Many Australian individuals, commercial entities and not for profit entities (NGO’s) participate in various private, business commercial and non-commercial property dealings in Ukraine. Inadvertently, property dealings in Ukraine may be subject to extra risks and costs.
Recently, some of our Australian clients raised concerns as to how to deal with, transfer or donate their property in Ukraine in light of the latest political and legislative developments in Ukraine.
What follows is an overview of legal and practical aspects of real estate property dealings in Ukraine.
The legal system of Ukraine is based on codified law (codes) and acts enacted by the Verhovna Rada (Parliament). They are supplemented by extensive framework of subordinated legislation approved by the Cabinet of Ministers of Ukraine, various Ministries, Departments and Agencies.
Legislation governing property dealings include the following:
- Constitution of Ukraine
- Civil Code of Ukraine
- Commercial Code of Ukraine
- Land Code of Ukraine
- Act of Ukraine “On Mortgages”
- Taxation Code of Ukraine
- Act of Ukraine “On International Private Law”
Ukraine is a signatory to a number of international treaties, including double taxation treaties, which form an integral part of Ukrainian legal framework and may affect property dealings.
Other Considerations Affecting Property Dealings in Ukraine
1.1 Annexation of Crimean Peninsula by Russia
After the territory of Crimean Peninsula in the South of Ukraine was taken over by Russia earlier this year, Russian legislation and real estate registration system, even though not recognised by Ukraine, has been introduced in the Crimean Autonomous Republic. Therefore, the requirements of both Russian and Ukrainian law need to be considered if a property is located in the Crimean Peninsula. In particular, title documents need to be re-issued in accordance with the requirements of Russian law in the first instance before a property dealing can be completed and recognised by Russian authorities controlling the Crimean Peninsula.
1.2 Frozen Position in the Eastern Regions of Ukraine
In some areas of Donetsk and Lugansk regions in the eastern Ukraine affected by the ongoing war, access to the Ukrainian property register has been temporarily closed resulting in a ‘frozen position’ of property transactions. There are practical difficulties to complete a dealing with respect to the property located in the frozen area where there is still no access to the property registers.
1.3 Tax Implications
Tax implications of property transfers should always be considered beforehand. For example, Ukrainian tax law imposes a higher tax on income from the sale of Ukrainian real estate received by a non-resident of Ukraine. Non-residents of Ukraine defined by the Taxation Code of Ukraine include Ukrainian citizens residing overseas and, consequently, paying a higher income tax.
Similarly, a Ukrainian citizen receiving real estate as a gift from his or her relative qualifying as a non-resident of Ukraine under the Ukrainian tax law, will have to pay a higher tax.
Rights to Real Estate: How They are Registered
Under Ukrainian law, land parcels, houses, buildings, structures erected on them, units in a building are all separate objects of real estate, title to which is evidenced by separate title documents.
One of the latest developments of Ukrainian property law is a new centralised system of registration of real estate rights based on the Act of Ukraine “On State Registration of Property Rights to Immovable Property and their Encumbrances”.
From 1 January 2013, one unified register covers both the land and real estate other than the land: the Nation-Wide Register of Property Rights to Immovable Property. There is also just one authority to administer the nation-wide registration of rights to immovable property: the State Registration Service of Ukraine assisted by the local departments of the Ministry of Justice of Ukraine.
Ukrainian notaries are authorised to act as special state registrars. When notaries certify agreements, they will also register transfer of rights to the property, which have to be registered in the new register in the first instance. It will no longer be necessary to register the relevant real estate right in either of the two old registers after parties execute a sale and purchase or other agreement: (i) the Nation-Wide Register of Lands with respect to rights to land and (ii) the Register of Titles to Real Estate regarding rights to buildings and other structures, administered by two different agencies. Instead, it will only be necessary to have property rights registered in the new register by a notary upon notarisation of your agreement.
How to Deal with Your Property in Ukraine
If you cannot or prefer not to travel to Ukraine to personally attend to all formalities of your property dealing, you can authorize a person you trust in Ukraine to complete them for you. You will need to execute a Power of Attorney in Australia and have it notarised, legalised and posted to your authorised person in Ukraine.
Such a Power of Attorney should:
- be correctly drafted both in English and Ukrainian or Russian;
- include specific powers and directions in accordance with Ukrainian law and practice;
- correctly reference your Ukrainian property title documents; and
- include all necessary details of your Ukrainian identity documents.
Unless the above guidelines are followed, your Power of Attorney may not be accepted by Ukrainian authorities and notaries resulting in additional costs and wasted time.
Conveyancing Lawyers Sydney at Pavuk Legal we can assist you with property transfers, other property dealings and estates in Ukraine and Russia, advise and direct you and prepare necessary documentation in English, Ukrainian and Russian as required, correctly prepare Powers of Attorney to deal with the property in Ukraine and Russia, assist you with engaging a local Ukrainian or Russian attorney, if required, as well as provide assistance and advice on other issues of Ukrainian and Russian law. For more information on Pavuk Legal service please don’t hesitate to contact us.