Legal Digest #1

At the turn of 2022/2023, we witnessed a series of changes in employment and labor laws, the adoption of the Law of Ukraine “On payment services”, several steps taken on the way to Ukraine’s integration with the EU digital market, cancellation of the preferential VAT treatment for IT companies, etc.
Below you may find a brief summary of changes and comments of Deloitte professionals.

Along with the extension of the list of grounds for reservation of conscripts, the deferment for those already reserved has been extended yet again.

The amendments to the Law “On Mobilization Training and Mobilization” that cover the grounds for reservation of persons liable for military service took effect on 4 December 2022.
The Law allows the reservation of persons liable for military service if such persons are employed with the enterprises, institutions, and organizations that are critical for the operation of the national economy and provide vital services to the population in the exceptional period. The Cabinet of Ministers of Ukraine (“CMU”) is expected to define the criteria and procedure for determining critically important companies by 04 February 2023; business may apply this ground once the relevant regulation is enacted by the CMU.
We believe that the draft regulation that sets the eligibility criteria for critically important companies must go through public debates and consult the interests of business that creates workplaces and pays taxes.
In addition, on 30 December 2022, the CMU extended for another month, till 04 February 2023, the deferment from military service for employees in reserved occupations.

Digital Liberalization between Ukraine and the European Union

In late 2022, the Verkhovna Rada of Ukraine and the Cabinet of Ministers of Ukraine adopted several statutory regulations intended to make space for more accelerated introduction of “digital visa-free" regime for Ukrainians travelling to the EU member states:

• Law of Ukraine No. 2801-IX dated 01 December 2022;
• CMU Resolution No. 1311 dated 22 November 2022.

Some provisions of the above documents have already entered into force. As of the date of this Legal Digest, the following provisions have become effective:

• on the possibility of remote identification of a person when obtaining an electronic signature. The legislator also provides for the possibility of identifying a person using the data that is already available to the trust services provider;
• on the recognition by Ukraine of the results of trust services delivered by European providers on an equal basis with Ukrainian providers. This means, for example, that European qualified electronic signatures will be recognized in Ukraine. An important condition for such recognition is that the European provider must be included in the trust list of the EU states or the European Free Trade Association.

We believe these changes to be a positive step towards Ukraine’s integration with the EU Digital Single Market. We will continue to inform you about the implementation of these innovations.

Simplified record-keeping of jobs for people with disabilities

On 6 November 2022, the Law of Ukraine “On amendments to certain laws of Ukraine regarding the protection of social, labor, and other rights of individuals, including during martial law, and simplification of record-keeping of jobs for people with disabilities” entered into force.
Pursuant to the Law, effective 1 January 2023, business entities shall not be required to:

• register at their location with respective divisions of the Fund for Social Protection of People with Disabilities;
• report on the employment of people with disabilities to the Fund for Social Protection of People with Disabilities (report on the employment of people with disabilities, form No. 10-ПОІ).

However, the employers still must provide the state employment service with the information required for the employment of people with disabilities. Furthermore, the quota of jobs to be reserved for the employment of disabled people remains unchanged: 4% of the average registered number of full-time employees, or one job, if the total headcount of the company is 8 to 25 employees.
Any suspected violation of legislation on creation of jobs and employment of people with disabilities will be regarded as a ground for initiating an inspection by the State Labor Service, so we recommend that employers check their compliance with this regulation.

Law of Ukraine “On payment services”

The Law of Ukraine “On payment services” became effective from 1 December 2022. The Law:

• provides a clear classification of payment services and an updated list of payment service providers;
• allows branches of foreign payment institutions to provide payment services in Ukraine;
• allows nonbank financial services providers to open payment accounts, issue payment cards and e-money;
• itemizes the e-money issue and use process;
• requires those payment service providers who maintain customer accounts to grant, subject to their customers’ consent, permanent access to their customers’ accounts and financial information to other PSPs (Open Banking), effective 2025.

The National Bank of Ukraine has already adopted a series of new by-laws and is further revising its regulations to refine and update them in alignment with the provisions of the Law. We believe that the payment services market will benefit from and gather stronger momentum with the implementation of the Law.

Transfer of powers of the Social Insurance Fund to the Pension Fund of Ukraine

The Law of Ukraine “On Amendments to the Laws of Ukraine 'On mandatory state social insurance' and 'On mandatory state pension insurance’” came into force on 1 January 2023. Under this Law, the Social Insurance Fund (“SIF”) has ceased to exist.
After several years of discussions, the changes have been finally initiated to, in the first place, reduce administrative costs.
According to the Law, the administrative structures of the Pension Fund of Ukraine (“PFU”) and the SIF will be merged, and the functions of social insurance in case of temporary disability, industrial injury and occupational diseases will be transferred to the PFU and its local bodies. Accordingly, the PFU will be responsible for the payment of:

• temporary disability allowance;
• pregnancy and childbirth allowance;
• funeral allowance to insured persons, including those injured at work;
• one-time and monthly insurance payments to employees injured at work, members of their families.
  

