CHANGES FOR THE IMPORTERS. WHAT SHOULD WE BE PREPARED FOR?

The balance of foreign trade depends on the decisions of the government and the National Bank of Ukraine (NBU)

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