UKRAINE Law and Practice Contributed by: Timur Bondaryev, Maryna Sharapa, Andrii Pidhainyi and Olena Yurets, Arzinger
7.5 Additional Forms of Security to Guarantee a Contractor’s Performance There may be retention of a portion of the con - tract price – eg, 5% – which is payable within one or several years if no defects are discovered. Alternatively, a bank guarantee or a holding- company guarantee may be acceptable if the contractor is a reputable party. Escrow accounts and third-party sureties are not quite as com - mon. 7.6 Liens or Encumbrances in the Event of Non-payment The contractor is permitted to lien the property in the event of non-payment. However, this is not often done in practice. After the payment is made, the contractor shall submit an applica - tion to deregister the lien, which is registered as an encumbrance under Ukrainian law, within five days from the date of the developer’s request. If the contractor does not deregister the lien, it is liable for all damages resulting from it, and the developer may sue the contractor on the termi - nation of the lien, after which the developer may itself deregister the lien. 7.7 Requirements Before Use or Inhabitation There are no requirements to inhabit or use the constructed object, except for the general requirement to commission it. 8. Tax 8.1 VAT and Sales Tax As a general rule, an asset deal is subject to a standard VAT rate of 20%. However, an asset deal with an undeveloped land plot is VAT-exempt, and a transaction involving a residential building (premises) may
also be VAT-exempt (depending on the reflection of the building and a land plot in the accounting system). The amount of VAT is usually included in the pur - chase price and is paid by the buyer. Share deals are also exempt from VAT. 8.2 Mitigation of Tax Liability A share deal (the acquisition of shares of a prop - erty-holding company) may be considered in this regard, as the sale and purchase of the shares is not subject to VAT. There are also no strict requirements regarding expert valuation of the real estate property before making such a trans - action; thus the contractual price depends only on parties’ agreements and could be lower than the market price. This makes such transactions more attractive from a taxation perspective, even if it involves a higher volume of transaction - al work (legal and financial DD, merger control, sales and purchase agreement structure, etc). It should also be borne in mind that prof - its derived from sales (alienation) of shares in Ukrainian property-rich companies may be sub - ject to withholding tax in the territory of Ukraine. See 8.4 Income Tax Withholding for Foreign Investors for details. 8.3 Municipal Taxes All owners of business premises are payers of real estate tax, except for certain exemptions (ie, for State-owned premises, dormitories, orphan - ages, etc). This is a local tax applied on resi - dential and non-residential premises (buildings, apartments, etc) and is calculated based on their area. The rate is determined by local councils, and cannot exceed 1.5% of the minimum wage
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