ExpatPro Blog

https://zn.ua/ukr/POLITICS/jak-zakonno-immihruvati-v-ukrajinu.html 

In the interview with Tetiana Yashchenko and Vasyl Cherednichenko, partners in EXPATRO, we talk about the practice of migration law and IT, changes in the partner structure and how their company works during the war.

– Vasyl, could you please tell us how EXPATRO’s work has changed since the start of the full-scale war?

– Undoubtedly, our work has changed drastically, in terms of clients and employees. The start of the full-scale invasion was a dreadful shock for everyone. We suspended operations for a few days. Later, as soon as we realised that people were safe, we returned to work. We notified the team that we were continuing to work on the projects we had started before, and were ready to undertake new ones. 

First and foremost, we focused on supporting our employees and the team as a whole. This was a priority for us, both in terms of organisational and financial support. 

Given that a certain number of our clients are foreigners, many of whom have left the territory of Ukraine and some have suspended their projects, our work with them has changed. Over time, Tetiana and I decided that we needed to reopen the office in Kyiv, so in May, EXPATPRO resumed its work in the same way as before the full-scale invasion of Ukraine by the russian federation.

– What changes occurred in the company’s structure during this time?

– It is worth noting that we have had changes in the company’s partner structure, as Liubomyr Kuziutkin decided to leave the company. He is now focused mainly on his private projects. This decision is primarily due to family circumstances. We will continue to cooperate with him on his new projects. Accordingly, the company now has two partners: me and Tetiana. Tetiana heads the corporate law, IT, and accounting practices, while I am responsible for private clients, migration law, and real estate.

– Tetiana, what steps has the company taken to adapt to the new conditions?  

– First of all, the essential thing was to keep in touch with our employees and make sure they were safe. We started to schedule online meetings more frequently. Before the full-scale invasion, in some cases, we departed from the tradition of regular team calls and started working in the office. After the outbreak of a large-scale war, we had to restore this tradition again so that our employees were aware that we were there, we had work to do, no one had disappeared, and they had a place to return to. We had been working online for a long time, so no major organisational changes took place, and we had all the accesses set up. The only thing we needed to do was to establish a more consistent internet connection and communication. During the first few weeks of the war, everyone was mostly busy providing their families with a safe place to stay, so the work was mainly focused on partners and senior associates who were involved with clients. However, our work in business and accounting support did not stop even on 24 February.

– Vasyl, what is the current state of affairs with the practice of migration law? Has the number of inquiries changed? Which issues do clients most often address to you?

– Previously, the focus of our work was on foreigners who came to Ukraine, and we were engaged in processing their documents and supporting their projects. Now the trend is that fewer foreigners are coming to Ukraine, in particular from the category we used to work with: entrepreneurs or people who have family ties to Ukraine or work here. This flow of foreigners has decreased and suspended slightly, but after the war, we expect a multiple increase and resumption. However, we are now being approached by foreigners who are somehow connected with the military, volunteering, and people involved in the work of international and charitable organisations. We are currently dealing with the migration of such persons.

Many questions have arisen regarding belarusian and russian citizens. Currently, most of our work is with belarusian clients who came to Ukraine in 2020, fleeing the authoritarian regime. Their legal status in Ukraine is not simple. We also receive inquiries about legal issues related to the relocation of Ukrainians abroad, and the paperwork there and in Ukraine.

– Have many foreign companies left Ukraine since the start of the full-scale war? What industries did they represent?

– The trend shows that people are indeed leaving: from small businesses to large companies. However, as we can observe, the business remains in Ukraine as an organisation. Foreigners are not rushing to close their companies in Ukraine and stop doing business. In particular, part of our work is to provide services to those businesses and structures that have remained, even though their employees have temporarily moved abroad. As far as we understand, foreign businesses have no intention of leaving Ukraine. This is just a pause, and after the victory, all employees will definitely return to Ukraine.

– Do you see any interest from foreign businesses that might want to enter Ukraine?

– Vasyl: We have already had inquiries from new foreign clients who are interested in the Ukrainian market. There are inquiries from people doing business related to restoration and construction, damage assessment, production of dual-use goods, demining, etc. We receive such requests, and we understand that they are now ready to start their business in Ukraine.

