UKRAINE BUSINESS NEWS - ELEVEN ARTICLES
1. LESSONS FROM THE RUSSIAN-UKRAINE GAS DISPUTE
Russia and Ukraine have found a compromise to their gas dispute,
but the long-term effects of the three-week deep freeze are still unknown
By Jason Bush, Moscow Bureau Chief, Business Week, New York, NY, Sat, Jan 24, 2009
2. BAD FAITH CREEPING INTO EU-UKRAINE RELATIONS
By Philippa Runner, Euobserver, Brussels, Belgium, Friday, January 23, 2009
3. NATO HAS 'NO WILL' TO ADMIT GEORGIA OR UKRAINE
According to Poland's Foreign Minister Radek Sikorski
By David Blair, Diplomatic Editor, Telegraph, London, UK, Sun, 25 Jan 2009
4. THE GAS WAR MAY REHABILITATE UKRAINE'S YUSHCHENKO
Here's a chance for the beleaguered president to restore some luster to
his faded image by reassuming the role of a unifier and statesman.
Commentary & Analysis: By Adrian Karatnycky, Wall Street Journal Europe
New York, New York, Friday, January 23, 2009
5. IMPORTANT 2008 YEAR-END TAX CHANGES IN UKRAINE
DLA Piper Ukraine LLC, Kyiv, Ukraine, Wednesday, January 14, 2009
6. MAGISTERS LAW FIRM OPENS IN LONDON
New Representative Office Strengthens Client Relationships and Fuels Business Growth
Magisters law firm, Kyiv, Ukraine, Friday, January 16, 2009
7. SOFTSERVE'S 2008: ANOTHER GREAT YEAR
SoftServe Inc., a leading global provider of software development and
consulting company, wraps up for the year 2008 activities in the world market.
SoftServe, Lviv, Ukraine, Wednesday, January 14, 2009
8. CHADBOURNE & PARKE APPOINTS COUNSEL IN KYIV AND
LOS ANGELES, TWO INTERNATIONAL PARTNERS IN ALMATY
Chadbourne & Parke LLP, Kyiv, Ukraine, Wednesday, January 21, 2009
9. VAST MAJORITY OF BANKS LACK ENTERPRISE-WIDE VIEW OF RISK
Financial crisis creates shift in strategic priorities, says Ernst & Young’s second annual risk study
Ernst & Young, New York, NY & Kyiv, Ukraine, Monday, December 22, 2008
10. NATIONAL BANK OF UKRAINE (NBU) INTRODUCES FURTHER CHANGES
INTO INTERBANK FOREIGN CURRENCY EXCHANGE MARKET OPERATION
DLA Piper Ukraine LLC, Kyiv, Ukraine, Wednesday, December 24, 2008
11. UKRAINE: SALANS KYIV TAX NEWSLETTER
Salans law firm, Kyiv, Ukraine, January 2009
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1. LESSONS FROM THE RUSSIAN-UKRAINE GAS DISPUTE
Russia and Ukraine have found a compromise to their gas dispute,
but the long-term effects of the three-week deep freeze are still unknown
By Jason Bush, Moscow Bureau Chief, Business Week, New York, NY, Sat, Jan 24, 2009
MOSCOW - The acrimonious three-week natural gas dispute between Russia and Ukraine, which left millions of customers in Central and Eastern Europe freezing without gas for heating, is now finally over.
Under a face-saving compromise finally hammered out on Jan. 20, Russia's Gazprom (GAZP.RTS) has achieved its central objective of making Ukraine pay "market prices" for its gas, which will be linked to the European average.
But to sweeten the pill, Ukraine has notched a 20% discount during 2009. Other terms of the deal include a one-year freeze on transit fees charged by Ukraine and the elimination of RosUkrEnergo, a controversial trading outfit that has acted as intermediary in the Russia-Ukraine gas trade.
Both parties are attempting to frame the outcome as a victory and are already disagreeing over the implications for gas prices. Ukrainian Prime Minister Yulia Tymoshenko has said the rate per 1,000 cubic meters will average $228 for the full year—well below the $280 predicted by Gazprom (though higher than the $179.50 that Ukraine paid last year).
With both sides already disagreeing about the deal's economic implications, the possibility of future disputes arising between the two countries certainly cannot be discounted. "The big question mark is what happens if Ukraine again runs into arrears," notes Chris Weafer, chief strategist at Russia's Uralsib Bank (USBN.RTS).
