Category: Ukraine

On 15 July 2021, the Ukrainian Parliament adopted at its first reading the draft law introducing the new tax framework for the gaming industry (No. 2713-д). This is one of the key steps towards the full-fledged relaunch of Ukraine’s gaming market following its ban in 2009.

In order for the draft law to enter into force, it should be adopted by the Parliament in the second reading and signed by the President, and so the draft law may be further amended. This note outlines principal provisions of the current draft law.

Taxation of gaming companies

Tax regime. The anticipated tax regime for gaming operators will combine both corporate income tax (CIT) and gross gaming revenue (GGR) tax.
CIT. Corporate income is taxed at the 18% rate. The tax base will include income received from gaming and any other, non-gaming, activities (but the tax base will be reduced by the GGR tax, as discussed below).

GGR. The GGR rate will be 10%, and this rate will apply to any type of gaming activity. The tax base for GGR will be (a) revenue received from gaming activities, plus (b) unclaimed winnings, less (c) payouts and returned bets. The 10% GGR tax will be deductible from the taxable income and, accordingly, will reduce the tax base for the purposes of calculating CIT.

Taxation of B2B service providers. B2B companies will not be subject to GGR; they will only be required to pay CIT.

For example, if a gaming operator receives income of EUR 100 from gaming activities and EUR 10 from any other, non-gaming, activities, while the operator incurred expenses of EUR 40 (excluding payouts) and made payouts of EUR 35 (and assuming there are no unclaimed winnings and returned bets), the income would be taxed at:

EUR 6.50 calculated at the 10% GGR tax rate on the gaming revenue of EUR 100 less the payouts of EUR 35; and EUR 5.13 calculated as the 18% corporate income tax rate on the income of EUR 100 from gaming and of EUR 10 from other, non-gaming, activities less the expenses (including the payouts and the GGR tax) of EUR 81.50.

Taxation of players

Personal taxation. Wins of less than eight times the minimum wage (approximately EUR 1,500) as of 1 January of the relevant year will not be subject to personal income tax (at the 18% rate) and military tax (at the 1.5% rate). Only the excess amount will be subject to these taxes. Player’s expenses incurred within the 24-hour period preceding their win (for example, a casino entry fee) will reduce the tax base for personal income tax (if payable).

Payment of personal taxes. Gaming operators will act as the players’ tax agents – that is, operators will be responsible for reporting and payment of personal taxes derived from their players’ gaming activity. When reporting, the personal data of players should be anonymised.

Cancellation of tripled licence payment

Currently, the Gambling Law provides that the amount of licence payments for betting, online casinos and slot machine halls will be tripled until the State System of Online Monitoring is launched (anticipated by August 2022). The draft law suggests that the requirement to triple licence payments will be abolished. Operators that have already made these tripled payments will be able to offset those payments against future licence payment.

By Oleksandr Markov, Head of Tax, and Vlad Zakon, Gaming Practice Coordinator, Redcliffe Partners 

On 21 July 2021, Law of Ukraine “On Amendments to Tax Code of Ukraine and Other Laws of Ukraine on Stimulating De-Shadowing of Income and Improving Tax Culture of Citizens by Introducing One-Time (Special) Voluntary Disclosure by Individuals of Their Assets and Payment to Budget of One-Time Duty” No. 1539-IX, dated 15 June 2021 (“Tax Amnesty Law”), entered into force.

Tax amnesty

According to the Tax Amnesty Law, individuals will be released from liability for tax and currency control infringements for the assets reported in special returns. Information reported in special returns will be confidential and may not be used in tax audits, criminal investigations, or as evidence in court proceedings.

Individuals, who are tax residents of Ukraine, and individuals who used to be tax residents of Ukraine at the time when reportable assets had been acquired, may apply for the tax amnesty. However, certain categories are not eligible for the tax amnesty.