Tetiana: I would like to add a few words here. IT companies have remained, and we are observing an increase in the number of employees. Their expectations include the possibility of a proper booking procedure for employees, and they continue to increase their workforce in Ukraine, so this industry has not suffered. In addition, the number of requests from charitable international organisations is increasing, and many innovative and technically interesting engineering projects are finally able to find funding in Ukraine, as there are many donor programmes for innovative engineering solutions.

– How is the IT sector performing in general? Will companies return to Ukraine, or are there any risks that the world might lure away IT specialists from here because it would be more profitable for them to work abroad?

– Tetiana: Indeed, there are such concerns, especially involving specialists from belarus, whom Ukraine welcomed earlier. Also in 2020, special programmes for IT specialists were introduced, which were successfully implemented in 2021. Most of the specialists did leave. The risk for business is that it is difficult to obtain permits for such employees, it is impossible to pay their salaries, their accounts are blocked, and legislative procedures are not quite clear, so most decide to move from Ukraine to Poland. Thus, there will also be an outflow. Many companies with capital, where belarusians are part of the ownership structure, also temporarily stop working in Ukraine or leave our market completely. They do not understand how to prove that they do not pose a threat to national security, that they are actually working in Ukraine intending to continue to operate successfully in the future.

Speaking of our clients, none of them made a decision to leave the Ukrainian market completely. Most of them suspend work or minimise their expenses, transfer their staff to another company, but do not close their offices. Once the situation stabilises for them (the business), they will immediately be ready to return. The same applies to other foreigners (individual entrepreneurs) who are ready to return to Ukraine because they used to feel comfortable working in our country. In fact, for many specialists, Lviv is now the new IT capital (laughs – Ed. note).

– Does Diia.City meet expectations?

– Tetiana: The idea is brilliant, but the implementation is a bit tricky. I am sure that very little tax will be paid. Not many of our clients have switched to Diia.City, because they are used to working with a stable mechanism. Given that the tax authorities and auditors assessing their activities have little experience here, it is still difficult to make such radically risky financial decisions, and there have been very few of them doing so. In addition, we should not forget about currency risks. I don’t think it would be right to judge Diia.City’s performance by the results of the military year of 2022. We need everything to work in a normal mode, which is not the case now. I hope that Diia.City will be fully functional in the future, but the statistics of the transition will be somewhat distorted due to the war.

– Ukraine has introduced e-residency. How will it support our economy?

– Tatiana: It is an attractive initiative. Firstly, if we look at the numbers alone, the number of contractors should increase. What is clear: there are more entrepreneurs, more foreigners who choose the preferential taxation regime in Ukraine, and they find it convenient. Given that such a decision does not change the general tax status of an individual automatically, I do not think that many foreigners will risk separately reporting in their own country the income they have legally received in another country, paid taxes in another country and will not worry that the tax authorities will want to tax such income or change their status to another. Therefore, there is more work for the Ministry of Finance of Ukraine to do here, namely to provide official clarifications and international cooperation to resolve issues in the context of double taxation. Unfortunately, no one can guarantee this. Secondly, we do not yet know how this e-residency will work, as the online system has not been developed and no requests can be submitted yet. Therefore, time will tell.

– Tetiana, what is the current state of corporate law practice? What kind of requests did you receive in 2022? What prospects do you see for the practice in 2023?

– We ended 2021 under the slogan of reporting on ownership structures. We were sure that we would breathe a sigh of relief in 2022, but it didn’t happen. In 2022 we were unable to resolve the issue of tax residency, whether it is possible to keep a citizen of the republic of belarus as a minority shareholder, if they, for example, permanently reside in Germany. Therefore, we received many requests to change the ownership structure. Opening offices in Ukraine in 2022 seemed to be less popular, but international organisations and charities, that provide assistance to Ukraine, were more active. 

Other requests included the temporary suspension of companies’ operations, minimising costs, and changing the management team, as it is not an easy task to dismiss a top manager. It is necessary to draw up the documents correctly and minimise the risks of compensation. 

I would like to highlight requests for work with banks. Approving documents with banks now means additional hassle. For foreign businesses, the situation is not entirely clear. In the first months of the war, everyone was sympathetic to such force majeure. Now things are somewhat different: some people are starting to forget that Ukraine is in a full-scale war and life goes on according to different rules.