In any case, the long-term impact of the dispute will go far beyond the immediate implications for energy relations between Russia and Ukraine. Despite similarities with the previous bust-up in 2006, Western energy experts emphasize the latest dispute has been far more serious, with lasting implications for the European energy market.
"This has been the most serious security event in relation to gas that has ever happened in Europe," says Jonathan Stern, director of gas research at the Oxford Institute for Energy Studies. "It cannot be allowed to happen again."
Exactly what the long-term implications will be are still rather hard to fathom. It doesn't help that many fundamental facts about the dispute remain clouded in controversy—including the key question of who was ultimately responsible for cutting off Europe's gas. While Russia accuses Ukraine of blocking Russian gas supplies to Europe during the dispute, the Ukrainians say that it was actually the Russians who turned off the taps.
UKRAINE SHARES THE BLAME
Getting to the bottom of such matters has more than purely academic significance. For one thing, the threat of legal action by Gazprom's European customers remains real—potentially exposing the company to huge claims for damages.
The debate about responsibility will also rumble on because it matters for the future of European energy policy. "If it's a Ukraine problem, then pipelines bypassing Ukraine are one answer to it. If, however, it's a Russia problem, it doesn't matter where the pipelines [from Russia] go," says Oxford's Stern.
What's already clear is that, in notable contrast to the 2006 spat that was widely blamed on Russia, this time Western observers have also pointed fingers at Ukraine.
"This time round, it's clear that Ukrainian politicians have a lot to answer for," says Kash Burkett, energy and utilities analyst at Datamonitor (INF.L) in London. The crisis coincides with intense political turmoil inside Ukraine, including open conflict between President Viktor Yushchenko and Prime Minister Yulia Tymoshenko, which has seriously complicated negotiations with Russia.
The problems in Ukraine mean the dispute is likely to add impetus to energy projects that bypass the country. In particular, Russia backs the Nord Stream pipeline under the Baltic, a project 51%-owned by Gazprom, in partnership with Germany's BASF (BASF.DE) and E.ON (EONGn.DE) and Dutch energy firm Gasunie. Yet despite this positive news for Russia's pet project, many Western experts predict that ultimately Russia and Gazprom will turn out to be the biggest losers.
They are mystified why, in response to Ukraine's alleged pilfering of Russia's gas, Gazprom apparently responded by cutting off all gas supplies through Ukraine to Europe. "That's the big question," says Pierre Noël, an energy policy expert at Cambridge University. "Large importers of Russian gas in Western and Eastern Europe have been really scared by what has happened. There will be lasting damage to Gazprom's reputation." He predicts that European governments will now discourage major importers from increasing their exposure to Russian gas.
ALTERNATIVES TO RUSSIA?
True, the last major gas spat in 2006 also led to much talk about Europe diversifying its sources of energy and weaning itself away from dependence on Russia. But in practice, Europe's alternative options are extremely limited. Countries such as Iran, Algeria, Azerbaijan, and Turkmenistan are frequently promoted as potential alternative suppliers.
But when it comes to specific projects, there is widespread skepticism about their viability. "All of this is old, old talk," says Stern. "When we get to the 2020s, things may be somewhat different, but basically Europe has to live with Russian gas."
Nevertheless, the recent gas dispute is sure to energize the search for alternative routes, adding political impetus to projects such as Nabucco, a pipeline through Turkey that would link up with gas fields in the Caspian.
And despite the many obstacles, the possibilities for diversification shouldn't be dismissed out of hand. "There has been a lot of diversification over the last 20 years," notes Noël, who points out that Russia's share of the EU's gas imports has fallen from 80% to 42% since 1980.
He predicts the trend will now accelerate significantly, driven in particular by imports of liquefied natural gas from the Middle East, which is now experiencing significant overproduction. "The combination of the LNG glut and the economic crisis will create a very difficult situation for Russian gas in Europe and tremendous pressure on the market share of Russian gas," he says.
UNIFYING THE EU'S ENERGY MARKETS
More speculatively, the dispute may also galvanize the EU into taking bolder steps toward reforming its internal energy market. "The single most effective step the EU could take would be to integrate its energy markets," says Datamonitor's Burkett.
