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Buying, acquiring, purchasing land plots in Ukraine, land tax in Ukraine Buying, acquiring, purchasing land plots in Ukraine, land tax in Ukraine

Buying, acquiring, purchasing agricultural land plots in Ukraine

Ukrainian legislation envisages that foreign legal entities, foreign states and international organizations may be subjects of property right to land (land plot) in cases specifically provided by law.
The principal legislative act regulating land issues in Ukraine explicitly prohibits acquisition of agricultural land by non-resident companies.

Buying, acquiring, purchasing non-agricultural land plots in Ukraine

Under current Ukrainian legislation foreign legal entities may acquire property rights and own only non-agricultural land:
1) within the limits of settlements, if they purchase immovable property or land plots for construction related to their commercial activity;
2) beyond the limits of settlements, if they purchase immovable property.

Hence, the above-mentioned legislative act lays down the following restrictions:
(i) land plots are to be located within the limits of settlements in case of acquisition of immovable property;
(ii) land plots are to be acquired for construction of immovable property objects with the purpose related to commercial activity;
(iii) land plots can be located beyond the limits of settlements, but in such a case are to be under immovable property objects.

It should be particularly noted that the applicable Ukrainian legislation and case law of commercial courts of Ukraine treat enterprises with foreign investments (if a foreign share in them equals 10% or more) as foreign legal entities. So, the restrictions mentioned herein apply to all types of such legal entities.
Under current Ukrainian legislation joint ventures are vested with wider rights related to acquisition of non-agricultural land in Ukraine, which include
acquisition of land under sale-purchase, exchange, gift and other civil law agreements;
contribution of land plots to the charter fund of the enterprise;
acceptance of a non-agricultural land as inheritance (should a foreign legal entity or a joint venture accept an inheritance in form of a non-agricultural land, such land is to be alienated by such entities within one year);
acquisition of land within the limits of settlements, if they purchase immovable property or land plots for construction related to their commercial activity;
acquisition of land beyond the limits of settlements, if they purchase immovable property.

Under the current Ukrainian legislation a sale to foreign legal entities of a non-agricultural land, which is owned by the state, is made by the Cabinet of Ministers of Ukraine after approval of the Verkhovna Rada of Ukraine (the Parliament).
Sale to foreign legal entities of a non-agricultural municipal land is made by the respective local council after approval of the Cabinet of Ministers of Ukraine.
In order to acquire state or municipal land foreign legal entities file an application with the Council of Ministers of the Autonomous Republic of Crimea or oblast, Kyiv or Sevastopol city state administration or with village, rural settlement or city council depending on location of the relevant land plot.
However, state or municipal land may be sold to a foreign legal entity if the latter registers its representative office in Ukraine and leases this land, because one of the documents for such submission is a land lease agreement.
Applicable Ukrainian legislation stipulates that sale of state and municipal land in Ukraine is made under competitive basis in form of an auction or tender.
Relevant local legislative acts envisage that in order for a foreign legal entity or joint venture to purchase a municipal land in Kyiv, the Kyiv City Council is to obtain a positive opinion of the Head Department of Land Resources in Kyiv City (the Kyivzem) and an approval for such transaction of the Cabinet of Ministers of Ukraine.
Under applicable local legislation a decision on a grant of land to legal or physical persons, who filed a respective application on purchase of land, is passed only upon making by such interested parties an advance payment in the amount of 15% of the monetary estimation of such land plots. It should be especially pointed out that the mentioned act doesnt contain any provisions on recovery of the advance payment in case of the Kyiv City Councils denial.
The land purchase procedure by foreign legal entities with participation of the Cabinet of Ministers of Ukraine or the Parliament is rather tricky and complicated due to the following reasons:
transitional and other provisions of the Land Code of Ukraine do not establish any special rules on obtaining such approvals;
a number of bylaws and regional legislative acts, which regulate sale-purchase procedure on a local level, are rather vague and changeable;
the final delimitation of state and municipal land hasnt been completed, which led to many disputes about property rights for a certain land plot between a state and municipal authorities with relevant negative consequences for the potential buyer.

Proceeding from the above, we are of the opinion that the most practicable and safe way to acquire a land by non-resident company or enterprises with foreign investments and avoid legislative restrictions on purchase of land is through its wholly owned subsidiary, registered under the laws of Ukraine.
It is made in 2 stages, described below:
Firstly, a foreign legal entity is to establish a parent company on the territory of Ukraine, mostly in the form of a joint venture.
Secondly, the parent company is to register a business entity (mostly in the form of a limited liability company), which shall be treated by Ukrainian law as a resident company and shall be the actual buyer of the land.
In accordance with Ukrainian land legislation resident Ukrainian companies are entitled to purchase and sell non-agricultural land without any restrictions. Some exceptions apply to Ukrainian companies in relation to acquisition of agricultural land only.

Land tax in Ukraine

Under current Ukrainian legislation use of land in Ukraine is made on a paying basis. The object of payment is a land plot, which is owned or used, including lease. Payment for land has 2 forms: land tax and lease payment. The owner of land, even if a land plot is leased, is obliged to calculate the amount of and pay to a local tax office the land tax, which is determined on the basis of a monetary estimation of the value of the land. The monetary estimation of the value of the land is carried out by the State Agency of Ukraine for Land Resources according to the procedure, set out by the Cabinet of Ministers of Ukraine. If a land, except farm land, lacks monetary estimation, the land tax rate is determined by relevant village, rural settlement or city councils. Such rates may not exceed value of fixed rates by 200%.
The Law lays down three types of payments for land: payment for agricultural land, payment for non-agricultural land located outside the limits of settlements and payment for land within settlements.
The rates of a land tax depend on the area of land, its value and location. Results of commercial activity of the landowner have no influence on the land tax rate. Grounds for setting up a land tax rate for a particular land plot are data of the State land cadastre. The land owners and users are obliged to use and dispose a land plot according to its intended use, because taxation of land relations depends also on intended use of the land.
The monetary estimation is subject to annual indexation. The indexation of the monetary estimation of land is calculated under the following formula: Ki = [I-10]/100, where Ki - an indexation value of the monetary estimation of land; I - average annual inflation index for previous year. Should an indexation value be less than one, indexation is not performed.
According to current Ukrainian legislation a taxpayer annually determines the land tax value as of 1 January of current year and until 1 February is to submit a tax return to the respective local tax office. Land owners and land users are obliged to pay a land tax as well as land lease payment for leased state and municipal lands as of the day of emergence of their ownership or use rights respectively.
Current Ukrainian legislation envisages that enterprises, which pay flat tax weather under 6 or 10% rates, are relived from responsibility to pay land tax for lands used in their entrepreneurial activity.

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