Legal Digest #4

September and October 2022 brought changes in tax fine charges, employment of foreigners, and a range of changes in corporate area. Changes also occurred in the field of military enlistment of women, determent for employees in reserved occupations, and use of migration documents that expired. In addition, the legislation on counteracting illegal takeover of businesses was amended.

Below you may find a brief summary of changes and comments of Deloitte professionals.

The Supreme Court Changed Its Position in Respect of Tax Interest Charges

The Supreme Court considered in detail for what period tax fines should be charged. This issue was often raised in court disputes after Article 129 of the Tax Code of Ukraine (the “TCU”) was amended in 2017.

For a long time, courts upheld the approach that tax fines, under the new version of the TCU, should be charged after a monetary obligation is agreed as determined in tax notifications-decisions (TNDs). However, the Supreme Court abandoned this stand.

The Court paid attention to the fact that Article 129 of the TCU used two notions: “tax liability” and “monetary obligation”. Charges of fines relate to the expiration of payment periods in respect of tax liabilities. And they, in turn, arise by operation of law and not from TNDs issued. In other words, fines should be charged for the whole period of understated tax liabilities, as it happened before 2017.

Thus, the Court recognized that amendments to Article 129 of the TCU introduced in 2017 did not change the approach to charging fines.

See the text of Resolution dated 27 September 2022 on Case No. 380/7694/20 at the link.

Employment of Foreigners

On 15 October 2022, the Law of Ukraine No. 2623-IX “On Amending Certain Laws of Ukraine on the Employment of Foreigners and Stateless Persons in Ukraine and the Provision of Mediation Services in Employment Abroad” came into force.

Major changes are as follows:

• Cancelled dedication of special categories of foreigners (foreign highly paid professionals, foreign IT professionals, etc.);
• Cancelled requirement to obtain a work permit for each position – presently, a simultaneous employment with one employer is allowed on the basis of one work permit;
• Cancelled requirement to ensure increased minimum wages for foreigners; from now on, the amount of minimum wages for foreigners and Ukrainians is the same;
• A possibility is stipulated for obtaining a duplicate of lost work permit in hard copy.

In general, we believe such changes to be a positive impetus in the development of procedures for employment of foreigners. At the same time, questions also arise, e.g., regarding gig contractors: previously, the Law included gig contractors into a special category of foreigners and directly indicated the voluntary nature of obtaining work permit for them. To date, the list of categories of foreigners for whom work permit are obtained does not include gig contractors, however, there are requirements to the list of documents required for obtaining a work permit for gig contractors. We are waiting for the practice of applying new developments.

Updated Requirements on Disclosure of Ultimate Beneficial Owners

On 6 September 2022, the Verkhovna Rada of Ukraine adopted the Law of Ukraine No. 2571-IX “On Amending Certain Laws of Ukraine Regarding the Improved Regulation of Ultimate Beneficial Ownership and Ownership Structure of Legal Entities” (the “Law”) by which it changed the requirements to disclosure of ultimate beneficial owners (UBO) and ownership structure. The Law comes into effect from 29 December.

Major changes are as follows:

• The Law has cancelled a requirement to confirm, on an annual basis, the data about UBOs and submit the structure of ownership, besides, the ownership structure should be submitted when any changes in UBOs, data about the amount of capital, shares, and composition of participants occur, and when incompleteness, inaccuracies, or errors are identified in the previously submitted data about UBOs and/or ownership structure;
• The Company’s participants are obliged to provide, at the request of legal entities, information about any changes in UBOs, as well as independently notify legal entities about any changes in UBOs and/or ownership structure. Violation of this obligation may result in penalties for the participants (individuals and legal entities-residents) ranging from UAH 17,000 to UAH 340,000;
• A requirement is stipulated to indicate in the Unified State Register all countries of residence (nationality) of UBOs, if there are several of them;
• A possibility is granted to certify passport copies of UBOs by using qualified electronic signatures (QESs) of the persons authorized to submit documents for the state registration.

