Legal Digest #1

In June 2022, we witnessed a range of important legislative changes: reduced currency rules, stimulated projects in infrastructure and industrial parks, updated rules in the notarial services and leases of state and municipal owned properties, etc.

See below a summarized overview of those changes and comments of Deloitte’s specialists.

An Updated List of Critical Import

On 7 June, the Cabinet of Ministers of Ukraine (the “CMU”) updated the list of critical import goods, in particular, by adding a number of services thus extending the possibilities for currency payments to the import operations.

These services include professional services: legal, audit, and tax advisory, realization and protection of intellectual property rights, preparation of documents and reporting, consulting, design, and architectural services, as well as engineering and related technical advice, etc.

On 7 July, the CMU has lifted the restrictions on the purchase of foreign currency and cross-border transfers for the import of goods included in 01-97 Commodity groups of the Ukrainian Classifier of Goods of Foreign Economic Activity in accordance with the Law of Ukraine "On the Customs Tariff of Ukraine". Detailed information will be released in July issue of Legal Digest and Tax & Legal Alert.

The up-to-date list of critical import goods is available at the link.

We positively evaluate the proposed changes, which partially restore market freedom and will allow business to become more flexible in planning its activities.

Changes Regarding the Placement of Multimodal Terminals and Production and Handling Complexes

On 9 June, the Law of Ukraine # 2247-IX dated 12 May 2022 “On Amendments to Certain Legal Acts of Ukraine Regarding Peculiarities of Land Regulation during Martial Law” (hereinafter, the “Law”) came into effect.

The issue settled regarding multimodal terminals and production and handling complexes – the Law of Ukraine has been complemented by Art. 43 that determines the peculiarities of placing new or extending the available facilities.

The Ministry of Infrastructure of Ukraine (the “MIU”) is granted a possibility to determine the feasibility of establishing/extending multimodal terminals and production and handling complexes based on the need to have such facilities in the martial law period in order to overcome the adverse consequences of hostilities and satisfy the needs of people and business.

For this purpose, business entities, military administrations, executive authorities, and local governments should apply to the MIU and indicate:

• A facility expected to be placed (extended);
• An estimated location of the facility;
• A substantiated need to place a new facility or extend the available one.
  For those purposes, state and municipal owned land plots are going to be transferred without holding land tenders. The Law has also allowed altering their designated purpose without:
• Paying losses of agriculture and forestry manufactures;
• Complying with the rules of altering the designated purpose of especially valuable lands;
• Developing land management documentation;
• Complying with the rules of correlation between the type of the land plot’s designated purpose and the type of the territory’s functional purpose.

Considering an acute need in restoring, diversifying, and increasing supply chains, we believe that the changes introduced will promote the restoration and development of logistics in the conditions of the war. At the same time, a new procedure of establishing/extending multimodal terminals will require following amendments to the regulations of the CMU and the MIU. A prompt attention to implementing such changes and considering the opinion of the business that is currently ready to invest into the infrastructure will determine to what extent the new stimuli are going to be successful.

Experts of Deloitte’s Infrastructure Group are ready to provide comprehensive advisory support in respect of the said regulatory changes.

Tax and Customs Benefits for Industrial Park Participants

On 21 June, the Verkhovna Rada of Ukraine adopted Laws on Granting Tax and Customs Benefits to Participants of Industrial Parks (Draft Bill # 5688 dated 22 June 2021 and Draft Bill # 5689 dated 22 June 2021).

Tax benefits stipulate for an exempted corporate income tax for the period of 10 years for an Industrial Park (“IP”) participant that meets the following criteria:

• Operates in processing industry or conducts scientific and research activities;
• Operates solely in the territory of IP;
• Does not accrue or pay dividends and make similar payments.

The exemption from Value Added Tax is granted in respect of the transactions of imports to the customs territory of Ukraine of the new equipment that is imported by IP participants for own use in the processing industry or for the scientific and research activities in the territory of IP.

