To issue an inheritance for a company and real estate in Ukraine for a foreigner
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In this article, we will discuss the procedure of inheriting assets in Ukraine, if the heir is a foreigner, as well as the taxation of their income using the example of our recent experience.
We were contacted by a Client whose deceased relative left him a company registered in Kyiv as an inheritance. The company listed 2 apartments in Kyiv, which also were intended for our Client.
The Client was interested in the process of legalization of corporate rights to the Ukrainian company and possible actions with the real estate.
How can a non-resident receive inheritance in Ukraine?
To accept inheritance a non-resident must submit a corresponding application. Being abroad, he must apply to a local notary to certify the signature on the document, having previously received a sample from the Ukrainian notary, who opens probate proceedings. Thereafter, the application should be sent to the Ukrainian notary who maintains the inheritance file.
If a non-resident is unable to come to Ukraine in person, he may be represented here by a lawyer.
Submission of the application for acceptance of inheritance is the only first necessary action. After 6 months it is necessary to take action to re-register the ownership of the property:
- Obtain a certificate of inheritance.
- Re-register the property in the registries on its basis.
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What is the taxation of non-resident income in Ukraine?
Non-residents must pay an 18% tax on inheritance received (Article 174.2.3 of Article 174 of the TCU). At the same time inherited assets (real estate, corporate rights in LLC, etc.) must be subject to independent assessment. Apart from an 18% tax, you have to pay a 1.5% military fee additionally.
The line of descent of the deceased and heirs does not matter, as it would in the case of Ukrainian citizens. There is no point in counting on tax exemption (for the first line of relationship: fathers/children, spouse) in this case.
Relation of non-resident with the deceased may be important only in the context of determining his right to inherit according to the law (in the absence of a will).
Please note that the tax is not paid on the entire amount of valuation, but in proportion to the share that the non-resident plans to inherit. That is, for example, if the apartment is valued at 0,000, and the non-resident has a 30% share of the inheritance, then 18% +1.5% will be calculated from $ 30,000 (the tax will be ,850).
What is a property appraisal and why is it needed?
When a non-resident accepts an inheritance, an independent assessment of all property is mandatory. The evaluation shall be carried out by certified Ukrainian appraisers, and it is necessary for a fair calculation of the tax to be paid by the non-resident. In other words, the assessment is designed to regulate the tax base (and the regulation can be both upward and downward).
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Who monitors the payment of tax in Ukraine?
The notary in charge of the inheritance case. He acts as a tax agent. He will definitely ask you for a certificate confirming the payment of tax and will check the accuracy of the calculation until the inheritance is completed.
Inheritance of corporate rights in Ukraine
As we already mentioned, we were addressed by a client whose husband died in Ukraine. She is a citizen of Italy (living at the time of application in Switzerland), he was a citizen of Ukraine. The family had a business and several real estate objects in Ukraine. Consequently, after the death, her husband left 2 apartments in the center of Kyiv (worth up to 200 000 $), and a share in the company (Ltd.). The apartments were owned not by a physical person, but by the company. The heirs, in addition to the wife, were their joint children (also foreigners).
The client was interested in the question of whether she can pay inheritance tax (18% +1.5%) on the nominal value of corporate rights (roughly UAH 100 - the share capital of the company), rather than the real market value.
Having analyzed the initial data and the applicable legislation, we came to the conclusion that the valuation of corporate rights was mandatory in this situation. The tax had to be calculated precisely on the market value of corporate rights (and corporate rights were mainly formed based on real estate). This requirement is directly provided by the current laws of Ukraine.
In order to assess corporate rights, we need to:
- Analyze the company's financial situation - assets, liabilities, etc;
- Evaluate the property itself, taking into account its depreciation, the year of the building's construction, the condition of the apartments, the possibility of renting them out, and other applicable criteria.
To determine the residency of the heir, notaries are guided not by generally accepted criteria for determining tax residency (number of days in a year in a particular country of a person, the center of vital and economic interests, etc.), but by the passport (citizenship). That is, if an Italian woman has been living recently with her husband in Ukraine, the inheritance tax for her would likely have been calculated the same way as for a non-resident (not taking into account the possible ties in Ukraine).
What has changed with accepting an inheritance during wartime?
Remember that during wartime the time limits (6 months) for accepting an inheritance or renouncing it are suspended for the duration of martial law and prolonged for 4 months. Now an inheritance case can be created by any notary, regardless of where the inheritance was opened. In some cases, inheritance cases may now be opened without access to the Register of Succession. But it is prohibited to issue inheritance certificates without proper registration in the register.
In practice, a problematic point in opening an inheritance case is often the possibility of obtaining a death certificate (especially if we are talking about those who died on the battlefield). The death certificate is the starting point for the initiation of the inheritance procedure. The legislator has already provided some possible mechanisms to address this problem, but each case shall be considered individually.
Our services include:
- Providing support for inheritance cases with a foreign component (if the inherited property is located abroad, if the heir is a non-resident, if the testator is a non-resident);
- Representing non-residents before state authorities in Ukraine and abroad in inheritance cases (before courts, notaries, and banks);
- Preparing all necessary procedural documents for inheritance cases;
- Tax calculations (in Ukraine and abroad);
- Obtaining certificates of inheritance;
- Assisting in re-registration of the right of ownership of the assets for the heir.