– Apart from IT and corporate law, what other practices are also in demand? Describe the general state of business in Ukraine in 2022 – early 2023.

– Tetiana: Ukrainians surprised themselves in 2022: many companies stayed in Ukraine, adapting to new tasks and challenges. Smaller companies adapted more easily, as they were more flexible and managed to change their work organisation slightly, and by the end of 2022, they had already started making plans for two or three months in a row. Our company does the same.

Currently, businesses need support with contracts, and many issues arise with permits. The government is basically trying to simplify certain regulations by introducing preferential terms and temporary permits. Most companies want to return to work according to the rules, schedule, without delays or excuses. In 2023, we expect a lot of requests from accounting departments regarding timely reporting. Double taxation issues were popular among requests, and this trend will continue this year.

The country’s economy will be saved by intellectuals who are flexible enough to work from anywhere in the world. And then we will work together in synergy to overcome the difficult times.

– Do you see any prospects for investment development of the economy as a whole after the country’s reconstruction?

– Vasyl: Currently, companies are interested in issues related to life under martial law. We are also being approached by foreigners for advice on the business climate of the Ukrainian legal system in the future. Ukraine is a kind of magnet now and the centre of attention around the world. It is a large country with a large population and powerful resources, so it is obvious that there will be many more opportunities after the Victory. In addition, investments will flow to Ukraine; we expect the return of investors who have suspended their projects but are already planning to come back. The war has shown that Ukrainian small business is very resilient and promising. Entrepreneurs are ready to adapt to any difficulties. Who else but small businesses should create a new strong economy now? We no longer need to rely on one thousand giant companies that pay the lion’s share of taxes and shape the country’s economy. We need to support small businesses, which have shown that they are the ones that make the country’s life viable. Fair and transparent rules for doing business should be introduced for both Ukrainians and foreigners. When it comes to migration law, unfortunately, investments have declined today, and all that remains are old approaches to work that are not transparent. It would be helpful if the migration service treated foreign investors better.

– What are EXPATPRO’s plans for 2023?

– Vasyl: To continue our work and stay in our current position. There is a great desire to preserve the team. We really appreciate our employees and dream of working towards increasing the number of projects. And the most important thing is the VICTORY.

Tetiana: We have been striving for many years to become professional specialists in migration law and have won our place in the IT industry. Therefore, we need to maintain these positions. We have a great team of experts, and we have the potential for further growth. In addition, we have unique skills in working with foreigners, so they will need our help in the future.

Originally published on 25 January 2023 here:

https://yur-gazeta.com/war-and-law/viyna-pokazala-shcho-ukrayinskiy-maliy-biznes-e-duzhe-silnim-ta-perspektivnim.html

Originally published on 19 May 2017 here: https://biz.nv.ua/ukr/experts/za-shcho-mozhut-pozbaviti-gromadjanstva-ukrajini-1168086.html

On 26 July, President Volodymyr Zelenskyy signed a draft law abolishing the 2% single tax and partially lifting the moratorium on business inspections. This was reported by Danylo Hetmantsev, Chairman of the Committee on Finance, Tax and Customs Policy, on his Telegram channel.

“Draft law 8401 has become law. Use it,” he posted.

What changes for businesses are expected and when?

Under the law, which was adopted by the Parliament at the end of May, Ukraine will abolish the following starting from 1 August:

• the special single tax regime with a rate of 2% of income;
• the right to exempt individual entrepreneurs of the first and second groups from paying the single tax (except for the frontline areas).

Furthermore, the draft law No. 8401 provides for:

• partial resumption of documental inspections: for excisable goods (alcohol, tobacco, fuel), gambling and financial services;
• reinstatement of fines for violations of tax legislation and the procedure for using cash registers (Payment Transaction Registers (RRO)/Payment Registrar Software PRRO) from 1 October. However, a reduced amount of fines will apply (25% and 50% of the value of the goods instead of 100% and 150%, respectively) if the business does not use Payment Transaction Registers (until the end of martial law, but no later than 1 August 2025).

