In today’s increasingly global digital world, many individuals, businesses, and not for profit organisations purchase or sell real estate property in a foreign jurisdiction.
In any overseas property dealing the transaction must be completed in accordance the law where the property is located. The law of the location can be very different from the law and practice of Australia. Inadvertently, buying or selling real estate property overseas may be subject to extra risks and costs which could be somewhat reduced with the correct advice.
What follows is an overview of what you should consider when either buying or selling real estate property located overseas.
In particular in this article we will utilise examples of property located in Ukraine. Please note that each jurisdiction will have different legal requirements and practices which will need to be carefully reviewed.
In this respect please call with your specific requirements.
Foreign Ownership Restrictions
In the first instance, it is crucial to check specific foreign ownership restrictions in the jurisdiction where the property located, in order to ascertain whether you can legally own or deal with real estate property.
Under Ukrainian law foreign nationals can own real estate property and generally can purchase any type of property with the main exception of certain agricultural land. Generally, non-Ukrainian citizens and legal entities may own non-agricultural land and other real estate in Ukraine. However the Land Code of Ukraine prohibits acquisition of certain agricultural land by non-Ukrainian entities.
If you are buying a property in your individual name in Ukraine you will need your passport with a valid Ukrainian visa stamp, Ukrainian tax file number and the purchase money to complete the transaction.
If you are married, a marriage certificate, passport of your spouse and notarised consent of your spouse to buy property in Ukraine is also required.
If you are dealing in property that is owned by company that is situated outside of the jurisdiction of Ukraine you will need to provide the requisite documents pertaining to the company, which may also need to be verified, translated and notarised. This may require extra time to be correctly reviewed.
Selecting a Purchasing Entity and Asset Protection
Whether it be based on your own personal or business requirements, you should carefully consider and check how to structure your purchase of property in your own individual name or in the name of your company registered in the jurisdiction of the property or a company registered in another jurisdiction. As well, consider whether a trust is an option for ownership of property located overseas.
If your property is in Ukraine, you should consider buying it in the name of a legal entity domiciled in a jurisdiction outside of Ukraine where:
- The succession procedures are easy and well understood;
- It is not expensive to maintain a separate legal entity;
- There is a double taxation agreement (DTA) between Ukraine and such other jurisdiction (note there is currently a DTA between Australia and Ukraine); and
- You can have a power of attorney to act on behalf of such a legal entity in Ukraine in relation to your property.
Conveyancing Protocols
Conveyancing law and practice in the jurisdiction of your property may be very different from those you are accustomed to in Australia.
In this respect, you should obtain independent legal advice and qualified assistance from a local legal practitioner specialising in property dealings to confirm that the vendor has good title to the property being sold.
In Ukraine, after the property has been identified and purchase price has been agreed upon, the vendor and the purchaser will normally sign a preliminary purchase agreement to secure their interests. However this is not required by law. A standard deposit payable at this stage is typically 5% of the purchase price and can be negotiated.
Normally, non-Ukrainian purchasers will open a bank account in Ukraine with a local bank and have the purchase money transferred in preparation for settlement. This money can then be used to pay the purchase price, associated costs and disbursements. Special instructions will need to be given to release money upon settlement.
In Ukraine, exchange of contracts and settlement occurs at the same time in the office of a local Ukrainian notary or in the office of outgoing or incoming mortgagee with the notary attending. At settlement, the vendor and the purchaser sign a sale and purchase agreement in the presence of a notary who certifies their signatures and the agreement itself. The purchaser pays the balance of the purchase price and applies for registration of his title to the property in the Unified State Register of Rights to Immovable Property and Their Encumbrances, a local Bureau of Technical Inventory, and a local utility and building maintenance corporation.
Typical conveyance fees in Ukraine payable by the purchaser will include a government pension fund levy of 1% of the property value, state duty of 1% of the property value, a notary fee, registration fees and bank charges. If a real estate agent was engaged by the purchaser to locate the property, the purchaser will also be paying an agent fee, which is negotiable.
Property Due Diligence
Unlike in Australia, the jurisdiction of your property may have no concept of indefeasibility of title by registration and therefore thorough and detailed due diligence by a qualified and experienced local lawyer will be a crucial part of buying your property.
In Ukraine, property due diligence will include the following:
- Identity check of the vendor whether it is an individual or a legal entity;
- Verifying the vendor’s legal capacity and authority to sell the property, including existence of necessary consents, e.g. notarised consent of a wife, husband, de facto spouse, and corporate resolutions, e.g. where the vendor is a company;
- Verification of the vendor’s title to the property by examining original title documents, which can include a certificate of privatization, notarised purchase agreement, certificate of inheritance, deed of gift;
- Reviewing original certificate from the Bureau of Technical Inventory (BTI) stating that the vendor is the owner and citing the BTI registration number;
- Obtaining original extract from the Unified State Register of Rights to Immovable Property and Their Encumbrances showing the absence of mortgages, leases, tax pledges, arrests and other encumbrances;
- Making inquiries about unregistered leases of the property;
- Making inquiries about all persons whose place of residence is registered at the property’s address.
Power of Attorney
In most cases, to purchase real estate property overseas you will need to issue a Power of Attorney to your appointed overseas attorney to represent you during the purchase process and to execute the necessary documents of your behalf.
Your attorney could be a person in the jurisdiction of your property who you know and trust or you can authorize a reputable local legal firm to act on your behalf. You will then need to execute a Power of Attorney and then have it notarised, legalised and posted to your attorney.
Such a Power of Attorney should:
- be correctly drafted under the law of respective Australian jurisdiction (if issued by you in Australia);
- include specific powers and directions in accordance with the law of your property jurisdiction;
- correctly reference specific property purchase documents to be executed; and
- reference your identity as required by the law of your property jurisdiction.
Unless the above guidelines are followed, your Power of Attorney may not be accepted. This may result in additional costs and delays.
Tax Implications
Another key consideration regarding your purchase of real estate property overseas is its tax implications, both in the jurisdiction of your usual residence and in the jurisdiction of your overseas property.
If you are an Australian resident for tax purposes, you generally have to declare all income you earned both in Australia and internationally on your tax return to the Australian Taxation Office. This includes rental income from your overseas property and any capital gains you make if you sell your overseas property. You may also be required to pay tax on your rental income or sale proceeds to the tax department of the overseas jurisdiction where your property is located. If you die while owning an overseas property, your beneficiaries may have to pay tax on your estate.
For example, in Ukraine inheritance received from a non-resident of Ukraine for tax purposes is subject to 18% income tax. The same tax applies if a non-resident makes a gift or sells real estate property – Such gift or sale will be subject to 18% income tax.
Dealings in property (whether buying or selling) located overseas requires an understanding of the law and procedural requirements of the jurisdiction in question.
This may be a daunting, expensive and laborious process without the correct advice.
Purchase of real estate overseas and completion of local procedural requirements are daunting tasks. Business Lawyers Sydney at Pavuk Legal we can assist you with your property purchase in Ukraine as well as other jurisdictions. We can also assist you with property transfers, other property dealings and estates in Ukraine, advise and direct you and prepare necessary documentation in English and Ukrainian as required, correctly prepare Powers of Attorney to deal with the property in Ukraine, assist you with engaging a local Ukrainian attorney where required.
Many other essential hot topics for business owners is all found in the book Nobody Else’s Business. Nobody Else’s Business is about helping business owners live the life they want to live, now and in the future. It is the ultimate guidebook for succession planning of modern Australian businesses.
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