Local authorities are entitled to:

• Set tax benefits on the property located in the territory of IP;
• Set land tax rates and lease payments in the amount not lower than the land tax;
• Relieve from paying the land tax.

Customs benefits stipulate for exempt from customs taxes on the new equipment imported by IP participants for own use in the processing industry or for the scientific and research activities in the territory of IP, provided it is manufactured not earlier than three (3) years before the import date, has not been used, and meets the stipulated Ukrainian Classification of Goods for Foreign Economic Activities. However, the legislation forbids leasing out such equipment or using it by third parties under any conditions. The said benefits do not cover the goods originating from the country-aggressor or imported from it or the territories occupied by it.

Non-compliance with the requirements to an assignment of equipment for use by other parties, its alienation, and unauthorized use during the period earlier than five (5) years after its import to the territory of Ukraine or loss of the IP participant status entails the liability to pay an import customs duty, tax liabilities, and fines. At the same time, this violation has no statute of limitation.

To implement the above benefits, it is important to remove the corruption risks related to the process of obtaining an IP participant status and ensure the maximum transparency of their operation.

Notaries and State Registration

On June 24, the CMU adopted Resolution No. 719 on Notary Services and State Registration During Martial Law (the “Resolution”).

The Resolution allows notaries to certify agreements for alienation of real estate, securities, and corporate rights, as well as to certify the authenticity of signature on the acts of acceptance and transfer of shares in the authorized capital, signed on behalf of an individual (alienator), by virtue of the power of attorney.

If the power of attorney was issued more than one month ago (more than two months ago, if the power of attorney is certified by a diplomatic authority of Ukraine or in accordance with legislation of a foreign state), the principal is required to officially confirm the power of attorney that bears a signature authenticated by a notary, a diplomatic authority of Ukraine or in accordance with legislation of a foreign state.

We expect a revival in real estate and corporate rights deals.

The CMU Has Determined Peculiarities of Leasing State and Municipal Owned Properties in the Period of Martial Law

Earlier, the Verkhovna Rada of Ukraine allowed that the CMU set different rules for leasing of the state and municipal owned properties from those stipulated by the Law of Ukraine “On Leases of State and Municipal Owned Properties”.
On 1 June, Resolution of the CMU # 634 dated 27 May 2022 came into effect, which, inter alia, introduced the following changes:

• Rentals have been cancelled under state property leases for certain categories of lessees and properties located in certain regions and cities;
• The amount of advance contribution and guarantee deposit has been reduced;
• The demands to subleases in the martial law period have been eased;
• The leases expiring during the martial law period are going to be extended automatically (except for certain cases). Also, leases may be early terminated on a lessee’s application;
• Tender based documents (minutes, agreements) shall be signed using digital signatures, except for the cases when signing such documents in writing is required by a tender winner.

We believe that the said initiatives will become an important factor in adapting the business involved in leasing of state or municipal owned properties to the conditions of the war and increasing budget proceeds. Our team has gained a significant experience in the area of public properties and other issues of public-private relations and is ready to provide assistance at your request.

Registration of Public Associations During the War

The Ukrainian society and business join their efforts to create and implement various humanitarian and charitable initiatives. Public associations are created for the purpose of implementing donor projects and raising funds free from corporate income tax. We observe an increase in demand for the registration of such associations.

Martial law regime has introduced certain adjustments to the procedure for registering of legal entities. The government has limited access to the state registries as well as work of registrars and notaries who performed the registration activities. In addition, it may be challenging physically to call the foundation meeting or execute paper documents, as the founders can be located in different parts of Ukraine or abroad. For such cases, it is possible to register a public association online using electronic signatures. Today, any foundation and statutory documents of an organization, as well as the registration applications, can exist in the electronic form without paper copies.

Our team has experience in ‘paperless’ registration of public associations under the new rules and is ready to help you.

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