The new taxes for business

Tetiana Yashchenko, partner at EXPATPRO, explained to Focus that a taxpayer who opted for the 2% tax rate from the date of state registration (“newly established entity”) will automatically be transferred to the 3rd group of the simplified taxation system at the 5% rate from 1 August.

“Therefore, if you need to be on a different system (or at a different rate) from 1 August 2023, you need to apply for the respective transition,” she pointed out.

Natalia Buta, Chief Accountant at GLS Law Firm, highlighted that those taxpayers who shifted from the 2% single tax to the general system in 2023 will be allowed to re-switch to the simplified taxation system of their choice within a year, already in 2023, or after submitting an application.

“In the event that an application is submitted before 1 September 2023, such a taxpayer will be considered a single tax payer from 1 August 2023,” Buta stated.

To remind, on 28 June, Volodymyr Zelenskyy declared that he was not against cutting taxes, but now these plans are being hampered by the war with Russia.

Originally published on 26 July 2023 here:

https://focus.ua/uk/economics/581552-biznesu-prigotuvatisya-zelenskij-pidtrimav-povernennya-dovoyennogo-podatkovogo-rezhimu

Law No. 7418 “On Amendments to the Tax Code of Ukraine and Other Legislative Acts of Ukraine on Revision of Certain Tax Benefits”, recently signed by the President, primarily provides for the cancellation of zero customs clearance for cars, however, it is not limited to this. So what else has changed in customs policy?

Changes Overview

In addition to the cancellation of preferential customs clearance of cars, the Law establishes restrictions on the alienation of imported vehicles: not earlier than 1095 days from the date of their state registration in Ukraine. The Law introduces the requirement for vehicles to meet environmental standards and stipulates that no exemptions will apply to vehicles originating in the Russian Federation or the Republic of Belarus.

However, the major changes are different.

Firstly, the law reintroduces VAT and duties on imported goods, which were lifted at the beginning of the war.

The Law provides, among other things, for additional grounds for the lifting or application of customs quotas and privileges, and the cancellation of duties on certain groups of goods in response to friendly actions by countries in free trade agreements with Ukraine. In other words, it means the possibility of applying certain exemptions to goods produced in the countries that are currently helping Ukraine.

Secondly, to sweeten the pot, the Law of Ukraine “On Foreign Economic Activity”, which specifies the mechanism for implementing the principle of reciprocity in customs policy, is being amended accordingly: if a certain state introduces benefits for Ukrainian goods, Ukraine has the right (but not the obligation) to introduce customs benefits in return.

However, the law is far from being a complete solution; rather, it is aimed at creating conditions for the adoption of new bylaws to introduce (cancel) certain benefits or exemptions in the future in response to the assistance received by Ukraine.

This step is obvious and beneficial to importers and Ukrainians as a temporary measure, as it is difficult to guarantee and fully supply Ukraine with all the necessary goods in the current circumstances, as damage to infrastructure, businesses, and labour outflow usually affect production. Therefore, customs privileges should have an impact on the price of imported goods, which may be in short supply due to the war in Ukraine.

Currency restrictions and imports

However, it is worth noting that the list of critical imports approved by the government is still in force, and it is of paramount importance for Ukraine’s ability to purchase goods. At the same time, restrictions on cross-border money transfers imposed by the National Bank of Ukraine remain in effect. To date, the option of paying for goods and services for import into our country is determined by the category of “critical imports”. It is currently simply not possible to pay for other goods and services abroad, regardless of any exemptions or benefits. Banks examine the purpose of the payment thoroughly, requesting contracts and additional documentation to confirm the purpose of the transaction. Any additional inspections slow down the processes, so they obviously do not make life easier for entrepreneurs. Business representatives are currently interested in changes to currency regulation, simplified banking transactions and stability in the foreign exchange market.

The NBU reacted with restrained optimism, stating that this decision may soon become the basis for the abolition of the above currency restrictions.

“The entry into force of the law creates the preconditions for the NBU to lift restrictions on foreign currency purchases and cross-border transfers for the import of goods. At the same time, under martial law, we consider it appropriate to maintain restrictions on the purchase of foreign currency and cross-border transfers for the import of services,” the NBU stated. “The reintroduction of duties and taxes on the import of goods and services is an important step towards restoring the foreign exchange market’s ability to self-balance. In particular, this will support further recovery of production in Ukraine and will help limit the growth of imports, which puts pressure on the foreign exchange market and Ukraine’s international reserves.”