If properly reported, assets are taxed at the following special duty rates:

• 2.5% for Ukrainian government bonds with a maturity greater than one year and no premature termination, acquired: (i) between 1 September 2021 and 31 August 2022, and (ii) prior to filing of the special return
• 5% for assets located in Ukraine, including debt claims to residents of Ukraine
• 7% (9% starting from 1 March 2022) for assets located abroad, including debt claims to non-residents of Ukraine

Individuals may report assets in their special returns from 1 September 2021 until 1 September 2022.

Special duty is payable within 30 calendar days upon filing the return.

Antitrust amnesty

Individuals may benefit from reduced liability for infringements of Ukrainian merger control rules. Particularly, an individual that completed a transaction without obtaining prior approval of the Antimonopoly Committee of Ukraine, if such approval was required, would be subject to a UAH20,400 fixed fine. By contrast, the statutory maximum fine for the failure to comply with Ukrainian merger control rules is 5% of a group’s turnover.

To benefit from the reduced antitrust liability, individuals should meet the following requirements:

• submit the special returns and pay the special duty
• transactions took place before 31 December 2020
• transactions did not lead to monopolisation or substantial restriction of competition on the relevant market
• file merger control notifications by 1 October 2022

By Bodgana Kharchuk, Associate, and Kyrylo Bocharov, Associate, Avellum

CMS Kyiv has helped Stakelogic obtain a B2B supplier license from the Commission for the Regulation of Gambling and Lotteries in Ukraine.

Stakelogic is an end-to-end developer of graphics, animations, sounds, game servers, and UI for casino games.

According to CMS, “Stakelogic’s full suite of games has already been approved by the Malta Gaming Authority, ONJN in Romania, as well as the UK Gambling Commission.”

The CMS team included Partner Olga Belyakova, Senior Associate Mykola Heletiy, and Lawyer Oleksandr Sytnyk.

LCF Law Group has advised Scatec Solar on the launch of a 148-megawatt solar power plant located in the Mykolaiv region.

Scatec is a renewable power producer.

LCF’s team included Counsel Ivan Bondarchuk and Associate Kateryna Andarak.

For several decades, it was prohibited in Ukraine to alienate, or change the designated use of, certain types of the privately owned agricultural land plots used for the farming and commercial agricultural production, which impaired the rights of private landowners and affected the efficiency, liquidity and transparency of the market.

This long-standing prohibition, commonly known as the “land moratorium”, is to be eased following the enactment on 1 July 2021 of the long-awaited law “On the Amendments to Certain Legislative Acts of Ukraine regarding the Conditions of Turnover of Agricultural Land” No. 552-IX, which marks an important step of land reform in Ukraine.

a. Eligibility and timelines

The moratorium will be lifted gradually and with regard to eligibility and land consolidation requirements, as set out below:

Beginning from 1 July 2021, Ukrainian citizens and banks сan buy agricultural land plots. This is subject to the consolidation limitation of up to 100 ha per person which applies to Ukrainian citizens (without regard to land plots already owned by a citizen as of 1 July 2021). No such limitations apply to the banks; however, they can acquire agricultural land plots only in the course of mortgage enforcement and subject to further auction sale within two years following such acquisition.

From 1 January 2024, all the subjects mentioned above, as well as Ukrainian legal entities (whose shareholders are residents of Ukraine and/or the State of Ukraine and/or the territorial communities), will be able to buy agricultural land plots, subject to the consolidation limitation of up to 10,000 ha per person or legal entity. Where a person is a shareholder of a legal entity which owns agricultural land plots, the area of such land plots multiplied by the percentage of such person’s share in the legal entity will be counted towards the total area of land owned by such person.

Ownership of agricultural land plots by foreign citizens and/or foreign legal entities (including, indirectly, through participation in Ukrainian legal entities) is only possible upon a decision of the all-Ukraine referendum and subject to the conditions as may be defined by such referendum. It is not known yet if and when the referendum will be conducted.

