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Ukraine : legal alert “Government’s steps to support businesses”

Bertrand Barrier

On 13 May 2020, the Verkhovna Rada of Ukraine adopted the Law Amending the Tax Code of Ukraine and other Laws of Ukraine with a view to Supporting Tax Payers for the Duration of the Measures Implemented to Prevent the Occurrence and Spread of the coronavirus (COVID-19) (the ‘Law’). The Law is expected to be signed by the President and published soon.

This is actually not the first document promulgating measures to support businesses during the quarantine, and the Law extends the tax exemptions not up to a specific date, but mostly for a period tied to a decision of the Cabinet of Ministers to end the quarantine (whenever it may come).

In particular the Law:

  1. Extends the period of non-application of fines for violation of tax laws and penalty interest for a missed payment from March 1st through the last calendar day of the month in which the Cabinet of Ministers will announce the end of the
  2. Exempts private entrepreneurs and self-employed persons from payment (for themselves) of the unified social charge for the period from the 1st through the 31st of
  3. Extends the moratorium upon documentary and onsite audits through the last calendar day of the month when the quarantine will
  4. Lowers the requirement to the amount of the equity of banks from 500 million hryvnias to 200 million hryvnias and prolongs the effective term of the Law of Ukraine on the Simplification of Procedures for Reorganization and Capitalization of Banks until

This will allow banks to free up some cash, carry out reorganization by merging under a simplified procedure, pay depositors, apply a simplified capitalization procedure, and cease banking activities without liquidation of a legal entity.

  1. Grants local self-government authorities the right to lower the rates of the land charge and the real estate tax applied to non-commercial real This will allow self-government authorities to support businesses locally, if they choose to do so, by offering lower rates of taxes and charges – something they were not allowed to do without this law as the Tax Code banned them from changing the rates in the calendar year once they approve them.

OPENING OF UKRAINE'S BORDERS

Pursuant to Resolution of the Cabinet of Ministers of Ukraine dated 14 March 2020 no. 287 titled ‘Temporary Restrictions upon Movements Through the State Borders Designed to Prevent the Spread in Ukraine of the Acute Respiratory Disease COVID-19 Caused by the SARS-CoV-2 Coronavirus’ from 17 March through 22 May 2020, air, railway and motor passenger transportation have been temporarily suspended.

According to the statement by the Minister for Infrastructure of Ukraine Vladyslav Krykliy made on 22 May 2020, international flights will not be resumed from 22 May 2020, however, there are official statements from the Government yet.

According to the Chief Sanitary Doctor of Ukraine Victor Liashko made on 9 May 2020, when making a decision as to the opening of border crossings Ukraine will rely upon the epidemiologic situation with the coronavirus as well as decisions made in other European countries.

Some airlines started selling flights as early as May 22nd but we would advise against buying tickets for such flights as we believe that these airlines’ actions are premature, and without knowing when Ukraine will open its borders or when other countries will allow flights from Ukraine there will be uncertainty and you may find it difficult to get refunds for the purchased tickets in case the scheduled flights get cancelled.

BANKING AND FINANCIAL NEWS

I. On May 13, the Parliament adopted the Law on Amendments to Certain Legislative Acts of Ukraine with respect to Improving Certain Mechanisms of Banking Regulation, the so-called Banking Law or the “Anti-Kolomoisky Law”, which was the main remaining prior action for Ukraine to receive financing from the IMF.

The main purpose of the law is to make the process of liquidation of banks not only irreversible but also undisruptable, that is insulated from any litigation, as well as to ensure an effective process of implementation of NBU decisions on resolution of failing banks from start to finish.

This means that the main emphasis of the law is on resolving disputes of the owners of banks undergoing liquidation with the NBU and other governmental agencies.

The former owner of the bank will not be able to get the bank back but will be able to appeal the decision of the NBU in court and to get the right to compensation for the losses, if, at the time of liquidation, the bank had equity. For the purpose of calculating the amount of compensation from the bank’s equity and with a view to ensuring the impartiality of the process, the court will engage an internationally recognized audit firm as an independent arbitrator. The owner will be able to get the amount of equity calculated by the auditor back in cash.

In reality, the new law does not radically change the processes, but strengthens and details the rules that already exist. For example, regulations prohibiting halting the liquidation of banks and an exhaustive list of grounds for the completion of liquidation of a bank, which by the way does not contain a clause about a court decision.

As concerning the Kolomoisky case, the law already stipulated that the former owner of a nationalized bank could neither demand that the bank be returned to him nor claim compensation for the bank. Therefore, this new law does not radically change his case.

Analysing the new law, one can conclude that its purpose is to minimize the risks for the Deposit Guarantee Fund in the event of liquidation of banks and in the event there are ongoing judicial disputes, and to regulate the procedure for compensation of damages to the bank’s former owners.

It is interesting to note that the new law also obligates the Deposit Guarantee Fund to take measures to recover damages from persons related to the bank on the grounds of identifying transactions that have caused damage to the bank and/or its creditors.