"If we had a single market, and a single consumer demanding action from Gazprom, Europe would have far more leverage over both Gazprom and Kiev." At present, Europe's negotiations with Gazprom are handled bilaterally by individual countries and companies, enabling Gazprom to play off one customer against another.
In principle the EU has long been committed to integrating its energy markets, meaning that companies from anywhere in Europe would be able to supply gas to consumers in any other country. As well as increasing competition, such a policy would help to mitigate negative consequences from energy shocks originating in Russia or Ukraine.
Countries that are heavily dependent on Russian supplies, typically in Eastern Europe, would be able to source surplus gas from other EU countries, increasing their energy security. And instead of cutting self-serving bilateral deals with Russia, large countries in Western Europe would have to shoulder more of the burden when Russian supplies are disrupted, encouraging a common European approach in energy negotiations with Russia.
Despite these benefits, the future pace of reform remains highly uncertain. To date, such reform has in practice been blocked by opposition from dominant national energy companies, protective of their national markets. But experts warn that without radical new steps to enhance Europe's energy security, the latest crisis to hit Europe's energy supplies is unlikely to be the last.
URL: www.businessweek.com
2. BAD FAITH CREEPING INTO EU-UKRAINE RELATIONS
By Philippa Runner, Euobserver, Brussels, Belgium, Friday, January 23, 2009
BRUSSELS - EU ministers will next week debate the impact of the gas war on Russia and Ukraine relations. But in the meantime, Ukraine itself is cooling toward the EU, after feeling abandoned in the crisis and cheated in visa and EU accession talks.
EU foreign ministers in Brussels on Monday (26 January) will at lunch discuss how to promote stability in Russia and Ukraine, one week after the pair ended a gas price dispute which caused the worst energy crisis in EU history.
The Czech EU presidency wants the meeting to reinforce the "Eastern Partnership" - a package of trade and political initiatives designed to pull Ukraine and five other post-Soviet states closer to the EU.
The task may not be easy in the current atmosphere. Last week, the European Commission threatened Moscow and Kiev with sanctions. Commission President Jose Manuel Barroso said it was easier to do business with African states than Russia or Ukraine.
But if Brussels feels let down by Kiev, the feeling is mutual, after EU states declined to support either side in what Ukraine sees as a Russian "gas attack" designed to destabilise its economy and pro-Western leadership.
"We are afraid the EU could become a weapon of political pressure on Ukraine in the hands of Russia," Ukraine deputy foreign minister Konstantin Yesileyev told EUobserver. "As a result of this conflict the EU may yet take measures to make Ukraine seem guilty."
"There is a feeling the EU could have done more," analyst Volodymyr Yermolenko of Kiev-based NGO Internews-Ukraine said. "Russia's two huge lies - first, that Ukraine had stolen gas and second that it cut transit to Europe - were not clearly refuted by the EU."
VISA PROBLEM LINGERS
At the popular level, any fresh disappointment with Brussels is compounded by long-running problems with basic consular services. Since 2005 EU citizens can travel to Ukraine with no visa. But ordinary Ukrainians pay steep fees for travel permits, have to deal with intermediary agencies, fill out complex paperwork and face frequent refusal with no explanation.
"The prestige of the EU is still high in Ukraine but it is being undermined by lack of progress on visa issues," Mr Yesileyev said. At the diplomatic level, Kiev late last year discovered the EU is offering softer legal conditions for Russia than for Ukraine in visa facilitation talks, reinforcing suspicion of a Brussels-Moscow special relationship.
Bad faith has also crept into Ukraine's most important post-Orange Revolution foreign policy project - to get on the road to EU membership.
The then French EU presidency at an EU-Ukraine summit in Paris last September launched negotiations on an Association Agreement to be signed with Ukraine in late 2009.
The summit's non-binding declaration spoke of Ukraine as a "European country" with "European aspirations," recalling the enlargement language of article 49 of the EU treaty, which states that "any European state ...may apply to become a member of the union."
ENLARGEMENT GAG
But behind the show of friendship, France made Ukraine agree to zero pro-enlargement language in the legally-binding preamble to the upcoming Association Agreement, freezing any talk of accession until the treaty expires 10 or more years down the line.
