Real estate is used on the right of trust as a way to secure the fulfillment of an obligation for real estate: what about taxation?

Due to amendments to the Civil Code of Ukraine (the "CCU") in the part defining property relations (civil relations) related to trust ownership as a way to secure fulfillment of obligations under a loan agreement, questions arise regarding taxation of real estate used under the right of trust ownership as a way to secure fulfillment of obligations for real estate.

Pursuant to Article ⁵⁹⁷¹ (2) and (3) of the CCU, the right of trust ownership as a way to secure fulfillment of obligations (hereinafter referred to as "trust ownership") is a type of property ownership under which a creditor who has received property in trust (trustee) is not entitled to independently alienate such property, except for foreclosure and redemption for public needs in accordance with the procedure established by law.

From the moment trust ownership is established, the ownership right of the person who transferred his/her property to trust ownership is terminated.

Pursuant to part two of Article 316 of the CCU, the right of trust ownership arising from a law or agreement is a special type of property right.

Part five of Article ⁵⁹⁷³ of the CCU stipulates that trust ownership of real estate arises from the moment of its registration in the State Register of Real Property Rights.

Paragraphs 1, 2 of part one of Article 4 of the Law of Ukraine No. 1952-IV "On State Registration of Real Property Rights and Encumbrances" dated July 1, 2004 (as amended) stipulate that the following rights are subject to state registration

- ownership and trust ownership as a way to secure fulfillment of an obligation to real estate, an object under construction, and trust ownership as a way to secure fulfillment of an obligation to a future real estate object;

- real rights to real estate derived from the right of ownership:

- right of use (servitude);

- the right to use a land plot for agricultural purposes (emphyteusis);

- the right to develop a land plot (superficies);

- right of economic management;

- right of operational management;

- the right of permanent use and the right to lease (sublease) a land plot (except for the right to lease a land plot leased in accordance with clause 27 of section X "Transitional Provisions" of the Land Code of Ukraine, as well as the right to lease that arose when land plots were leased by a permanent user, an emphyteus in cases specified in subparagraph 8 of clause 27 of section X "Transitional Provisions" of the Land Code of Ukraine);

- the right to use (hire, lease) a building or other capital structure (their separate part) arising on the basis of a hire (lease) agreement for a building or other capital structure (their separate part) concluded for a period of at least three years;

- the right of trust ownership of the real estate object received for management, an object under construction, a future real estate object;

- other property rights in accordance with the law.

Pursuant to subparagraph 266.1.1 of the TCU, owners of residential and/or non-residential real estate are taxpayers of real estate tax other than land plots.

Owners of land plots are land taxpayers, and the basis for its calculation is, in particular, the data of the State Register of Real Property Rights (subparagraph 269.1.1.1, subparagraph b) of paragraph 286.1 of the TCU).

In view of the above, entities that have a trust property right registered in the State Register of Real Property Rights as a way to secure the fulfillment of an obligation to real property, including under a loan agreement, are payers of land tax and tax on real property other than a land plot.