Also, the Law stipulates that, in the event incompleteness, inaccuracies, or errors are identified in the data about UBOs and/or ownership structure, a relevant mark may be made in the Unified State Register about such an inconsistency. In such a case, the obliged entities (OEs) should set a high risk of business relations in respect of the legal entities marked that way. We believe that OEs should revise their АМL policies/internal systems and bring them in line with the new developments of the Law.

We think that the Law, in part of the cancelled requirement to provide annually the data about UBOs/ownership structure, simplifies the activities of legal entities and, in part of the extended capabilities of OEs/state registrars, encourages them to display a more accurate attitude towards the issue of disclosing information about UBOs and ownership structure.

The Cabinet of Ministers of Ukraine (the “CMU”) Allowed Extending the Determent for Employees in Reserved Occupations

On 10 September 2022, the CMU amended Resolution of the CMU No. 194 “Certain Issues of Reserving Conscripts under the Martial Law”:

• Government authorities are granted with a possibility to extend for two months the determent for conscripts in the period of mobilization and the martial law.
  
  And though the norm on the extended determent does not contain details of such an extension, the Ministry of Economy of Ukraine, in its official notification, draws attention to the following:
  • The extension shall be applicable in respect of the determent for employees in reserved occupations issued by Resolutions of the Ministry of Economy in March and April 2022 that expire in September and October.
  • The decision on the extended determent may be taken by the Ministry of Economy only once.
• An extract from the Order of the Ministry of Economy of Ukraine on the Determent may, from now on, be provided by an entity in which a relevant conscript works.
  We positively assess the changes adopted by the CMU, however, we are still waiting for the consistent implementation of new developments in practice and at the local level. Also, we hope that the government will continue improving reservation rules under the martial law and supporting the “economic front”.

The Law on Voluntary Military Enlistment of Women Came into Force

On 26 October 2022, the Law of Ukraine No. 2664-IX “On Amending Article 1 of the Law of Ukraine “On Military Duty and Military Service” came into force.
In accordance with the Law, the women who are fit for military service due to their health and age and who have graduated from professional (vocational and technical), professional pre-higher or higher education institutions and have obtained a medical or pharmaceutical specialty are subject to be included in the military register of conscripts.

The women who have a specialty and/or profession related to the corresponding military accounting specialty specified in the list approved by the Ministry of Defense of Ukraine and who are suitable for military service due to their health and age shall be accepted for military registration of conscripts at their discretion.

Thus, the military registration of women is voluntary, except for those women who have a specialty and/or profession related to medical activities.
We believe that resolution of this issue at the level of the Law is a positive step, which will contribute to the improved procedure of taking women into the military register of conscripts.

Use of Migration Documents That Expired in the Period of the Martial Law

On 21 October 2022, the CMU adopted Resolution No. 1202 “Certain Issues on Implementation of Legislative Acts in the Area of Migration under the Martial Law” which regulated the issue of using documents that expired in the period of the martial law, in particular:

• Temporary or permanent residence permits, other than those executed for citizens of the Russian Federation, that expired or are subject to exchange after 24 February 2022 confirm the legal grounds for temporary or permanent residence in Ukraine and the right to enter Ukraine during the period of the martial law and within 30 calendar days from the date of its termination or cancellation;
• Foreigners or stateless persons, other than citizens of the Russian Federation, are required to submit documents for exchange of such temporary or permanent residence permits within 30 calendar days from the date of termination or cancellation of the martial law.
• Absence of such a norm during the martial law has led to cancellation of the permits issued to many foreigners who will have to go through the procedure of obtaining new permits after the war (including obtaining visas). Such changes are an important and long-awaited step for foreigners.