As previously, foreign individuals and foreign legal entities, as well as Ukrainian entities with foreign participants, can lease agricultural land and own non-agricultural land. Certain conditions and restrictions still apply to the ownership of non-agricultural land by foreign individuals and entities.

b. Prohibited ownership

Prohibited from owning agricultural land are: sanctioned persons and entities; participants in terrorist organisations; legal entities whose shareholders or ultimate beneficial owners (the “UBOs“) are foreign states or citizens of the aggressor states; legal entities controlled by persons registered in non-cooperative states included in the FATF lists; legal entities whose UBOs are non-identifiable or registered in offshore jurisdictions as per the list approved by the government, or legal entities, whose shareholders or UBOs are not Ukrainian citizens, in relation to state or municipal land plots, land plots allocated in kind to owners of land shares, or land plots located within 50 km of the Ukrainian state border (except where the state border is running in the sea).

It is also prohibited to alienate land shares and state-owned and municipally owned agricultural land plots, and alienate and change the designated use of private agricultural land plots allocated in kind to the owners of land shares, located in the temporarily occupied territories (except for inheritance).

If agricultural land is acquired in violation of the land ownership eligibility criteria or concentration limitations, this would provide the ground for invalidating the relevant transactions and confiscating the land plots.

c. Pre-emptive right

The new requirements are introduced in regard to the pre-emptive right to purchase the agricultural land plots. The holders of special subsoil use permits have the first ranking pre-emptive right, while the lessees of the land plots have the second ranking pre-emptive right. The owner of a land plot has to register its intention of selling the land plot in the State Immovable Property Rights Register at least two months prior to such sale, following which the notary has to notify the holder of the pre-emptive rights of such owner’s intention. Those persons not eligible to the land ownership can transfer their pre-emptive rights to third parties by agreement.

The above requirements and procedures have to be considered by landowners and land users when planning further operations with agricultural land plots. In particular, it is important to check the contract provisions in regard to the pre-emptive right and ensure that all registrations in the state registers required to confirm such rights are correct.

d. Payments

Additional requirements are established, aiming to secure greater transparency and security of land market transactions. Namely, the purchase price for the agricultural land plots will have to be paid in a cashless form. The buyer will have to confirm the sources of financing by presenting the relevant documents to the notary. Until 1 January 2030, the purchase price cannot be less than the normative monetary valuation of land plots.

e. What’s next?

It remains to be seen how the mechanisms required to check: the land ownership eligibility and compliance with the consolidation requirements; the buyers’ sources of financing of the land purchase; and register information on the subsoil use permits in the State Land Cadastre, will be implemented. Action should be taken for the preparation of the referendum to decide on the right of foreign persons and entities to own agricultural land.

It is necessary get rid of the atavistic concepts of land shares and permanent land use, to transform these into modern market structures, to ensure further deregulation of the land market and to facilitate access to financing of the agricultural businesses.

Liberalisation of the land market is expected to improve the transparency, liquidity and efficiency of the market, and its attraction for investors.

By Svitlana Teush, Partner, Head of Renewables, Real Estate and Construction, Redcliffe Partners 

Vasil Kisil & Partners has advised the Avrora Group on the sale of a minority shareholding to Horizon Capital private equity fund. EY Law advised Horizon Capital on the deal.

Avrora is a dollar store retail chain in Ukraine. Founded in Poltava in 2011, the company now has approximately 650 locations. 

Horizon Capital is a private equity firm managing funds with over USD 1.1 billion in assets under management.

Vasil Kisil & Partners’ team included Partners Volodymyr Igonin and Anna Sisetska and Associates Artem Shmatov, Yevhenii Senchenko, and Iryna Savchuk.

EY Law’s team included Partner Borys Lobovyk, Associate Partner Bogdan Malniev, Senior Lawyer Vitalii Pustovyi, and Lawyers Yuriy Kovalenko and Ihor Savchuk.

