Category: Ukraine

Asters has advised the European Bank for Reconstruction and Development on a EUR 10 million financing for the Grain Alliance Group.

The Grain Alliance Group is a Swedish-owned mid-sized agricultural holding in Ukraine, according to the EBRD. It cultivates around 60,000 hectares of land.

According to Asters, “the loan will be used to improve and expand export capacity for grain, which was disrupted as a result of Russia’s large-scale armed aggression against Ukraine. To this end, the Grain Alliance Group will increase storage capacity, modernize infrastructure, as well as purchase grain hoppers, locomotives, and trucks to ensure safe grain transport from Ukraine to Slovakia and onward to final customers. The investment will help to provide a transshipment capacity of 400,000 tonnes per year and preserve over 1,000 jobs.”

In 2020, Asters advised the EBRD on another financing for Grain Alliance Group (as reported by CEE Legal Matters on July 8, 2020).

Asters’ team included Partner Iryna Pokanay, Counsel Gabriel Aslanian, Senior Associate Inna Bondarenko, and Associate Viktoria Zagreba.

Asters did not respond to our inquiry on the matter.

Despite missile strikes, businesses and society adapt to the new reality, with some non-war-related transactions in the works, according to Peterka & Partners Partner Taras Utiralov.

“Some time ago, when I was reading about the second world war, a thought cross my mind – that life must have stopped during those years,” Utiralov says. “It was my surprise to realize that in Ukraine, life didn’t stop after the invasion. As we speak, there is a new missile attack on Ukraine, our staff is in shelters and work is interrupted as there is no water supply or electricity in Kyiv. With the electricity off in the whole region, mobile networks and the internet can also be down for some time. This affects businesses, of course, but it’s not so critical for the legal business. It may delay some processes a bit in our industry, but it has naturally much more impact on restaurants, supermarkets, and so on.” Still, Utiralov says that people continue to have as normal of a life as possible: “we have discovered how adaptive we can be. The sky is the limit – even missile strikes on power stations don’t help Russia win the war, because we just adapt and continue.”

According to Utiralov, the legal sector remained busy despite the war. “During the first few months of the invasion, we were busy with requests for information about martial law and employment, as people were moving from Ukraine. However, over the last few months, we have received more and more usual requests that are not connected to the war.” According to Utiralov, these aren’t landmark deals with multibillion dollars of investments, but still, there is a steady growth of such requests. “We also have litigations related to the consequences of the war, including cases where someone couldn’t deliver a product because of the war or goods being stolen,” he adds.

Utiralov says that real estate is on hold: “whatever asset you might buy today, can be destroyed tomorrow. On the other hand, businesses that have survived the war and are not operating in areas close to active warfare, are still involved in transactions.” According to Utiralov, “such businesses included chemical production facilities, agriculture, and supply-related companies.”

Utiralov highlights recent legislative developments in Ukraine. “As we received the EU member candidate status, we have to adopt a large number of new legislative acts,” he says. “Additionally, in the last month, new legislative acts were adopted on joint stock companies, copyright, and electronic residency for foreigners. Interestingly, as soon as the last one comes into force, foreigners will be able to become taxpayers as entrepreneurs in Ukraine, and they will be able to complete many formalities remotely.”

In addition, Utiralov notes that an important act was adopted recently, de facto enabling the electronic signing of documents between Ukrainian and European businesses. “Until Ukraine signs a respective agreement with the EU, we have unilaterally recognized that qualified electronic signatures issued in the EU are equal by legal force to those issued in Ukraine,” he says. According to Utiralov, due to the war, “paper documents have become more burdensome, as a lot of clients were enquiring about electronic signing with foreign counterparties, as sometimes they have issues with it. As a result of the new act, electronic signing between EU and Ukrainian legal entities will become risk-free, therefore, we hope that it will have a positive impact on our economy.”

On April 1, 2023, the Law which enables foreigners to become e-residents in Ukraine (hereinafter “e-residence / e-resident”), will enter into the force (the “Law”).

What is e-residence?

E-residence is a status of a foreigner which enables him/her to:

• register, maintain, and terminate business activities in Ukraine (types of businesses are not restricted); and
• pay taxes on business income in Ukraine.

At this stage e-residents are not allowed to register companies in Ukraine remotely. E-rResidence does not also provide any rights to live in / visit Ukraine, while these remain the prerogatives of the migration regulations.

Before the launch of e-residence, several regulations are still to be adopted.

Who can become e-resident?

