Law digest

Zelensky signed “resource” draft law No. 5600

President Volodymyr Zelensky has signed the Law of Ukraine On the Fiscal Revenue Balance (Draft Law No. 5600).

The document is intended to strengthen the resource base of budgets and prevent the budget incurring losses due to tax evasion.

The current rent taxation system, which is in force before the enactment of Draft Law No. 5600, introduces a rate of 11-12%, which is calculated using IODEX index 58% FE CFR China. Draft Law No. 5600 envisages charging rent by using the market value of high-grade ore, namely the IODEX index of 62% FE CFR China, which is calculated by the Platts news agency. The higher this market value, the higher the rental rate.

The Law also introduces personal income tax on the sale of the third and subsequent real estate units by an individual in one year at a rate of 18%. The said will also be applicable to the sale of land plots, which should improve the taxation system in the land market.

Currently, income from the sale of one unit (excluding land) per annum is not taxed, while the sale of the second and subsequent units is taxed at a rate of 5%. This allows property developers to optimize costs by selling apartments to individuals rather than legal entities.

Moreover, the Draft introduces a new taxation system for agricultural producers. It introduces a so-called “minimum tax liability” – the default amount of taxes that each owner of farming land is obliged to pay to the budget (this amount is about 5% of the value of land a year).

That is, if the sum of all taxes (land tax, income tax, unified tax, and others) paid by the agricultural producer is less than the minimum wage, such producer will have to pay the difference in addition.

Another standard shall be applicable to the taxation of garden produce grown on a land plot. Thus, personal income tax (18%) becomes obligatory if the income received from the sale of such products exceeds 12 minimum wages. In 2021, this sum is UAH 72,000, in 2022 – UAH 78,000.

President signed law on machine-building localization

President Volodymyr Zelensky has signed a law requiring the availability of a Ukrainian component in the public procurement of machine-building products (Draft Law No. 3749).

Pursuant to the Law of Ukraine On Lo-calization, starting from the middle of 2022, a limit will be set on the Ukrainian component in goods procured through state tenders with an amount of more than UAH 200,000 and related to public transport, municipal vehicles, railway transport, power engineering, and aircraft engineering.

The localization limit is set at 10% and will be raised by 5% annually until it reaches 40% in 2028. It will be kept at that rate until 2032.

The document established the right of the Cabinet of Ministers to expand the list of goods subject to localization requirements, as well as to increase the localization requirement by 10% or reduce it by 5% for a particular category of goods for one year.

Localization requirements are not applicable to goods shipped from the EU, the USA, and other countries that signed GPA (WTO Agreement on Government Procurement). Their share in these categories of goods comes to about 20%.

Verkhovna Rada adopted framework law on financial services

The Verkhovna Rada has adopted the Law of Ukraine On Financial Services and Financial Companies, as the current law had not been reviewed since 2001.

Thus, new Law No. 5065 sets pro-rata requirements as to the minimum equity of financial companies and pawn offices, depending on the services being provided. Equity should range from UAH 1 million for pawn offices that provide lending services only to UAH 10 million for financial companies that provide guarantee services.

The acquisition of a significant stake in a financial company or a pawn office will no longer be subject to prior approval from the regulator. At the same time, the National Bank of Ukraine will still review the new owner’s compliance with legislation.

Moreover, the adopted document introduces risk-based regulation and supervision. That is, the requirements and regulations applicable to supervision over financial institutions will depend on the size, type of activity, relevancy, and risks inherent to the latter.

Supervision of market behavior of institutions is introduced, namely, compliance with consumer protection requirements, adequate information disclosure to consumers, transparent ownership structures, the proper business standing of owners and managers, and more.

The law simplifies the process of entering the market and for financial companies and pawn offices to obtain licenses. They will obtain a single license with a list of services to be provided and this list can be extended.

Furthermore, financial companies will be allowed not only to provide financial services but also to carry out other economic activities subject to certain restrictions.

Requirements for corporate governance have also been updated. And companies that are not of public interest will be permitted to outsource certain functions, such as accounting, internal audit, risk management, and compliance.

The law will come into force on 1 January  2024.

Limit for duty-free parcel delivery increased to EUR 150

At its meeting on 25 January the Verkhovna Rada upheld laws on increasing the limit for duty-free parcel delivery from abroad from EUR 100 to EUR 150.

However, the law prohibits the delivery of alcoholic beverages and tobacco products, regardless of their cost.

The laws also introduce electronic declaration of international and express mail parcels and set the option of deferred tax payment for 30 days from the date of submission of temporary registration.

It should be noted that before the second reading, Law No. 4279 On Amendments to the Customs Code also included clauses on the introduction of mandatory identification of parcel recipients by passport or ID code.

Postal operators opposed the said clauses, as they claimed that such amendments “could lead to a collapse”. The committee then proposed to postpone mandatory identification for a year. However, MPs did not uphold the related clauses during voting. Therefore, the identification was not included in the final document.