Legal Digest #2

In the late summer and early fall of 2023, the legislator took a number of steps to ease currency restrictions, simplify the registration and liquidation of branches and representative offices of foreign legal entities, and tax audits were renewed. There were also significant changes in the regulation of state support for investments, land leases, and collective agreements.

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

Extended grounds for conducting tax audits

Effective from 1 August 2023, the legislator expanded a list of grounds for conducting tax audits, including planned ones. Therefore, we advise to periodically check the plan/schedule to entities whom the tax authorities are entitled to include in it, namely, those who are engaged in:

• Production and/or sale of excise goods;
• Activities in the area of organization and conduct of gambling in Ukraine;
• Providing financial and/or payment services.

Also, on 6 September 2023, the Draft Law No. 10016 was registered in the Verkhovna Rada of Ukraine which proposes to enable the tax authorities to conduct documentary audits on all the grounds specified by the Tax Code of Ukraine.

And though the changes have not become effective from 1 October, as envisaged by the Draft Law, we do not exclude that the legislator may take this bill as a basis, but with a different date for the renewal of tax audits.

In addition to bringing back the grounds for conducting tax audits, the Draft Law retains the requirements for the availability of safe conditions for conducting audits under martial law.

The Draft Law also proposes to stipulate that planned documentary tax audits of all taxpayers may commence no earlier than in 30 calendar days after the plan/schedule is announced, provided that an order to conduct an audit is sent to taxpayers no later than 10 calendar days before the date of its beginning.

We are going to closely monitor the progress of this bill and will let you know if it is adopted.

Ease of currency restrictions

During the summer period, the National Bank of Ukraine (the NBU) repeatedly eased the currency restrictions imposed during martial law. Thus, in June, several amendments to the Resolution of the NBU’s Board No. 18 dated 24 February 2022 came into force, in particular, those relating to the repayment of loans/borrowings from non-residents. Specifically, the NBU allowed residents to make cross-border transfers in order to fulfill debt obligations under the loans/borrowings received from non-residents, in particular, repayable financial aids:

• Granted, in full or partially, through the participation of international financial organizations, foreign export credit agencies/foreign countries via authorized representatives, etc.;
• Received from any non-residents after 20 June 2023, subject to compliance with a number of requirements.

Electronic court

On 18 October, the Law on Obligatory Use of the Electronic Court (Draft Law No. 7574-д), which was adopted on 29 June 2023, comes into force.
In accordance with this Law, in order to participate in judicial proceedings, private companies are obliged to register their electronic cabinets in the electronic court system and submit documents through them:

• In commercial court proceedings, effective from 18 October 2023;
• In civil and administrative court proceedings, effective from 21 February 2024.

New legislative changes, in our opinion, may simplify the interaction between parties in the case and have a positive effect on the judicial process. However, the quality of technical support and the stability of the electronic system will have a decisive influence on this. The experience of interaction with the electronic court shows that, from a technical point of view, the electronic cabinet still needs improvements.

Creation and liquidation of branches and representative offices of foreign legal entities in Ukraine

On 14 July 2023, the Verkhovna Rada of Ukraine adopted the Law No. 3257-IX, which is going to simplify the creation, registration, and liquidation of branches and representative offices of foreign legal entities in Ukraine.

The Ministry of Economy will no longer be involved in registration activities regarding branches and representative offices of foreign legal entities, instead, state registrars will enter information about branches and representative offices into the Unified State Register (the USR). The changes envisaged by the Law become mainly effective from 3 September 2024.

We are going to monitor the legislative changes being implemented, in particular, we are looking forward to seeing how data about already registered branches and representative offices are entered into the USR and how archaic service cards from the Ministry of Economy and limits on the number of employed foreigners in representative offices of foreign companies are cancelled.

Improved institution of “investment nannies”

On 17 September 2023, amendments to the Law of Ukraine “On State Support of Investment Projects with Significant Investments in Ukraine” (hereinafter, the “Law”) entered into force.

The updated Law simplifies the procedure for concluding a special investment agreement and requirements to applicants, in particular, due to:

• Reduced size limit of significant investments contributed into investment items before concluding a special investment agreement from EUR 20 million to EUR 12 million;
• Decreased requirements to the number of new jobs from 80 to more than 10, 30, or 50, which will depend on the salary level;
• Simplified procedure for projects approval, eliminated requirement to analyze the so-called “economic” indicators of the project;
• A possibility to start implementing projects before concluding an investment agreement and contribute 25% of the investment cost for pre-project works.

Also, the already existing forms of government support have been complemented by construction of engineering and transport infrastructure items (or compensation for the construction cost), compensation of costs for joining engineering and transport networks, and exemption from compensation for forestry production losses.