E-residence is available for individuals only. To be eligible to become e-residents, an individual must simultaneously meet the following criteria:

• be a citizen or resident (but not a stateless person) of a country included into the list issued by the Ministry of Digital Transformation of Ukraine (the “List”);
• not be a citizen of Ukraine (e.g., in case of dual citizenship), hold Ukrainian permanent residency permit or be a tax resident of Ukraine;
• be at least 18 years of age;
• not receive Ukrainian-sourced income (except for passive income).

To become a taxpayer, e-resident, in addition to the above-listed conditions, must simultaneously meet the following conditions:

• be registered as a private entrepreneur (the registration will be available via online means);
• open a bank account through the “E-Resident” information system with a Ukrainian bank available for selection in this system;
• not hire employees who are Ukrainian citizens or residents.

Previously, when e-residence was a pilot experiment and didn’t envisage a special tax regime, it was only available for citizens of Israel, Pakistan, China, Thailand, Bangladesh, Germany, Belarus, India, Moldova, Poland, Philippines, Romania, Slovakia and Hungary. However, the List is expected to be revised.

What is the procedure for obtaining / terminating e-residence?

To become e-resident, a foreigner must submit an application through the “E-Resident” information system, obtain a qualified digital signature issued by an authorized service provider, and pass the identification procedure.

E-resident will be entitled to terminate his/her e-residence status voluntarily by submitting a respective application. Ukrainian authorities have a right to terminate e-residence status of an individual by their unilateral decision in case of the individual`s death, restricted or lost civil capability, or non-compliance with eligibility requirements for e-residents. This status shall also be terminated if an individual`s qualified electronic signature expires, unless it is renewed within one month following the expiry date.

What are the peculiarities of the tax regime for e-residents?  

E-residents will become taxpayers of the 3rd group single tax which means taxation of the gross business income at the 5% rate. Deduction of any business expenses in order to decrease taxable income is not allowed.

However, the 5% rate only applies to the annual business income which does not exceed 1167 minimum wages determined by laws as of the January 1 of the tax (reporting) year (in 2023 it will be UAH 7,818,900, which is approximately EUR 201,455 according to the official exchange rate established by the National Bank of Ukraine). In case e-resident exceeds the threshold, the 15% tax rate will apply to the excess amount.

At the same time, e-residents are not subject to the social security charges in Ukraine.

The tax compliance should be quite simple and almost does not require e-resident`s direct participation, as most e-resident`s tax obligations will be handled by banks. In particular, e-residents must transfer their business income to a bank account opened with a Ukrainian bank. Upon crediting funds to the bank account, the bank will withhold the tax amount according to the abovementioned tax rate at the expense of the credited funds and transfer it to the state budget. Additionally, the bank will submit tax reports on e-resident`s income to the Ukrainian tax authorities.

Communication between e-residents and tax authorities must be performed exclusively by means of electronic communication.

Conclusion

E-residence regime provides instruments to declare and tax foreigners` business income in Ukraine with the minimum compliance burden. However, potential double tax issues may arise which need to be assessed in advance before choosing new regime.

By Victoria Fomenko, Partner, Tax and Customs and Vitalii Labadin, Associate, Tax and Customs,, Integrites

The Kyiv office of Baker McKenzie has advised the International Finance Corporation on channeling up to EUR 25 million in EU funds to help Ukrainian homeowners’ associations restore war-damaged residential buildings.

According to Baker McKenzie, the program, “launched by the Energy Efficiency Fund, will support Ukrainian families amid the ongoing war and boost the resilience of Ukraine’s residential sector. The program will pilot in Kyiv, Zhytomyr, Sumy, and Chernihiv, larger cities in northern and central Ukraine, to cover the costs of restoring multifamily buildings that did not suffer structural damage. The program will cover the replacement of windows, doors, roofs, and walls, among other elements.” 

In November, Baker McKenzie also advised the IFC on channeling up to EUR 25 million in grants to Ukrainian cities to help renovate municipal buildings for internally displaced people (as reported by CEE Legal Matters on November 4, 2022).

Baker McKenzie’s team was led by Managing Partner Serhiy Chorny and Associate Bogdan Dyakovych and included Junior Attorney Polina Korotka.

On 11 December 2022, Law No.2759-IX of Ukraine “On Amendments to Certain Legislative Acts of Ukraine on Preventing and Countering Mobbing (Hostile Environment)” dated 16 November 2022 (Law) came into effect. Among other things, the Law: (i) provides the definition of “mobbing”; (ii) introduces new grounds for dismissal of employees in connection with mobbing; and (iii) guarantees compensation of moral damages for employees who have suffered from mobbing.