Officially, the pro-enlargement language question can still be revived, with Mr Yesileyev saying that "nothing is agreed until everything is agreed" on the pact. But behind the scenes, Kiev feels the EU is happy to let it fend for itself in a post-Soviet arena that just last year saw full blown military conflict between Russia and a non-compliant state.
"That [the Paris EU-Russia summit] was a real turning point. Even the last euro-romantics had to give up hope," a Ukrainian contact said.
LINK: http://euobserver.com/0/27466
3. NATO HAS 'NO WILL' TO ADMIT GEORGIA OR UKRAINE
According to Poland's Foreign Minister Radek Sikorski
By David Blair, Diplomatic Editor, Telegraph, London, UK, Sun, 25 Jan 2009
LONDON - Nato is suffering from 'enlargement fatigue' and has no will to admit Georgia or Ukraine, according to Poland's foreign minister Radek Sikorski.
Mr Sikorski, who is a leading contender to become Nato's secretary-general when the Alliance selects a new chief in April, told The Daily Telegraph that membership for both countries was a "fairly distant prospect". But he denied that Russia, which attaches great importance to thwarting Nato's enlargement, had achieved a victory.
Ukraine and Georgia were both promised Nato membership at a summit in Bucharest last April. But no timetable was offered and, four months later,
Russia raised the stakes by invading Georgia. Mr Sikorski said that Nato should "maintain the Bucharest consensus" and the "credible promise of membership".
Asked whether the will to admit Ukraine and Georgia existed, however, he replied: "Not at the moment. At the moment, there's a will to encourage them
to reform themselves. But I believe all of our institutions, both the EU and Nato, suffer from enlargement fatigue." He added: "It's always harder to enlarge in a recession."
Yet the onset of "enlargement fatigue" did not amount to a victory for Russia. "I don't have the feeling that Russia has increased its credibility in the last six months," he said. "The Soviet Union never cut off gas supplies to Western Europe. Soviet strategists had a wonderful expression called 'correlation of forces' which meant all the factors - material and immaterial - affecting any situation. I don't believe that either through the Georgia crisis or the gas dispute Russia has improved the correlation of forces to its advantage."
Mr Sikorski, 45, escaped from Communist Poland and was given asylum in Britain in 1982. While studying at Pembroke College, Oxford, he was a member
of the Bullingdon drinking club along with David Cameron and Boris Johnson. Mr Sikorski took British citizenship - and diplomats say that he kept his
British passport until he was made Poland's foreign minister in 2007.
During the 1980s, he was a foreign correspondent, covering the Soviet occupation of Afghanistan for The Sunday Telegraph. His firsthand experience
of war in Afghanistan gives him a unique qualification for taking the helm of Nato, which now deploys 55,000 troops in the country.
The Alliance's 26 members will probably choose a new secretary-general at their 60th anniversary summit in April. When Nato Ambassadors meet on
Monday, they will begin considering possible candidates, who include Anders Fogh Rasmussen, the Danish prime minister.
As for whether he might be Nato's next secretary-general, Mr Sikorski replied: "I believe that Nato needs continued leadership from the front. We
have a war in Afghanistan that we mustn't lose. Nato is the most successful alliance in history and that needs nurturing. I believe that the appointment should be made on merit.
"I'm flattered by such suggestions because they imply that Poland is now a regular member and that indeed we've made worthwhile contributions to Nato
and that therefore we deserve to be seriously considered for the top job."
4. THE GAS WAR MAY REHABILITATE UKRAINE'S YUSHCHENKO
Here's a chance for the beleaguered president to restore some luster to
his faded image by reassuming the role of a unifier and statesman.
Commentary & Analysis: By Adrian Karatnycky, Wall Street Journal Europe
New York, New York, Friday, January 23, 2009
KIEV, Ukraine - The bitter energy dispute between Ukraine and Russia has been resolved in a comprehensive agreement that Kiev and Moscow signed yesterday -- though there have been several false starts over the past three weeks. But if this latest pact holds, then by all accounts it is Russia that blinked first.
While Ukraine's leaders will not crow about their success, Ukraine has pretty much gotten what it wanted: below-market rates for its own 2009 gas purchases. Ukraine's leaders also made it abundantly clear that they were not some unimportant factor in Russia-European gas trade. They showed that their gas pipeline system is critical to the continental gas transit system.
