Buy real estate in Ukraine by a foreigner for rent: will it work?
Ukraine is becoming an increasingly attractive country for investment - in fact, even a small amount of capital, compared to other developed countries, can be invested in real estate, which will be profitable both when renting it out and when selling it later.
Thus, according to some estimates, the cost of new housing in Kyiv from January to September 2021 rose by more than 15%, and by the end of the period was about ,500 per square meter. Experts say that compared to the same period last year, the average cost per square meter has increased by 19.5%. The payback period is about 10-15 years.
Thus, investing in real estate in Kyiv and Ukraine is economically attractive.
But if buying an apartment is not a problem - many law firms can help with this, then not every lawyer can help you understand the procedure of real estate purchase, go into all the details and choose the most cost-effective model of the property rights registration.
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What to do with real estate in Ukraine after buying it?
Drawing up documents to avoid double taxation, saving on expenses for further commercial use of the real estate, avoiding questions and problems from the state authorities as well as from the neighbors (in case of purchase of the apartment and its renting) are the most important issues, which most non-residents purchasing real estate in Ukraine will have to face.
For example, let’s consider a situation where a foreigner intends to buy a real estate, an apartment or an office, which he/she intends to rent out in the future.
Pursuant to the Tax Code of Ukraine, income received by a non-resident with a source of their origin from Ukraine is subject to taxation. Such income is leasing/rental payments made by residents in favor of non-resident, a lessor/lessor, under operating leasing/rental agreements.
But income can be paid in different ways. It all depends on who is the representative of the foreigner who helps to rent out the real estate. Thus, the general system of taxation provides for 18% tax and 1.5% military fee as income of an individual when renting out a property. On the other hand, for example, sole proprietors registered under the simplified taxation system in Ukraine, in this situation pay relatively less - the percentage depends on the registration group:
- The 2nd group of sole proprietors pays a fixed amount of tax + 20% of the minimum wage (in 2021 it is 6,000x20%=UAH 1,200, for the year - UAH 14,400) + the single social tax, which is equal to 22% of the minimum wage (6,000x22%=UAH 1,320) every month.
- The 3rd group of sole proprietors - 5% and the single social tax.
But even if you find the best way to pay tax in Ukraine, it is important to avoid double taxation - also in the country of residence.
In order to avoid double taxation, you need to get a certificate from the fiscal authorities of Ukraine. The certificate on profit tax paid in Ukraine can be obtained by individuals or legal entities that are non-residents and receive income with the source of origin from Ukraine. The decision to issue such a certificate shall be made by the tax inspectorate upon submission of an application from the tax paid to the budget when income is paid to a non-resident. Assistance in obtaining such a certificate is also included into a service of our team.
There are also other pitfalls. For example, you bought an apartment, rented it out and moved away. Your tenants are noisy, or your neighbors are very principled and decent people. They wrote a complaint to the police for an inspection, but the inspection revealed that the apartment belongs to a foreigner who rents it out “directly”, without registering the rental agreement and paying taxes.
In this case the owner of the apartment will be fined from UAH 51,000 up to UAH 85,000. This is how ignorance and non-compliance with the tax legislation of Ukraine can lead to financial losses as well as to the application of the article of the Criminal Code of Ukraine against you.
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How to protect yourself and your money when buying real estate in Ukraine?
The algorithm of achieving the goal or “Road Map” of the project depends on who exactly acquires real estate, and for what purpose: its further sale or lease.
For example, the legislation of Ukraine provides for the institute of joint ownership. That is, to prepare the documents you need to understand whether the buyer and seller are married. All these points are sorted out by specialists, and the Client gets the “Road Map” by the results of the survey.
Some firms offer to purchase real estate in the name of the legal entity as a way to reduce tax expenditures. This is certainly an option that has the right to exist, but it should be understood that starting a legal entity incurs both additional costs at the stage of providing services and those associated with obtaining Work Permits for foreigners in Ukraine, the payment of a certain level of salary, etc.
For example, the state fee for Work Permits, which are issued from one to three years, is UAH 13,134 in 2021, and the foreigner’s wage must not be less than ten minimum wages for citizens of Ukraine - UAH 60,000 from January 1, 2021. True, the situation could be different if we are talking about the director of the company, which also acts as its founder - in this case the minimum wage will not be set.
It is also important to understand that LLCs must keep accounting and tax records in accordance with local legislation, and submit tax and financial statements to the tax authorities at the place of its registration. This is also associated with additional both hassle and expense.
When buying real estate you should pay attention to its size, because the current legislation of Ukraine provides for an additional tax for exceeding a certain square footage.
Thus, the most suitable option must be developed for each Client, taking into account many nuances and wishes. This issue is strictly individual, and the success of your case depends directly on the level of professional skills of the specialist, who deals with this issue. Please check the cost of our legal services here.
Do you want to buy real estate in Ukraine safely and dispose of it wisely? Don’t hesitate to contact us!
Our lawyers have extensive knowledge and experience in solving similar problems, and successful cases and satisfied Clients are the best proof of our professionalism.
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