It is expected that, due to the reduced thresholds, the simplified requirements to projects approval, and the extended forms of government support, the “invest-nannies” institution will become an effective mechanism for implementing investment projects already today and contribute to increasing the volume of investments during the post-war restoration.

The Law on Lease of State-Owned Agricultural Land

On 3 September 2023, the Law of Ukraine “On Amendments to Certain Legislative Acts of Ukraine on Improving the Efficiency of Use of State-Owned Agricultural Lands” came into force. The adoption of the Law is one of the most important stages in introduction of the land bank.

The Law envisages that:

• State-owned agricultural land plots may be withdrawn from the permanent use of state-owned enterprises without their consent and without a consent of the bodies to whose management they belong and transferred to a newly created company, 100% of shares in which belong to the state (hereinafter, the “Company”), by a decision of the Government.
• Land plots will be leased to the Company for a period of up to 50 years, and rent will amount to at least 12% of the normative monetary value (instead of 1%).
• The land plots transferred to the Company will be subject to further sublease for a period of up to 14 (in some cases, 25) years. The lease payment will be determined based on the results of land auctions (in the form of an electronic auction).

In addition, the Law envisages a possibility of transforming state-owned enterprises into limited liability companies (LLCs). Previously, it was possible to corporatize state-owned enterprises only in joint-stock companies (JSCs).

We believe that the Law will improve the efficiency of land use and increase contributions paid to the state budget due to open auctions. The amendments which allow a possibility of transforming state-owned enterprises into LLCs will expand possibilities for corporatization in the state sector of the economy.

Digital content and digital services in a new way

In August, the Verkhovna Rada of Ukraine adopted the Law of Ukraine “On Digital Content and Digital Services” (hereinafter referred to as the “Law”), which will become effective on 2 March 2024.

The Law defines the concepts of “digital service” and “digital content” and establishes the rules for their provision in order to secure additional rights of consumers of such services. At the same time, the Law does not cover financial, medical services, provision of digital content by government authorities, etc.

The provisions of the Law of Ukraine “On the Protection of Consumer Rights” will, from now on, regulate the provision of such services only in the part not regulated by this Law.

Also, the Law establishes responsibilities of a contractor, in particular, for:

1) Violation of consumer rights related to the provision of digital content and/or digital service – a penalty in the amount of 10 times their value;

2) Violation of compliance rules – in the amount of 300 percent of the value of the digital content and/or digital service provided. To prove the absence of a violation of the Law is the contractor’s liability.

Thus, consumers of digital services and content will receive additional rights. In turn, businesses still have enough time to get ready for the implementation of the Law requirements in their activities.

A new law on collective agreements and contracts

In April 2023, the President signed the Law of Ukraine “On Collective Agreements and Contracts” No. 2937-ХХ dated 23 February 2023, which will become effective in six months after the termination or cancellation of martial law.

The Law stipulates for new opportunities for the parties to collective agreements, in particular:

• Extended list of parties to the agreement;
• Detailed contents of the collective agreement and reduced list of mandatory conditions;
• Envisaged possibility to stop and suspend the effect of certain provisions of collective agreements;
• Established ratio between the norms of collective agreements at the sectoral and territorial levels;
• Detailed procedure for approving collective agreements;
• Clarified procedure for using trade union deductions.

Such changes are intended to eliminate gaps in the regulation of certain relations (for example, in terms of the ratio of the legal force of agreements and areas of use of deductions in favor of trade unions), as well as to harmonize the national legislation with the EU legal regulations.

A shift in public holidays

In late July, Article 73 of the Labor Code was amended with a range changes regarding dates of public holidays, in particular:

• Christmas shall be celebrated only on 25 December, 7 January is a working day;
• 9 May shall not be treated as a holiday, instead, the Day of Remembrance and Victory over Nazism in the Second World War 1939–1945 was introduced, to be commemorated on 8 May;
• The Ukrainian Statehood Day was shifted from 28 July to 15 July;
• The Day of Defenders of Ukraine was moved from 14 October to 1 October.

Please be advised that, during the period of martial law, the legal norms regarding public holidays do not apply.

The military registration of women effective from 1 October 2023

The military registration of women is governed by Order of the Ministry of Defense of Ukraine No. 35 dated 7 February 2022, according to which, effective from 1 October 2023, women aged 18 to 60 who have obtained a medical or pharmaceutical specialty are subject to being included in the military registration of conscripts. All other women possessing related military specialties may register for military service at will.

Information about employed conscript women shall be submitted to recruitment centers by their employers. At the same time, the deadline for submitting the relevant lists is currently not defined by law.

It is also worth noting that the current legislation does not contain a direct prohibition on the departure of conscripted women abroad. However, it is difficult to predict whether the regulation will change in the near future, thus, we will continue monitoring the updates and practices of the State Border Guard Service of Ukraine.

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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