The conflict, which has interrupted gas flows to Europe for nearly two weeks, has been waged only in part over economic interests. In far greater measure it has been the expression of a political struggle. Moscow sensed that Ukraine's pro-Western politicians were bitterly divided, and that it could exploit their personal rivalries.
Almost four years ago, Viktor Yushchenko was elected Ukraine's president and widely hailed as the hero of the nonviolent mass civic protests known as the Orange Revolution. Today he is a leader who has lost the support of most Ukrainians; his approval ratings have fallen from well over 60% during the Orange Revolution to less than 5% now.
He has even been abandoned by the majority of his own political movement, the Our Ukraine bloc, which last month ignored the president's calls to bring down the government and affirmed its backing for Prime Minister Yulia Tymoshenko.
As Mr. Yushchenko's political star has waned, that of Ms. Tymoshenko, his erstwhile Orange Revolution partner, is ascendant. Still, with Ukraine's economy already in free fall, Ms. Tymoshenko's recent success in withstanding the president's attempt to remove her as prime minister may prove to be a Pyrrhic victory and she, too, may see a steep drop in public support.
Amid the gas row with Russia, plummeting industrial production, a fall of more than 50% in Ukraine's currency against the dollar, and massive layoffs on the horizon, Ukraine's president and prime minister need to find a modus vivendi. The political elite needs to consolidate and pass emergency measures to cope with an economic tsunami.
In recent months, neither leader appeared willing to compromise, and both engaged in an escalating campaign of political mudslinging. President Yushchenko and his staff accused Ms. Tymoshenko of "treason" as a result of her efforts to reach accommodation with Russia by taking a softer stance on the Georgia-Russia conflict and her tepid support for joining NATO.
On Dec. 23, a top Yushchenko aide denounced Ms. Tymoshenko's ties to George Soros, whom the aide described as "an international currency speculator." Without any credible evidence, the aide called on the State Prosecutor's office to investigate whether Mr. Soros was profiting from speculation on Ukraine's weak currency.
In turn, Ms. Tymoshenko, also on scant evidence, accused the president and the head of the Central Bank of conspiring to bring down the value of the national currency, the hryvnia, and of providing liquidity to a bank allegedly associated with a pro-Yushchenko businessman. These actions, she claimed, enabled the businessman to profit from the currency's decline.
It's no wonder, then, that Ukraine's toxic political atmosphere represented a tantalizing opportunity for Russia to exploit internal divisions. Vladimir Putin has never accepted Ukraine's pro-Western tilt since the Orange Revolution. By provoking internal and international anxieties, the Kremlin sought to promote a change at the top in Ukraine and to reassert its influence in a fellow Slavic country in its geopolitical backyard.
But Russia appears to have miscalculated. First, its efforts to blame Ukraine alone for the gas cutoff were rejected by Europe, which understood that Russia played an important part in provoking and prolonging the crisis. As important, Ukraine had wisely stockpiled several months of gas reserves and proved able to withstand Moscow's pressure to settle on unfavorable terms during the harsh winter months.
Now Russian Prime Minister Vladimir Putin has agreed with Ms. Tymoshenko that Russia will sell gas to Ukraine at a 20% discount to European market rates, in return for below-market transit fees. European market prices for gas in 2009 are expected to be no more than $250 per thousand cubic meters amid the global downturn -- a significant increase over what Ukraine paid in 2008, but far less than Russia had been demanding.
Perhaps most surprisingly, the gas dispute with Russia has unified Ukraine's pro-Western leaders. President Yushchenko and Prime Minister Tymoshenko adopted common positions and made joint statements in the face of the Russian energy cutoff to Ukraine and Europe. Above all, they appear to have quietly called a temporary political truce and stopped their bickering during the gas crisis and Ms. Tymoshenko's skilled negotiating sessions.
As a result, the gas crisis has created a new chance for the beleaguered President Yushchenko to restore some luster to his faded image by reassuming the role of a unifier and statesman. Even with his support slipping and his chances for re-election slight, Mr. Yushchenko has an opportunity to vindicate his term in office.
This is because Ukraine's presidency has significant powers, including veto power, control over security and defense forces, and the right to appoint key local and regional officials. In recent months Mr. Yushchenko has used these powers primarily to thwart and undermine Ms. Tymoshenko. If he redirects his energies to constructive dialogue, he can help promote sound fiscal policy and accelerate privatization efforts which the political deadlock had blocked.