Amended Legislation in Part of the Improved Mechanism for Counteracting Illegal Takeover of Businesses

On 12 May 2022, the Verkhovna Rada of Ukraine adopted the Law of Ukraine “On Amending Certain Laws of Ukraine on the Improvement of Mechanism for Counteracting Illegal Takeover of Businesses” No. 2255-IX (the “Law No. 2255-IX”). A part of its provisions came into effect on 26 September 2022, in particular:

1. Amendments to the Law of Ukraine “On Limited Liability and Additional Liability Companies” No. 2275-VIII.
   Effective from 26 September 2022, minutes on a change in the Company’s director, in the event such a decision requires votes of not more than 10 persons, shall be signed by all participants (or their representatives) who voted for such a decision, unless otherwise stipulated by the Company’s Charter.
2. Amendments to the Law of Ukraine “On Leases of Land” No. 161-XIV.
   A legal act on termination of leases (subleases) of agricultural lands lessees (sublessees) under which are legal entities is considered to be a significant legal act which, according to general rules, requires that a supreme body of legal entities (general participants’ meeting) preliminarily adopts a decision on granting a permission to its execution. Otherwise, such a legal act shall be treated as null and void.
   
3. The Law of Ukraine “On the State Registration of Legal Entities, Individual Entrepreneurs, and Public Organizations” No. 755-IV was complemented by Article 25-1 on peculiarities of performing registration actions on an automatic basis through the use of the Unified State Web Portal of Electronic Services in the Unified State Register, without involvement of the state registrar. In particular, such a mode will allow performing state registration of the following:

• Individual entrepreneurs, amended data about individual entrepreneurs, termination of business activities by individual entrepreneurs;
• Establishment of a legal entity on the basis of model articles;
• Amended data about a legal entity that do not require any decision of the legal entity’s participants (change in location, types of activities, etc.);
• Amended data about a legal entity that require a decision of the legal entity’s participants (other than decisions on the amount of issued capital, composition of participants, or the legal entity’s director), - provided there is a unanimous decision of the participants, which is confirmed by their qualified digital signatures;
• A decision on termination of a legal entity taken by its participants or a relevant body of the legal entity, - provided there is a unanimous decision of the participants or a relevant body of the legal entity, which is confirmed by their qualified digital signatures.

Thus, we believe that the adopted amendments to the legislation in part of the improved mechanism for counteracting illegal takeover of businesses will be able to ensure properly the minimization of risks of future attacks by perpetrators of illegal takeovers.

The Law of Ukraine No. 2518-IX “On Ensuring Proprietary Rights to Real Estate Items to Be Constructed in the Future” Came into Effect

On 10 October 2022, the Law of Ukraine No. 2518-IX “On Ensuring Proprietary Rights to Real Estate Items to Be Constructed in the Future” came into effect.

The Law’s aim is to create legal mechanisms for ensuring by the state of proprietary rights to construction-in-progress items and future real estate items in respect of which the right to execution of construction works has been obtained.

A developer should, in the first hand, obtain all permission documents required for construction. By its next step, the developer should register special proprietary rights to the items to be constructed and, only after that, it may start selling apartments and attract funds from investors. In addition, the registration of each individual apartment with the Ministry of Justice of Ukraine will make it impossible to sell the same apartment again.

We believe that such changes are positive in terms of legal mechanisms for ensuring by the state of proprietary rights to construction-in-progress items and future real estate items. However, we are looking forward to consistent implementation of those new developments in practice.

Updates on Electronic Document Interchange

Deloitte continues developing the topic of electronic document flow (EDF) in Ukraine.

Roman Makarchuk, Manager at Legal in Deloitte Ukraine, took part in an online discussion arranged by NGO “Ukrainian Center for European Policy” and the Trust Services Forum supported by the European Agency for Network and Information Security.

The talk with government representatives and business community dwelt on “digital visa-free” regime between Ukraine and the EU. It was mentioned that Ukraine recognized qualified digital signatures from Europe, and vice versa, and what could be done to accelerate the process.

You may go to the discussion record placed on the site of NGO “Ukrainian Center for European Policy” by using the link.

We continue working with our clients on the transition to EDF. We observe a more active interest to digitalization of long storage documents. We develop approaches to ensuring in practice of how to minimize duplicating hard copies of those documents and have succeeded in this direction in our cooperation with archive institutions.

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