On 2 July 2021, Law of Ukraine “On Amending the Tax Code of Ukraine on Abolition of Taxation of Income Received by Non-Residents in the Form of Payment for Production and/or Distribution of Advertisements and Improvement of Value-Added Taxation of Transactions Involving the Supply of Electronic Services by Non-Residents to Individuals” No. 1525-ІХ (the “Law”) entered into force. The Law introduces VAT on digital services supplied by non-residents to Ukrainian individual customers and abolishes 20% withholding tax on advertising services.

Persons liable to tax

Non-residents without permanent establishments in Ukraine that supply digital services to individual customers located in Ukraine are liable to VAT on digital services. If services are supplied through a non-resident intermediary, tax payment obligation may be imposed on such intermediary.

Scope of digital services

The Law provides for a non-exclusive list of digital services that fall within its scope. For example:

• supply of digital copies, granting access to images, texts, audio-visual works including movies and video games, etc., for instance via subscription plans
• granting access to data banks, in particular via search engines and internet catalogues
• digital advertising services
• other digital services supplied via the internet with certain exceptions

VAT registration and other obligations

A non-resident may apply for VAT registration voluntarily. The registration is mandatory if the volume of digital services supplied by a non-resident to individual customers located in Ukraine during a calendar year exceeds UAH1 million (approx. EUR 30,700) (“Mandatory Registration”).

Once the registration is completed, the non-resident must include 20% VAT in the invoices issued to individual customers located in Ukraine, submit quarterly VAT returns, and pay VAT.

Non-residents will be able to register and submit VAT returns online. Also, non-residents may choose to pay tax either in EUR or USD. A Ukrainian bank account is not required.

Initial tax period

The first tax period starts on 1 January 2022. Non-residents subject to the Mandatory Registration based on the volume of services supplied in 2021 must file their VAT registration applications by 31 March 2022.

Other changes

The Law abolishes 20% withholding tax on advertising services supplied by non-residents to Ukrainian tax residents with effect from 1 January 2022.

By Vadim Medvedev, Partner, and Oles Bidnoshyia, Associate, Avellum

The Government of Ukraine has recently implemented additional measures to prevent and counteract the legalization (laundering) of proceeds of crime, terrorist financing and financing of proliferation of weapons of mass destruction. Thus, Ukraine made one more step towards implementing 4th Money Laundering EU Directive.

According to the Law of Ukraine “On Prevention and Counteraction to Legalization (Laundering) of Proceeds of Crime or Financing of Terrorism and Proliferation of Weapons of Mass Destruction” adopted on 6 December 2019 (the Law), Ukrainian companies shall disclose their ownership structure, including  ultimate beneficial owners (the UBOs) in compliance with the form and new requirements to be approved by the Ministry of Finance.

Finally, the long-awaited legal enactment, namely the Order of the Ministry of Finance of Ukraine No. 163 “On Approval of Regulations on Form and Content of Ownership Structure” dated March 19, 2021 (the Order), was approved and came into force on 11 July 2021.

According to the Law, the companies have three months to fulfill the new requirements, namely, to file the ownership structure along with the supporting documents. The three-month period started on 11 July 2021 (when the new rules started to apply) and will expire on 11 October 2021.

What are new requirements for legal entities?

From 11 July to 11 October 2021, all legal entities must provide the state registrar with the ownership structure which is executed in writing (no particular form is required) and illustrates a brief overview of all persons who directly or indirectly own a legal entity independently or jointly with other persons.  

The Order says that the ownership structure shall show:

• all persons owning a legal entity, whether directly or indirectly, independently or jointly with the other legal entities;
• stake held by each of the shareholders;
• persons who, irrespective of the form of ownership, have a significant influence on the legal entity’s management or activities;
• description and nature of the UBO’s decisive influence on the legal entity’s activities.

Samples of the brief representation of the ownership structure are published on the official website of the Ministry of Finance of Ukraine.

