News (#1-2 January-February 2021)

Law digest

Parliament ratified Strategic Partnership Agreement between Ukraine and UK

At its session held on 16 December the Verkhovna Rada approved Draft Law No. 0083 On the Ratification of the Agreement on Political Cooperation, Free Trade, and Strategic Partnership between Ukraine and the UK, which will replace the Association Agreement on Trade with the UK following Brexit.

The creation of a free trade area under the Agreement will facilitate the entry of Ukrainian companies onto the UK market. The Agreement also strengthens the political partnership between the two countries, taking the strategic partnership in combating Russian aggression to a new level.

The document envisages the preservation of preferential access of Ukrainian goods to the UK market and the creation of a free trade zone between our countries. 98% of Ukrainian exports will not be subject to customs duties. Starting from 2023, 100% of UkraineТs industrial and agricultural products will be exempt from import duties.

The Agreement will come into force following the completion of domestic procedures related to its ratification by the United Kingdom.

VAT cut to 14% for some areas of agricultural sector

The Verkhovna Rada supported Draft Law No. 3656 in its second and final readings, which, among other things, envisages a cut in the VAT rate from 20% to 14% for certain areas of the agricultural sector.

The Draft Law, in particular, sets the value added tax rate at 14% for transactions of supply and import to Ukraine of the following agricultural products: live cattle; live pigs; in the part of whole milk, wheat, rye, barley, oats, corn, soybeans, flax seeds, rocket cress and rape seeds, sunflower seeds, seeds and fruits of other oilseeds, sugar beets.

UCAB conducted an analysis based on data provided by USDA and market operators on certain types of oilseeds and cereals (sunflower, rapeseed, corn), which showed that the VAT rate cut from 20% to 14% on their sales would not result in large-scale distortions in the structure of VAT revenues/losses for any of the stakeholders (state/enterprise).

The profitability of cultivating such crops, as well as trade and the balance of budget revenues, will remain unchanged.

The authors of the draft bill argue that processing companies will be able to save 6% of costs when purchasing products due to the lower tax liabilities of the manufacturer and so there would be no incentive to optimize tax liabilities, aka Уwind-offsФ. There would, therefore, be de-shadowing of agricultural production.

Draft law on investment nannies adopted

The Verkhovna Rada supported Draft Law No. 3760 On State Support of Investment Projects with Significant Investments in the second and final readings, as submitted by President Volodymyr Zelenskyy.

The Draft Law, in particular, envisages securing state institution status, which includes investment managers, and which is authorized by the Cabinet of Ministers to support investors in the preparation and implementation of investment projects involving significant investments.

The document establishes that state support may be provided to the investor in the form of:

Ч tax benefits (exemption from corporate income tax and duties on new equipment (machinery) imported into the customs territory of Ukraine);

Ч granting the right to use a land plot for the implementation of an investment project with rent payment accrual on special conditions;

Ч ensuring related infrastructure facilities (road traffic routes, communication lines, heating, gas, water and electricity supply systems, utility systems, etc.) by construction/reconstruction of such infrastructure at the expense of the state.

It is noted that the total amount of state support should not exceed 30% of the amount invested in the project.

The Draft also sets requirements for investment projects and investors eligible for state support, in particular:

Ч the amount of investment in the project must be at least the equivalent of EUR 20 million;

Ч the project is implemented in Ukraine in the fields of processing industry, infrastructure and logistics, household waste management, tourism, healthcare, education, sports (exceptions are renewable energy sources, mining, crop production, and finance);

Ч at least 80 jobs with an average salary at least 15% higher than the average salary in the relevant industry in the region for the previous calendar year must be ensured during the projectТs implementation;

Ч the project implementation period should not exceed 5 years.

There is also a clear list of companies that are not eligible to become Уinvestment nanniesФ and special conditions. The main ones are:

Ч companies that have not disclosed information about their ultimate owner;

Ч companies in which more than 50% of shares are owned by offshore companies;

Ч companies with more than 10% of shares owned by the aggressor state (Russia) and companies incorporated in Russia;

Ч companies, against which Ukraine imposed sanctions.

Law on electronic communications adopted

On 16 December the Ukrainian Parliament adopted the Law On Electronic Communications (Draft Law No. 3014).

The law applies to the following areas:

Ч electronic communications and radiofrequency spectrum in terms of provision and receipt of electronic communication services;

Ч supply and access to electronic communications networks;

Ч ensuring competition in electronic communications markets;

Ч use of radiofrequency spectrum, numbering resources;

Ч protection of rights of service users.

The Law envisages the creation of an electronic regulatory platform that will enable access to registries, as well as to:

Ч submit notifications about the start of activities in electronic communications;

Ч maintain personal accounts of suppliers of electronic communication networks and services;

Ч file documents to obtain a license;

Ч file reports, inquiries, etc.

State supervision (control) over compliance with legislation on electronic communications and radiofrequency spectrum will be carried out by the regulatory authority in two ways:

1) by carrying out unscheduled inspections;

2) by analyzing regulatory reporting filed by providers of electronic communication networks and services, users of the radiofrequency spectrum.

When making a decision to grant or to extend a license to use the radiofrequency spectrum, the regulatory authority will determine the terms of such a license in accordance with this law, the plan of distribution and use of radiofrequency spectrum in Ukraine, as well as international treaties that Ukraine is a party to.

It is also stated that divisions and organizations of the Judicial Security Service are special users of the radiofrequency spectrum, and they will be regulated by the General Staff of the Armed Forces of Ukraine.

Furthermore, universal electronic communication services have been defined:

Ч broadband Internet access services at a fixed location meeting the requirements of this law;

Ч voice electronic communications services at a fixed location.

The law comes into force on 1 January† 2022.

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