He is well-equipped for such a role. As a banker and economist by profession, Mr. Yushchenko has a strong sense of rational economic policy. He can also act as an important, constructive counterweight to the occasional populism of Prime Minister Tymoshenko.
By building on their cooperation and success during the gas crisis, the two leaders can at long last stumble into creating a tandem that can help restore some confidence domestically and abroad in Ukraine's ability to cope with major crises and to get things done.
In the past, both Mr. Yushchenko and Ms. Tymoshenko showed the courage to make tough choices that helped move Ukraine forward. Now, in the face of unrelenting Russian pressure, they have shown that they can restore some measure of cooperation. If they continue on this path, they will meet the severe economic challenges that Ukraine still faces and once again set back Mr. Putin's efforts to establish hegemony in the region -- the same task they accomplished four years ago during the Orange Revolution.
NOTE: Mr. Karatnycky is a senior fellow with the Atlantic Council of the U.S.
LINK: http://online.wsj.com/article/SB123240746998495659.html
5. IMPORTANT 2008 YEAR-END TAX CHANGES IN UKRAINE
DLA Piper Ukraine LLC, Kyiv, Ukraine, Wednesday, January 14, 2009
KYIV - The Ukrainian Parliament passed a number of important tax laws during December 2008. Most of the laws entered into force in the first days of the new year, while some are waiting to be signed by the President. This newsletter offers an overview of the most important tax changes.
As a follow up on the Tax newsletter below, this is to inform you that on January 14 2008 the President of Ukraine vetoed the Draft Law which aimed at introducing of extra import duty at a 13% rate.
TAX CHANGES IN THE 2009 BUDGET LAW
[1] Foreign currency conversion tax (Pension Fund levy) is decreased to 0.2 percent.
[2] Taxpayers are not allowed to defer their tax payments. This means that, most likely, VAT promissory notes will not be used within the customs
clearance procedures.
[3] A 3.1 coefficient will apply to land tax rates in 2009 (similar to the year 2008) for land plots which were not appraised by the respective authorities.
[4] The living wage for adults for 2009 is set at the December 2008 level, ie UAH669 per month (1). This affects some other tax indices:
[4A] Payroll tax base remains capped at UAH10k. At the 41 percent average payroll tax rate, maximum charge per employee will be about UAH4k.
[4B] Personal income tax allowance will apply to income not exceeding UAH940 per month. The same amount is used as a cap for other personal
tax incentives (tax-exempt capital gains, deductible life insurance premiums, payments for education and charity).
[5] The minimum salary will gradually increase from UAH605 on 1 January to UAH625 on 1 April, UAH630 on 1 July, UAH650 on 1 October and
UAH669 on 1 December (2). For information regarding the corresponding levels of personal income tax allowance and thresholds of responsibility for
tax violations please refer to Appendix 1.
[6] Surprisingly, the Budget Law does not introduce any amendments to the corporate tax rules (eg regarding tax loss carry forward). The government is
likely to present a separate draft tax law to the Parliament in January 2009.
Having signed the Budget Law, later the President challenged it in the Constitutional Court. The Court may cancel some of the Budget Law provisions.
EXCISE TAXES INCREASE
Law No 797-VI of 25 December 2008
The Parliament passed the law that substantially increases excise tax rates for some products. This affects, in particular, alcohol and tobacco products, beer, passenger cars, car bodies and oil products. For the current and new excise tax rates please refer to Appendix 2.
VEHICLE TAX INCREASE
Law No 797-VI of 25 December 2008
Vehicle tax rates for passenger cars with engine capacity over 2200 cc are increased three times.
NATURAL RESOURCE TAXES INCREASE
Law No 798-VI of 25 December 2008
Production royalty on natural gas will be adjusted in accordance with import gas price fluctuations, with the base price fixed at $179.5 per 1000 cubic metres. Previously, such adjustment applied only to oil and gas condensate.
The charges for the extraction of other mineral resources and for industrial water consumption are increased 1.439 times compared to 2008. In addition, the 5% charge for extraction of clay materials was introduced. The charge shall be assessed on the cost of extracted clay.
