#09 September 2014

In focus – Land

The new business season of 2014 promises to be pivotal in terms of domestic policy-making. The recent changes in personalities in power follow expectations for a new agenda in fields that are strategic for the country.

The issue of land has traditionally been a very sensitive one for Ukraine. Politicians quite often make a play with it during election campaigns…

With the support of Tax Regulation

Amendments to the Tax Code of Ukraine pursuant to Act No.1260-VII of 13 May 2014 required appropriate amendments to the summarized tax explanation on transfer pricing from the previous year. In July 2014, order No.368 of the Ministry of Revenue and Taxes approved a new explanation, which contains answers to forty questions by taxpayers. As Yaroslav Romanchuk, managing partner of the International legal center EUCON says, half of the questions were answered in the previous explanation. Moreover, responses to some questions completely contradict the previous opinion of the Ministry…

Expert Opinion

New Governments Initiatives in Land Regulation

Alexander I. Borodkin

An old Ukrainian folk saying teaches that a new broom sweeps in a new way. Given the extraordinary circumstances under which our current government has entered office it naturally started certain reforms in many spheres. The newly-elected Ukrainian Presidents main slogan in his election campaign also encouraged us to live life afresh.

Since land regulation was always one of the most socially sensible spheres the new life doctrine influenced it among the first examples. We shall leave discussions on territorial change due to Crimea separation, specific interim regulations on co-called occupied territories, in fact questionable status of lands under battlefield in eastern regions, as well as other rather political than regulatory issues for some other reviews

In Re

Agricultural Losses

Dr. Oleksiy O. Feliv, LL.M., Olesya I. Stolyarska, LL.M.

Investors intending to use agricultural land for purposes not associated with agriculture, like industrial, commercial development or mining, will very likely deal with compensation of so-called agricultural losses. Agricultural losses are a kind of compensation to the local and central budgets for loss of agricultural land as a valuable national asset. Notably, this charge also applies where agricultural land is going to be rezoned independently whether it is held by the state, municipality or privately. Agricultural losses are due when the agricultural land ceases to be agricultural

Cover Story

Reasonable Concerns

Serhiy Piontkovsky

Since a great deal of attention is being drawn towards the declared presidential reforms course, land relationships are fairly considered to be a huge catalyst for waking up business activity in the country. Indeed, Ukrainian soil has a lucrative attraction for investors. We asked Serhiy Piontkovsky, head of the representative office of the Kiev office of Baker & McKenzie, where he heads the Energy, Chemicals, Mining and Infrastructure and Real Estate Practice Groups, what the main pitfalls are of effective land law and the major concerns held by sectoral lawyers

Hot Issue

Protecting Investors Rights through Employment Law Modernization

Inesa A. Letych, Maryna V. Golovko

Being spurred on by Ukraine’s endeavors to move towards EU integration, the Verkhovna Rada of Ukraine has begun adopting new legislation aimed at introducing European values, improving the business climate and attracting foreign investment. Even though not all newly adopted laws illustrate a successful example of harmonizing local legislation with international standards, certain of them may be worthy of attention. In particular, on 13 May 2014 the Ukrainian Parliament adopted the On Amendments to Certain Legislative Acts Regarding Protection of Investor’s Rights Act of Ukraine No.1255-VII (the Act) which came into force on 1 June 2014.  The Act introduced certain amendments to various legal acts (namely the Civil, Commercial and Labor Codes, and the On Joint-Stock Companies Act), which mostly relate to establishing additional possibilities for the dismissal of company officers and extending the scope of their liability…

Venue

Testing Times for Professional Cohesion

After the tragic events in Ukraine and annexation of Crimea, this year the traditional CIS Local Counsel Forum moved outside the CIS region for the first time ever. Instead of Sochi the 9th venue was held in Vienna on 27-29 June.

The cultural and networking program of the Forum included Joint Gala Dinner with the Balkan Legal Forum at Palais Ferstel, Big Ferstel Saal, and Folk Dinner.  Forum’s Social Responsibility Initiative was aimed at supporting orphanages in Eastern Ukraine.

Unique combination

During the showcasing of the host country, Austrian lawyers stressed that their country became a natural regional hub for CEE and CIS business. Indeed, Austria is known for being “the best combination of traditional and modern”. At the same time, the modern approach of Austrian economic policy is based on targeting innovation and sustainability for reaching economic growth…

Kingdom of Spain Euro-integration Path

On 15 July 2014 EY enlisted the Yuridicheskaya Practika Weekly’s support in general media partnership and held a conference called Model of Success: the Spanish Experience — Road from Isolation to European Integration in Kiev. Within the framework of the event representatives from Spanish government circles and Ukrainian authorities shared their views on ways to tackle the crisis in our country.

