The Legal Way for a Non-resident to Pay in Currency Buying Property in Ukraine
Recently, more and more foreigners are considering a possibility to buy property in Ukraine, particularly in large and popular among foreigners cities like Lviv and Kyiv, as capital investment or as a place of temporary residence. One reason for this purchase is that real estate in Ukraine has very attractive price and there is an option to buy a large apartment in historical area in relatively low cost. Specificity of currency regulation in Ukraine may make it harder to pay because in Ukraine payments can be made only in Ukrainian hryvnias, however, under certain conditions, a foreigner may pay in currency for purchased property in Ukraine. This article will consider how and when it is possible.
According to the legislation of Ukraine, the only means of payment in the country is hryvnia. And transactions in any foreign currency is a violation of currency legislation of Ukraine, for illegal buying, selling, exchanging, using currency values (in this case – foreign currency) as a means of payment or collateral sanctions such as warning fines and even confiscation of currency values according to the Art. 162 of the Administrative Offences Code of Ukraine are provided.
At the same time, purchase of real estate by a non-resident may be an exception according to certain conditions. For example, in Ukraine, there is no ban on the purchase of real estate for foreigners, that is why foreigners and stateless persons can acquire ownership of buildings, residential buildings (apartments, houses, commercial premises), nonagricultural lands within the settlements and nonagricultural lands outside the settlements with real property assets with private ownership. It means that foreigners and stateless persons can not buy only agricultural lands, other property they can buy without any restrictions.
The issue of payment transactions by non-residents in Ukraine are regulating by the Regulations on the foreign investment in Ukraine, approved by the National Bank of Ukraine №280 from 10.08.2005 (amended). Thus, if a non-resident concludes the acquisition of real estate with the seller who is a resident of Ukraine, the non-resident can pay by currency in such ways:
1. opening an investment account and transferring funds to it in currency from abroad;
2. transferring funds to the current account of a resident in currency from abroad;
3. selling currency from the investment account and crediting funds in UAH from the sale of currency for further foreign investment;
4. fund transferring in UAH or currency to the current account of resident, investment account of another foreign investor or correspondent account in the foreign bank;
5. fund transferring in currency of 1 classification group and UAH from the current individual account of a non-resident in authorized bank to his/her investment account;
6. fund transferring in UAH from personal investment account to open account of international financial organization in authorized bank with approval of central executive body that ensures the formation of state financial policies, the implementation of bond issue in Ukraine for investments in these bonds.
In fact, we are interested only in paragraph 2, which is in bald. This legal framework entitles any non-resident to pay in currency for an agreement in Ukraine by transferring non-cash funds to the merchant in foreign currency. Naturally, the seller of real estate should have an open account in currency before intended transaction. Thus a seller, after currency transferring to his account may withdraw currency, not Ukrainian hryvnia, from this account and the only limit for it is a daily limit on cash withdrawals in the amount of 250 thousand UAH (about $ 9,000), so the seller will have the only discomfort as the withdrawal of money will take some time.
It is important to know that by the National Bank of Ukraine №407 from 11.25.2016, “On the establishment of threshold payments in cash” the maximum amount of cash payments under contracts of sale subjected to notarization is set in amount of 50 thousand UAH, equivalent to $ 1,800 USA. Thus, based on the actual prices, any transaction in the sale of real estate can be issued with a cash-free payment.
Also legitimate grounds for payments in foreign currency, which aim to minimize the risks of both parties, are worth mentioning in this article. For example, to minimize the exchange rate risks of the parties, they may initially determine the binding of payments to the equivalent in foreign currency, the Article 524 of the Civil Code of Ukraine gives such a right. It’s legal tool allowing the parties to make a prediction their risks.
But despite all licensing rules currency legislation of Ukraine is often transgressed concluding contracts for sales of real estate and the parties prefer to hold cash payments through the actual transfer of money from hand to hand. In documents, such an agreement is a non-cash transaction without formal violations, but the parties should be ready to pay some fees for the bank that will issue some documents to the buyer on the payment to the seller’s account and to the seller on money withdrawal from the bank account after payment.
Also we have to note that many of the limitations of the National Bank of Ukraine on the use of foreign currency, including one that is already on bank accounts, provokes involved parties, especially the residents of Ukraine, to avoid formal contracts and limit with the formal signing of the underestimated sale of property. In such transactions, the estimated value of the property in the contract is substantially different from the real value at the moment of sale. Resident without any contract, with only verbal arrangements, pays the difference in cash. In fact, this scheme is very common and it can be applied between parties that have known each other for long time (relatives, old friends connected persons). But this type of transactions is extremely risky for strangers. It should be used very carefully, especially by foreigners, because in this case, the buyer, a non-resident, must understand that in case of termination of the contract because of any reason, for example, declaring it invalid, the buyer can claim the refund only in the quantities indicated in the formal agreement.
Summing it up, before signing the contract of sale of real estate, non-residents are better to consult with a lawyer to minimize their risks and avoid legal problems with acquired real estate in the future.
Author: Kydalov Igor