Key changes

• The Law establishes liability for “mobbing (hostile environment)” for both the employer and/or employees.
• An employee may require termination of his/her employment on a date chosen by the employee (i.e., without notice) on the ground that the employee was subject to mobbing and/or the employer has not taken measures to stop it.
• New dismissal ground: employers may dismiss employees for committing mobbing.
• The Law requires payment of the severance of at least three months’ average salary of the employee resigning in connection with mobbing (hostile environment).
• New obligations for employers have been introduced. From now on, the employer is responsible (i) for counteracting mobbing and (ii) for ensuring the safety and protection of the physical and mental health of employees. The employer should arrange relevant trainings and implement organizational measures.
• In case of damage to the employee’s health caused by mobbing, the employee must be reimbursed in full for the relevant treatment costs.
• The employer is obliged to compensate the employee for moral damages if violations of the employee’s rights (as a result of discrimination or mobbing) has led to their moral suffering and affected their normal life.

We recommend that employers promptly implement the steps and actions required by the Law into their business activities.

By Lina Nemchenko, Partner, Mariana Marchuk, Counsel, Baker McKenzie

The War in Ukraine left no market sectors unaffected and, according to Ilyashev & Partners Managing Partner Mikhail Ilyashev, things were no different for lawyers.

“The most pressing concern was to secure documents and infrastructure when the war started,” Ilyashev begins. “A few weeks before the war started, we circulated a memo with instructions on what to do in case of an invasion – I was 100% certain that there would be a war,” Ilyashev says. He reports that Ilyashev & Partners successfully relocated to homes and special shelters and managed to “secure our databases as well, in addition to having done backups outside of Ukraine even before the war.”

Ilyashev shares that the firm successfully managed to operate in a home office paradigm because “electricity and internet were both running. Still, with all state authorities ceasing their operations – there was less work for lawyers overall. It was easy to see that lawyering was not the most important profession in war times,” he says. Still, there was work, and Ilyashev reports a strong stream of “inquiries with respect to leaving the country, crossing the border, as well as mobilization aspects. Additionally, there was a high number of asset transfers to the army on both a mandatory and voluntary basis – for example, we gave our old conference call system to the military – as well as the matter of paying taxes in advance. And our maritime law practice was even busier than before the war, due to the situation with the shipping in the Black Sea,” Ilyashev reports.

While March still saw some activity – especially in criminal law, dispute resolution, employment, and military law – Ilyashev reports a “massive slowdown of many departments” afterward, including real estate, intellectual property, M&A, competition, and international trade. “After the initial shock abated, and the courts began opening up on urgent criminal prosecution matters, people began returning to the cities – I came back to the office in April,” he reports. “As Kyiv became safer, so too the legal market began picking up – mainly for dispute resolution, employment, criminal, and military law aspects. We had to crack open the books and relearn military law – not a popular subject matter in peace times,” Ilyashev says.

As life started coming back to the cities, Ilyashev reports that their firm began “promoting office work” and that, by June, “about 70% of all our staff was back in our offices. Subsequently, we saw a rise in some real estate and corporate work, as well as daily corporate activities,” he reports. “Dispute resolution, competition, and international trade work began again later and, from June to November, the scope of services started resembling the realities before the war, with the exception of intellectual property and M&A,” he explains. While the figures are not at their 2021 levels, Ilyashev reports that there is some “degree of predictability now” and that the firm can now “make plans for December. In the early days of the war, we had to plan things on a day-to-day basis.”

Finally, Ilyashev reports that the firm had to “go lean – we lost about 20% of our office staff that went abroad during these times, but, on the other hand, our top priority was to secure salaries for those that stayed in Ukraine,” he explains. “This helped us be more clear in terms of the capacities we have to deploy,” Ilyashev concludes.

Integrites has successfully represented the interests of the Gradoliya Oil Extraction Plant in two stages of a tax dispute against the Main Directorate of the State Tax Services in the Kirovohrad region, Ukraine.

The Gradoliya Oil Extraction Plant is a Ukrainian producer of sunflower seed and rapeseed oil.

According to Integrites, “the dispute arose out of the tax authority’s unsubstantiated assumptions about the false business transactions of the enterprise. The tax authority had also misinterpreted the Tax Code norms and claimed that Gradoliya Oil Extraction Plant LLC had allegedly violated the law, having refused to provide the requested documentation. Earlier, in late May 2022, the Kirovohrad Administrative Court canceled the UAH 24.8 million tax decisions for Gradoliya Oil Extraction Plant LLC. Ultimately, the court has left the decision of the court of first instance unchanged.”

Integrites’ team included Partner Viktoriya Fomenko, Senior Associate Kostiantyn Kharchenko, and Junior Associate Viktor Chornyi.

Integrites Partner and Head of Corporate/M&A and the firm’s French desk lllya Tkachuk has been promoted to a Senior Partner in October 2022.