Jorge Intriago, tax and law partner of EY, opened the event and noted that over a long time of his working in Ukraine, he has faced a lack of absolute clarity in the Ukrainian legal base. In its turn this vagueness had led to Ukraine losing many opportunities to attract investment, and the signing of Ukraine–EU Association Agreement is Ukraine’s last chance to make up leeway…

Crux

Hot Period for Taxpayers

The summer season has been marked by “hot” changes in taxation. The Ukrainian Parliament adopted an unprecedented number of changes, introduced mainly by the Act of Ukraine On Amending the Tax Code of Ukraine and Some Other Legislative Acts, No.1621-VII. On 31 July 2014 Ukrainian President Petro Poroshenko signed the Act that came into force at the beginning of August. The Act’s objective is to create conditions to increase proceeds to the state budget. Let us consider the impact of the most recent changes in taxation legislation on doing business in Ukraine in detail.

 

Irina Pavliuk

The amendments envisaged by the Act of Ukraine On Amending the Tax Code of Ukraine and some Other Legislative Acts (on improvement of certain provisions) generally are intended to raise additional funds to the budget. Hence, it was expected that the tax burden will not be reduced. But, at the same time the Act has introduced some positive changes to the taxes management, which will be applicable to operations after 31 December 2014. Also, new provisions of the Tax Code provides for significantly simplified VAT budgetary refund procedure, specifically…

 

Alexey Kot

Changing the payment rate for subsoil use is supposed to have a negative feedback from the   executives of those companies doing business in this field. The government’s intent to fill the budget is understandable, but before increasing the payment rate deep work to estimate all consequences had to be performed.

Unfortunately, there is a constant opinion in society that all companies that deal with oil and gas recovery are super profitable, that’s why increasing the tax rate shall not influence on their operation dramatically…

 

Yaroslav Petrov

The Act has introduced several important changes into taxation of oil & gas, renewable energy related projects, including abolishment of privileged taxation of electric power generation companies producing electricity from renewable energy sources. Originally, the Tax Code of Ukraine provided for exemption from corporate profit tax for such companies till 2021.

This measure will negatively impact renewable energy projects in Ukraine…

 

Sergiy Chuyev

Speaking about the consequences of the abolition of tax exemptions for the hospitality business we must first understand what real benefits local hotels had due to the tax exemptions.

Benefits for the hospitality business were introduced in the process of preparation for EURO 2012 to encourage investors in the construction and modernization of hotels in Ukraine. The changes were introduced temporarily for 10 years with the effect of 1 January 2011 and the exemption from taxation extended to the profits received by companies from providing hospitality services in the hotels of “3 stars” — “5 stars” categories where such hotels were commissioned until 1 September 2012…

 

Larysa Vrublevska

Our team has analyzed the new legislation on VAT administration in detail. We came to a conclusion that in general it makes it impossible to generate a fictitious (unpaid) tax credit. In order to get a VAT refund in the future, the tax should be paid to a special account in the form of tax liabilities by a supplier of goods (works, services). The idea is fairly good, but before the new legislation comes into effect (1 January 2015), taxpayers will need to accumulate funds on the account, because tax invoices can be issued and registered in the registry only after obtaining the relevant right. The right to issue tax invoices arises after funds are paid to the electronic VAT administration system or if there is sufficient VAT received under tax invoices issued by suppliers, who in their turn registered the invoices and paid the tax…

 

Nazar Chernyavsky

The announced earlier amendments to the Tax Code of Ukraine were intended to bring in line the taxation of investment funds in Ukraine with any other corporate entities, which could have ultimately defeated the purpose of an investment fund altogether. However, at the end of the day, the legislator took into account the opinion of market participants and the actual changes were rather limited. In particular, according to the new wording of the Tax Code, Ukrainian investment funds would not be able to treat any interest income as part of their investment income (i.e. income from transactions with investment assets, which is exempt from the corporate profit tax)…

 

Anna Saliy

Historically, dividends were subject to a 5% PIT, royalties and investment income — to a 15/17% PIT, while interest was exempted from taxation. On 1 July, a progressive tax rate (of 15%, 20% and 25%) was introduced in respect of such passive income, depending on its amount. However, on 2 August, Act No.1588-VII returned a historical tax regime for dividends, royalties and investment income and introduced a 15% PIT for interest.

Basically, a major change contemplated by Act No.1588-VII involves introducing a 15% tax rate to apply to interest…

 

Andriy Sydorenko

According to the No.1560-VII and No.1561-VII Acts of Ukraine, temporary exemption from VAT and import duty is provided for certain “anti-terrorist” goods.

The introduced changes provide the possibility not only for individual volunteers but also for companies to import equipment and medical supplies necessary for saving lives of Ukrainian citizens.

However, broad exemptions create abuse risks for use of the “anti-terrorist” exemptions. For example, due to fact that the exemption should apply to registered medical supplies some importers try to apply an exemption to infant diapers, which exceeds the intent of the legislators who adopted the Acts…

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