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The Legal Environment for Investment in Ukrainian Real Property in 2016

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Located in the heart of Europe and with a population of over 40 million, Ukraine remains an attractive and unsaturated market, offering the potential for rewards which outweigh the challenges.

Although the current difficulties have put significant pressure on the Ukrainian economy, there are sectors and businesses within the country which are investment-attractive and offer a considerable level of profitability, including agriculture, manufacturing, and infrastructure.

Implementation of the EU Association Agreement on September 16, 2014, requires Ukraine to implement a number of institutional reforms, including trade, economic integration, and reorganization of government bodies and to gradually harmonize Ukraine’s legislation to EU norms and standards within timelines varying between two and ten years after the Agreement enters into force. 

Over recent years, the legislative environment for doing real estate business in Ukraine has substantially improved. According to the World Bank’s “Doing Business 2016” report Ukraine climbed to 83rd out of 189 economies, demonstrating sustained improvement of business conditions for several years in a row. 

State and local authorities are being reorganized and decentralized to make their operations more effective and business-oriented. Anti-bribery procedures are also being actively applied to decrease the level of corruption.

On the corporate side, the rules for establishing, administering, and dissolving companies have been further simplified by shortening the terms for registration/dissolution, abolishing certain registration charges, and eliminating the requirement to have a paper charter. As a result, it now only takes two business days to register a limited liability company, compared to the two weeks required under the previous procedures. Registration actions may also be performed by notaries based on the ex-territoriality principle.

Substantial actions are being taken to make the legal framework for registering titles to real estate and land more investor-friendly and secure. One major change starting from January 1, 2015, is that all information about registered titles, including information about title holders and encumbrances affecting the land, has been made open to the public electronically (previously such information was available to title holders only). Public access to information is also currently being implemented with regard to the land- and town-planning cadastres. As a result, title checks and registration of titles/encumbrances over real property have become significantly more efficient and less bureaucratic. The system of registration and registration procedures have been further improved this year, with authority for it being transferred to local governments. 

The planning and construction sectors have also seen substantial developments. The major part of authority for supervision over these sectors has been transferred from state to local government, and the planning and construction permitting procedures have been simplified and shortened. The procedure for obtaining title to state and municipal land for construction and other purposes is now based on the “one-stop-shop” principle.

On the financing and tax side, real estate investments are traditionally structured via the Cyprus Treaty approach (the new protocol to the bilateral double tax treaty was signed on July 2, 2015, to become effective from 2019). Although still applicable, currency restrictions are also being liberalized by the National Bank of Ukraine (particularly the requirements for mandatory conversion of foreign currency and the restrictions concerning registration of loans with non-residents, both of which have recently been relaxed). 

The PPP sector, with the Law on Sea Ports coming into effect in 2013, became an attractive area for foreign industrial investors in Ukraine. While the Ukrainian Government still has work to do on certain detailed regulations, the reforms already carried out in the sector have enabled investors to acquire rights to operate commercial port facilities (i.e., terminals) based on concession or lease agreements and to construct and fully own major port facilities, including sea terminals such as shipping berths. Of course, the state retains ownership of certain strategic port facilities such as navigation facilities, harbor waters, etc.

At the same time, foreigners may only lease and not own agricultural land. In addition, the Ukrainian parliament has extended the land moratorium (prohibiting individuals from selling privatized agricultural land) until the end of 2016.

Although Ukraine still suffers from corruption, weak judicial and law enforcement systems, and an unstable political situation, having reviewed the on-going legislative initiatives, we expect further simplification of land-allocation, planning, construction, and permitting procedures for real property operation, as well as a general improvement of conditions for doing real estate business in Ukraine in accordance with EU and international practices. 

By Natalia Kochergina, Partner, and Sergiy Portnoy, Senior Associate, DLA Piper Ukraine

This Article was originally published in Issue 3.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.