Notably, the ownership structure shall be submitted along with the official documents (copies thereof) that confirm the title to make a decisive influence on the legal entity’s management or activities.

Once these documents have been submitted, the information about the UBOs (name, surname, ID information, residence address) will be updated and available in the Unified State Register of Legal Entities, Individual Entrepreneurs, and Civic Organizations (the Company Register), which is public.

Other obligations

The Law says that all legal entities must keep the information on the UBO and ownership structure up to date, update it and notify the state registrar of changes within 30 working days from the date thereof, and submit documents confirming these changes to the state registrar.

Considering that the Order was approved in 2021, the obligation to confirm information about the UBO will apply starting from 2022. In 2022, legal entities shall update information about the UBO and submit related documents to the state register within 14 calendar days from the legal entity’s state registration date.

Therefore, it is advisable to keep an eye on the legal entity’s state registration date to be ready to collect the documents required in advance. 

Moreover, the fulfillment of the disclosure obligation will be required to amend the legal entity’s profile in the Company Register. In other words, if a legal entity has to introduce any changes into the legal entity’s profile in the Company Register (e.g., registration of the restated charter, legal address, registration of director, etc.), the ownership structure and related documents shall be submitted first. Therefore, it is highly advisable to follow legal requirements and submit an ownership structure in advance.

Failure to submit. What are the sanctions?

Failure to submit or delayed submission to the state registrar of the legal entity’s UBO information or relevant documents will result in the penalty imposed on the legal entity’s director and amounting to UAH 17,000 – 51,000 (approximately EUR 510 -1,530).

Resume

Given that the Law made the meaning of the UBO broader, businesses should carefully review their ownership structures and identify the ultimate beneficial owners in line with the new requirements.

The requirements as to the ownership structure and supporting documents are rather detailed and might be a challenge for the companies which have a complex multi-level ownership structure. Therefore, local subsidiaries of the multinational groups should start collecting documents as soon as possible.

By Vasyl Yurmanovych, Counsel, and Yuliya Bleshmudt, Associate, Integrites

Asters has advised the Black Sea Trade and Development Bank on up to USD 20 million in financing to the group of companies that owns two shopping malls under the Araks brand in Kyiv.

According to Asters, the loan will “support the modernization and upgrade of the commercial property owned by the group and located in Kyiv and Khmelnytskyi substantially for the purpose of improving their energy efficiency and reducing energy consumption, as well as the refinancing of the group’s existing credit portfolio.”

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

Avellum has advised State Road Agency of Ukraine Ukravtodor on a debut USD 700 million issuance of 6.25% guaranteed notes due 2028 with a benefit of the sovereign guarantee as well as the Ministry of Finance of Ukraine on the actual sovereign guarantee. Sayenko Kharenko and Linklaters advised managers J.P. Morgan, Dragon Capital, and Ukreximbank.

According to Avellum, the notes were admitted to listing on the London Stock Exchange. The firm further informed that “priced at 6.25%, Ukravtodor has received one of the lowest coupon rates among all issues of Ukrainian sovereign and quasi-sovereign Eurobonds denominated in US dollars in the history of Ukraine’s independence. The proceeds of the issue will be used to upgrade the road infrastructure in Ukraine within the Great Construction governmental program.”

Avellum’s team was led by Senior Partner Glib Bondar and included Partner Vadim Medvedev, Senior Associates Anastasiya Voronova and Anton Zaderyholovа, and Associates Oleg Krainskyi, Anna Mykhalova, Mariana Veremchuk, Yaroslav Pavliuk, and Oles Bidnoshyia.

Sayenko Kharenko’s team included Partner Igor Lozenko, Senior Tax Associate Anton Kerimov-Varanytskyi, Associates Oles Trachuk and Vladyslava Mitsai, and Junior Associate Oleksandr Motin.

Linklaters’ team included Partners Richard O’Callaghan and Yaroslav Alekseyev and Managing Associates Amelia Rice and Ariel Hsiung.