How to save on purchasing a dwelling in Ukraine.

Those who have decided to buy real estate in Ukraine will face a requirement of paying a special tax in the amount of 1% out of the purchase price. This tax is often referred to as “pension duty” and is established by the Law of Ukraine “On the State Obligatory Pension Insurance Duty” (hereinafter the “Law”).

According to the procedure, the duty is paid by the purchaser before notarization of the respective sale and purchase agreement. The buyer pays the duty, gets the respective bank receipt and should provide it to the notary in order to prove the duty has been paid.

A notary will not notarize the agreement without proof of payment of the relevant pension duty. If a notary notarizes a deal without having the receipt showing the payment of this 1%, he/she will be fined and could even lose the license.

But the buyers are not always advised that the one who purchases a dwelling for the first time is exempted from paying this pension tax. This is explicitly written in the Law. Unfortunately, the Law does not specify how a person can prove that the upcoming dwelling will be the first purchased dwelling of the buyer.

As the practice is, buyers address the Pension Fund asking it to provide them with an official statement certifying the buyer has never bought any dwelling before. But the Pension Fund always rejects such petitions as it does not have relevant information allowing it to confirm or disprove the fact of first purchase.  

A common course of action in this case is the following:

1)   the buyer pays the duty and buys the dwelling;

2)   the buyer asks the Pension Fund to return the money paid by mistake;

3)   the Pension Fund denies to return the money;

4)   the buyer files a lawsuit against the Pension Fund; 

5)   the buyer returns the money after obtaining the court decision.

The current court precedents show that the buyers win such cases. However, before filing a lawsuit, the plaintiff should consider that this course of action requires hiring a lawyer, to pay a court duty the amount of which depends on the sum that the plaintiff asks to repay. It should be also noted that the process of returning the money takes some time.

Thus, if you buy a dwelling for the first time, you can save some money by getting back the pension duty (1% of the purchase price) that is to be paid before finalizing the deal. Unfortunately, you will need to file a lawsuit and bear some accompanying expenses to get reimbursed.