Moreover, the PFU will be responsible for:

• allocation of insurance benefits and provision of social services;
• accident prevention;
• verification of validity of the issuance and renewal of disability certificates, as well as documents furnished as the grounds for their issuance, using information from electronic systems and registers;
• control over the use of insurance funds by insurers.

As can be seen from the above, it is the organizational model of social insurance that underwent changes, with the benefits for employees left intact. The new developments are expected to have a favorable effect on the administrative cost optimization. We will also monitor the changes in the interaction between government bodies and employers, specifically during the investigation of accidents, liquidation of enterprises, etc.

Exemption from obtaining a fuel storage license

On 3 January 2023, amendments to the Law of Ukraine “On the state regulation of the production and circulation of ethyl alcohol, cognac and fruit alcohol, alcoholic beverages, tobacco products, liquids used in electronic cigarettes, and fuel” came into force. According to the amendments, for the period of martial law in Ukraine and within 30 days from the date of its termination or cancellation, a business entity has the right to store fuel consumed for refueling an electric generator in the amount of up to 2,000 liters at each facility equipped with an electric generator without obtaining permits (permits, fuel storage licenses, administrative service deliverables). Where the amount of fuel stored for the said purposes exceeds 2,000 liters per facility equipped with an electric generator, the business entity must submit a statement of business activities that involve fuel storage to the local bodies of the State Tax Service.
Before the changes, business entities were allowed to store fuel without a license only in retail packages of up to 5 liters, as well as in some other exceptional cases provided for by the law.
These changes reduce the regulatory burden on business during the war and smooth the way to its continued operation by simplifying access to fuel.

Preferential VAT treatment for IT companies comes to an end

Applicable since 01 January 2013, the preferential tax treatment implied VAT exemption for software delivery activities and transactions that involve software treated as royalty-free under para. 14.1.225 of the TCU of Ukraine.
Effective 01 January 2023, VAT relief applies no longer. Although draft law 7611, which was intended to extend the applicability of VAT relief until 2028, was registered with the Verkhovna Rada of Ukraine in summer 2022, the legislator decided to the contrary.
Discontinuation of the preferential tax treatment will have tax consequences for those taxpayers who carry out software delivery activities in Ukraine or order products from nonresidents
Deloitte’s team of lawyers and tax consultants may help assess the appropriateness of application of VAT relief and prepare a defense in case of tax audit.

Public access to the USR and SRPR restored

By its Resolution No. 1422 dated 16 December 2022, the Cabinet of Ministers of Ukraine re-established the access to the Unified State Register of Legal Entities, Individual Entrepreneurs and Public Organizations (“USR”).
From now on, the access to information in the electronic USR may be provided to a person wishing to obtain such information, either on a free of charge basis or by generating a paid extract via the electronic services portal of the Ministry of Justice, subject always to such person’s identification using electronic identification means of medium or high trust level (qualified or advanced electronic signature).
On 4 January 2023, the possibility to obtain information from the State Register of Property Rights to Immovable Property (“SRPR”) online was restored as well. The information on ownership, other property rights to immovable property and their encumbrances may be obtained via the electronic services portal of the Ministry of Justice of Ukraine or via the Diia portal.
 

Law on prevention of workplace mobbing

On 11 December 2022, the Law of Ukraine “On amendments to certain legislative acts of Ukraine on preventing and countering mobbing (harassment)” came into force, which defines mobbing as an action of an employer or individual employees aimed at humiliating the dignity and honor of an employee, his or her business reputation.
The law introduces an obligation for employers to take measures to prevent mobbing and ensure the protection of employees’ physical and mental health. It also introduces new grounds for dismissal and administrative liability for workplace mobbing.
The law guarantees compensation for moral damages and severance pay in the amount of at least three months’ average salary that shall be paid by an employer to an employee who has been harassed or has decided to resign because of such actions.
Legislative regulation of mobbing aims to ensure protection against discrimination and psychological pressure in the workplace and to bring labor legislation of Ukraine in line with the European law.
Employers and employees are advised to pay attention to the changes introduced, as well as to consider the new rights, obligations and responsibilities of the parties related to workplace mobbing.

What will happen to cases pending before the liquidated DACK?

In December 2022, the Verkhovna Rada of Ukraine liquidated the District Administrative Court of the city of Kyiv (“DACK”).
All cases pending before the DACK have been provisionally transferred to the Kyiv District Administrative Court (“KDAC”) until the newly established Kyiv City District Administrative Court (“KCDAC”) begins its work. The same applies to new cases that previously fell under the DACK’s territorial jurisdiction.
Once the Kyiv City District Administrative Court starts working, it will have complete jurisdiction over these cases. The newly established court will start operating after the respective notice is published by the KCDAC chairman in the Holos Ukrayiny (Voice of Ukraine) newspaper.
Tax cases, supported by Deloitte lawyers, have also been transferred to the KDAC. The transfer of cases, including those pending ruling, will require a new trial. A similar situation will arise once the KCDAC starts its operation.
As we can see, in practice, such circumstances have a significant impact on the timing for consideration of the existing and new cases.

The above review is provided by Deloitte for information purposes only, and it should not be used as an official advice without special involvement of our professionals.

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