restructuring plan, which is approved by the court, may provide for the release of certain debts. Once the debt is released, all security instruments shall also automatically terminate.

Furthermore, any agreements of the borrower concluded following commencement of the insolvency procedure or within three years before that may be clawed back; ie, 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, or undertook excessive liability that led to insolvency).

In Ukraine, very few loans used LIBOR. Based on the authors' experience, the majority of parties have been able to reach a mutually satisfactory agreement on the replacement of LIBOR.

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 the Ministry of Regional Development, Construction and Public Utilities of Ukraine. These standards regulate requirements as 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 performed by the designer at the developer's request. It should 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 and cultural heritage areas. 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 at 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 facilitation agreements. However, the developer will likely need to conclude agreements with utilities suppliers to connect the project to relevant networks.

Firstly, 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. Secondly, 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 that inspects land, which may establish a violation of the designated use.

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

However, there are, of course, various entities that may be used by investors. 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.

An LLC is a company in which 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 an LLC is registered in the Companies Registry.

A 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 a 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.

The main body of an LLC and a 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 a 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), is 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 reasonable fee. If the company is more active, hiring an accountant, or several, may be necessary.

As JSCs have more complicated accounting and reporting, the 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 early stages of the pandemic, a law was adopted that provided for a decrease of rent in the event 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 with regard to land tax and property tax, and for utilities, pro rata to the area used.

In practice, the matter was generally resolved differently. The operational expenses were mostly paid in full by the tenant. Marketing expenses were not paid in some cases. The rent was usually adjusted, and for the lockdown periods, some landlords released their tenants from rent. The majority of the respective arrangements have, however, taken place as a result of good-faith negotiations between the parties.

The case law also varied, especially regarding establishing what amounted to "inability to fully use the lease object" – whether it means to use the lease object as per the contractual designated use or to use it for any purpose whatsoever.

There is a high level of discretion. The length of a 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 performed by the lessee, while a capital repair is usually conducted by the lessor. However, the initial adaptation may include capital repair as well, if the premises is accepted in a shell – and core – condition. This is relevant for hypermarkets, cinemas and other lessees that have special requirements with regard to the premises and designated construction teams.

Rent is usually subject to indexation to address inflation.

For a lease of premises in a newly developed shopping centre, the lessee would normally expect a discounted rent until the moment the shopping centre 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 predetermining 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, which is charged on top of the principal rent.

Usually, the utilities consumed in the premises are paid by the 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 insured events in lease agreements.

The insurance culture is underdeveloped in Ukraine, therefore the majority of businesses in Ukraine do not have business interruption insurance.

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, the lessees are often not compensated for 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 solidly regulated.

There is a special statute regulating land leases; according to 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 is/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.

Ukrainian law only allows assignment subject to the other party's written consent. The lease agreements usually use the same provision or prohibit any assignment whatsoever. On a related note, the lease agreements may allow sub-leasing, but also subject to the lessor's explicit 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; or
• 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 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 mandatory 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 society, or the moral principles of society. However, this is an exceptional measure and the authors are not aware of the respective case law.

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 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 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 event of non-payment. However, it is not often done in practice. After the payment is made, the contractor shall submit an application to deregister 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 deregister 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 deregister 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, an asset deal is subject to a standard VAT rate of 20%.

However, there are exemptions:

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

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

Share deals are also not subject to VAT.

A share deal (the acquisition of shares of a property-holding company) may be considered 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, sales and purchase agreement 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 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 January 1st of the tax year per square metre.

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

Generally, foreign private individuals are subject to personal income tax (including income from a lease, and the sale of real estate) at a rate of 18% and a military levy at the rate of 1.5%. Receipt of the rental income for foreign private individuals is only possible through an agent (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 a military levy 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 withholding tax on the Ukraine-sourced income, which is levied at a rate of 15%, unless a 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 or 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 50% or more formed by real estate located in Ukraine, shall be taxed in Ukraine with withholding tax at the rate of 15% unless a relevant double tax treaty rules otherwise. 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 a non-resident with a 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.