By the way, it is also possible for banks not to push things to liquidation, for example, by reorganization, or by cessation of banking activities by relinquishing the banking license, provided that the depositors have been paid.

The law will come into force the day after its publication.

 

II. The National Bank also took a step towards banks and supported the decision of the Verkhovna Rada dated May 13, 2020, to reduce the requirement to the minimum equity of the bank from 500 to 200 million hryvnias. The members of Parliament believed it was justified in view of the fairly capitalized banking system and well-regulated in terms of risk.

 

III.  Financial monitoring – What has changed

On, April 28, 2020, the Law of Ukraine on Prevention of and Counteraction against Legalization (Laundering) of Criminal Profits, Financing of Terrorism and Financing of Proliferation of Weapons of Mass Destruction took effect.

While the law primarily concerns “financial monitoring entities”, there are changes that may affect your company or you as an individual. Let us take you through them.

The law sets out the foundation for identification of clients remotely. Financial institutions will be able to identify clients and open accounts for them without their physical presence, in particular, by video calls. While it does not mean that individuals and companies will be able to open accounts by being identified with their tax identification numbers, registered addresses or other unique identifiers through a centralized database, as has been common in many countries for years, it is a huge step forward for Ukraine. The details are not yet fully elaborated, but are expected to be soon, and we will get in touch once we know more.

The law introduced a risk-based approach to financial monitoring. This means that financial institutions should make scrutinize significant and suspicious financial transactions rather than transactions of trusted clients. In this regard, they will assess the risk of each of their clients individually. Practically, financial institutions may ask their client for additional information or documents about a significant financial transaction which is under financial monitoring in order to properly identify them, especially in case they have any suspicions or if any present information has discrepancies.

The threshold for transactions subject to financial monitoring was raised from 150,000 hryvnias to 400,000 hryvnias. Nevertheless, the value of the transaction will not be the only decisive factor as the law mentions that there will need to be one of 4 characteristics for a transaction to attract heightened scrutiny, which are:

  • financial transactions where at least one of the parties or the bank of such a party is located in a country that does not comply or improperly complies with the international anti-money laundering laws, or
  • financial transactions with public figures, or
  • international wires, including those to offshore jurisdictions, or
  • financial transactions with cash (deposits, transfers, withdrawals).

 

Please note that export/import transactions for a lower amount will not be subject to currency control rules either.

The law toughens rules for cash transactions. It will not be possible to make cash

money transfers in excess of 5,000 hryvnias without identification of the payer. This restriction will not apply to shops and other merchants, but it will apply to cash boxes

Another important change to mention concerns disclosure by companies of their beneficiary owners. The law requires banks and other financial monitoring entities to request information from all of their clients about their ultimate beneficiary owners in order to take all measures to verify the authenticity of information and to make sure that they know who the beneficial owner is.

As the law stands, an ultimate beneficial owner is a person who, despite any formal ownership, exercises decisive influence upon management or activities of a legal entity, either directly or indirectly, by way of owning at least 25 per cent in the charter capital or voting rights of a legal entity. The law also introduced new registration requirements for companies. In particular, companies will need to provide registrars with information about their ultimate beneficiary owners, the structure of ownership and a notarized copy of the identification document of the ultimate beneficial owner who is a non-resident. No special forms for disclosure of such information are available yet. Further, the law also introduced a new requirement for companies to confirm, on an annual basis, information about their beneficial owners and ownership structure in the Unified State Register with the same documents.

ENERGY

Feed-in tariff mediation

The procedure for mediation between the Ministry of Energy and Environmental Protection and renewable energy investors (represented by the European-Ukrainian Energy Agency and the Ukrainian Wind Energy Association), under the auspices of the Energy Community Secretariat’s Dispute Resolution and Negotiation Centre, is nearing its completion.

A meeting is planned for 18 May 2020 with the Prime Minister, the Ministry of Energy, representatives of the European Energy Community, where a draft Memorandum to resolve the dispute about changes to the renewable energy support scheme in Ukraine shall be discussed.

A draft Memorandum to be signed within the mediation procedure proposed by the Government has disappointed many renewable energy investors.

Generally, the draft provides for:

  • reduction of the feed-in tariff for solar plants by 25%, for wind farms – by 12,5% without extension of the feed-in tariff’s applicable period;
  • responsibility for imbalances: for renewable energy producers not opting for restructuring – 100%; for producers that have accepted the restructuring proposal – 10% starting from 1 July 2020, 50% starting from 1 January 2021, 100% starting from 1 January 2022;
  • solar plants commissioned prior to 1 July 2020 and wind farms commissioned prior to 1 July 2021 will have the right to participate in “green auctions”.

 

Please also note that recently the ambassadors of Belgium, Great Britain, Canada, Norway, Germany, France, Sweden, and South Korea to Ukraine sent a letter to the the Ukrainian government asking to prevent a situation where foreign investments into renewable energy are not repaid.