The list of such goods and services is also regularly updated and revised, now covering almost 90% of the list of all goods imported to Ukraine before the war. Therefore, if the NBU proceeds with the lifting of currency restrictions as promised, and Ukraine does indeed grant benefits to important groups of imported goods, the situation in foreign trade could change for the better rather quickly. If it takes too long to lift the currency restrictions, the real sector will continue to lose money and prices for imported goods will continue to rise.

Therefore, we are primarily expecting changes in the context of expanding (detailing) the list of goods and services classified as critical imports and amending the approach to current currency restrictions. Since the laws mainly provide for the grounds for applying concessionary mechanisms, their practical implementation rests with the entities that deal with such issues – the Cabinet of Ministers and the NBU – who can respond quickly to changes within the existing environment and the needs of the public.

Originally published on 07 July 2022 here:

https://zn.ua/ukr/business/zmini-dlja-importera-do-choho-hotuvatisja.html

Decisions on the acquisition and loss of the Diia City resident status are public and posted on the official website. No explanations on the decision (motivational part) are publicly disclosed.

Notably, the Desnianskyi District State Tax Inspectorate of the Head Office of the State Fiscal Service in Kyiv city was denied the residency status of Diia City.

Selection Criteria and Control

The Law of Ukraine “On Stimulating the Development of the Digital Economy in Ukraine” clearly defines the resident’s obligation to meet the criteria applicable to residents throughout the entire period. The only exception is non-compliance with the criteria (namely, the requirements for the average number of employees and gig workers, the amount of average monthly remuneration to employees and gig workers) for newly established business entities (registered less than 24 calendar months prior to applying for residency status with income not exceeding the income limit for Group 3 of the simplified taxation system). They have a conditional “grace” period to meet the following criteria: the calendar year in which the resident status was obtained and the following calendar year. The applicant must indicate that special conditions apply to them in the application for status (a start-up mark is required).

Residents are required to submit their first reports no later than 6 calendar months after the date of obtaining resident status. These are compliance reports or an audit report, depending on the grounds for obtaining resident status. In the event of discrepancies between the initial data and the information provided in the report, an independent opinion may be demanded.

Residents have to file an annual report (by 1 June) for the previous calendar year (annual compliance report), which must be accompanied by an independent auditor’s opinion.

Since the regime is new, the control over compliance with the rules and achievement of compliance criteria is rather lenient and essentially allows for a “margin for error”. Violation of the reporting deadlines is not an unconditional basis for a decision to lose the status, although repeated violations will result in a negative decision.

The operating conditions during martial law tend to provide for the possibility to refer to force majeure to justify the non-application of penalties or sanctions. It is essential, though, to confirm the impact of such conditions on the impossibility of timely (or full) fulfilment of obligations, similar to the position of the Ukrainian tax authorities. No specific notifications or decisions have been made on this issue.

Loss of Diia City Resident Status

The main reason for losing the resident status is non-compliance with the requirements. At the same time, the wording of the Law suggests that the administrative procedure creates opportunities for a resident to eliminate “minor discrepancies” (such as repayment of tax debt, bringing the ownership structure into compliance) without actually losing the status.

So far, there have been a few decisions on the loss of Diia City resident status. Although, based on the analysis of the decisions, such processes were initiated by the applicants themselves (decisions were made based on their applications). The Ministry of Digital Transformation has not yet issued any decisions on the loss of Diia City resident status due to non-compliance with the criteria.

No statistics on the performance of Diia City have been publicly released, and the first more or less complete annual reports with auditors’ opinions are due by 01 June 2023. They are likely to serve as performance indicators.

The war in Ukraine had an impact on the functioning of this regime, as some investors suspended their activities and postponed the launch of new projects in Ukraine. Therefore, 2022 can hardly be considered the “ideal” year for conducting such an experiment and for an objective assessment of its results.

To summarise, the IT industry has so far proved to be one of the most resilient in Ukraine during the war, and the data from the Register also confirms this. We are expecting the Ministry of Digital Transformation to consider the annual reports and the decisions that will be made based on the results of the annual reporting.