Specializing in corporate and M&A, Tkachuk has been with the firm since 2019, having first joined as a Partner. Previously, he spent over three years at Jeantet, from 2015 to 2019, first as a Counsel and promoted to a Local Partner in 2017. Earlier still, he worked with Gide Loyrette Nouel as a Lawyer, from 2008 to 2013, and as a Senior Lawyer, from 2013 to 2015. Between 2006 and 2008, he was an Associate with Asters.

“We are delighted to see the number of equity partners growing,” Integrites Managing Partner Oleksiy Feliv commented. “Just as in the case with other lawyer grades, the equity partnership formula at Integrites is grounded exclusively on performance indicators. Illya’s case proves that we’ve succeeded to create an environment where swift professional growth enables the transition to equity partnership. We are sure Illya will contribute to the sustainable success of the firm despite the hard times. His promotion is an inspiring example for other partners in our firm who have been on track to equity partnership”.

“Becoming one of the equity partners is a really important step for me, and I’m very grateful for the support of all the partners and the team,” Tkachuk added. “This is not only a new challenge, but it is also an opportunity to implement new ideas and plans. Despite the war and difficult times, Integrites shows stable development, and I’m thankful for an opportunity to contribute to it.”

Ilyashev & Partners has successfully represented the interests of Ukrainian glass-producer association Glass of Ukraine and its members in securing the introduction of provisional anti-dumping duty on imports to Ukraine of glass containers originating from the Republic of Belarus.

Glass Ukraine is a non-governmental organization uniting Ukrainian manufacturers of glass containers, plate glass, glassware, and art glass, as well as suppliers of equipment, materials, and services for the glass industry. The Association was founded in 1997 and its members produce over 80% of glass items in the country. 

According to the firm, as part of the interim results of the “anti-dumping investigation, on November 2, 2022, the Interdepartmental Commission on International Trade decided to apply a provisional anti-dumping duty of 31.37%” on a number of goods. “This decision on the application of provisional duty on imports of goods to Ukraine is the first decision adopted by the Commission after February 24, 2022. The application of provisional anti-dumping duties is an extremely exceptional intermediate result in the practice of anti-dumping investigations in Ukraine.”

Finally, Ilyashev & Partners reports that the “provisional anti-dumping duty is introduced for a period of four months and will be charged from the date of publication of the relevant decision of the Interdepartmental Commission in the Uriadovyi Kurier. The provisional anti-dumping duty will be levied by the customs authorities regardless of the payment of other taxes and fees (mandatory payments).”

The Ilyashev & Partners team was led by Partner Olena Omelchenko.

Editor’s Note: On August 2, 2023, Ilyashev & Partners announced that the matter was resolved following a final decision made by the Interdepartmental Commission on International Trade entering into force. According to the firm, the ICIT adopted a decision on the application of the anti-dumping duty for five years, in the amount of 49.81% concerning glass containers for food and beverages with a nominal capacity of 0.15 liters or more but less than 2.5 liters, as well as for jars made of colored glass with a nominal capacity of more than 0.33 liters but less than one liter.

Ilyashev & Partners has successfully represented the interests of PVC profile manufacturers Viknaland, Mayado, Open Teck, and Miroplast in a Ukrainian imports investigation.

According to Ilyashev & Partners, “on November 2, 2022, the Interdepartmental Commission on International Trade decided to discontinue a safeguard investigation into the imports of PVC profiles to Ukraine, regardless of the country of origin and exports, without the application of special duty, which was opened according to the Decision of the Commission dated August 27, 2021, No. SP- 504/2021/4411-03. In the summer of 2022, acting in the interests of domestic manufacturers of PVC profiles in Ukraine, Ilyashev & Partners initiated a complaint to the Ministry of Economy and the Interdepartmental Commission for International Trade requesting to carry out a safeguard investigation into the imports of PVC profiles to Ukraine, which was opened at their request on condition of unblocking access to the world market of raw materials, in particular, polyvinyl chloride, importation of which to Ukraine was levied with a special duty at the level of 12% of the customs value.”

According to the firm, as a result, along with the decision to discontinue the safeguard investigation, the “Commission decided to suspend the special duties applied according to the Decision of the Commission dated November 20, 2020, No. SP-466/2020/4411-03 On the Application of Special Duties to Imports to Ukraine of Polymeric Materials Regardless of the Country of Origin and Exportation until the suspension of martial law in Ukraine. Given the great window demand, the temporary suspension of the special duty will help stabilize the window market in Ukraine.”

The Ilyashev & Partners team was led by Partner Olena Omelchenko.