THE RATES OF SOCIAL FUNDS CHARGES ARE CHANGED
Law No 799-VI of 25 December 2008
[1] Remuneration paid to individuals under civil contracts becomes subject to unemployment insurance at a 2.2 percent rate.
[2] The unemployment insurance rates are increased from 1.3 to 1.6 percent for employers and from 0.5 to 0.6 percent for employees.
[3] The disability insurance charge payable by employers is decreased from 1.5 to 1.4 percent.
[4] The rates of social insurance against work accidents are increased for all industries by 0.1 percentage points.
VAT REFUND TREASURY BONDS ARE REINTRODUCED
Law No 659-VI dated 12 December 2008
The government is allowed to issue treasury bonds in order to restructure its VAT refund arrears. Companies with overdue VAT receivable may voluntarily opt for such settlement. The five-year treasury bonds will be repaid in equal annual installments and bear interest at 120 percent of the National Bank refinancing rate. The Cabinet of Ministers is obliged to establish procedures of their issuing and circulation.
REAL ESTATE DEVELOPERS FACE A RELIEF IN THE FISCAL BURDEN
Law No 800-VI dated 25 December 2008
The contribution to the development of local fire-fighting crews, previously applicable to new construction projects at a rate of up to 3% of the project value, is abolished.
In addition, an infrastructure contribution payable by developers will be paid under new rules:
[1] The maximum rate of the contribution is decreased from 5% to 4%, including charges established by the local authorities.
[2] The tax base will no longer include the cost of the utilities which the developers are obliged to construct.
[3] The payment deadline is postponed until the commissioning of the building (earlier, the contribution had to be paid before the estimated date of
commissioning).
NOTARIZATION OF COMPANY'S INCORPORATION DOCUMENTS
Law No 809-VI dated 25 December 2008
The Parliament clarified the applicability of state duty or notary fees for the notarization of company incorporation documents. Only the shareholders agreement has to be notarized, subject to a charge of 1 percent of the registered capital. For other incorporation documents it is sufficient to certify the shareholders' signatures, and the applicable notary cost is negligible. The relevant amendments were introduced to the Law of State Registration of Legal Entities and Private Entrepreneurs. Some time ago this issue was actively discussed in the legal community and was regulated by official rulings of the state authorities.
DRAFT TAX LAWS AWAITING THE SIGNATURE BY THE PRESIDENT
The Parliament adopted a number of important draft laws at the end of December 2008, however they were vetoed by the President. The Parliament may override the veto through a qualifying majority. The draft laws contained the following proposals:
[1] Tax incentives for inward processing may be abolished from 1 January 2009. As an exception, for leather and textile industries the incentives should
remain in force until 1 January 20123.
[2] An additional 13% import duties may be introduced for most types of commodity. This additional charge should apply temporarily, until the external
trade balance is restored, but in any event for at least 6 months. The exception will be provided only for the so-called critical import goods, the scope of
which will be determined by the Cabinet of Ministers (4).
[3] Increased depreciation rates to be introduced for various equipment classified under group 3 in tax accounting. The proposed annual rate is 25%,
while currently the effective rate is 22%. However, it is unclear which entities would be allowed to apply the new depreciation rate. (5)
[4] Import duty and VAT relief to be granted for the materials, equipment and spare parts imported for the implementation of energy-saving technologies.
The Cabinet of Ministers should produce the list of enterprises entitled to the relief and develop the relief procedure. (5)
Please do not hesitate to contact us should you have any questions on the above.
DLA PIPER UKRAINE – TAX TEAM:
Svitlana Musienko, Legal Director, Head of Tax, svitlana.musienko@dlapiper.com
Yulia Logunova, Senior Associate, yulia.logunova@dlapiper.com
Illya Sverdlov, Senior Associate, illya.sverdlov@dlapiper.com
Dmytro Donets, Associate, dmytro.donets@dlapiper.com
Lilia Sylvestrova, Associate, lilia.sylvestrova@dlapiper.com
APPENDIX 1
(i) Personal income tax allowance for 2009
Minimum monthly salary as at 1 January 2009 UAH605
Personal income tax allowance:
a) basic (50% of minimum salary) UAH302.5
b) increased (150% of basic allowance ) UAH453.75
c) maximum (200% of basic allowance) UAH605
(ii) Liability threshold for tax violations
Criminal liability for tax evasion:
?) significant understatement of tax liabilities (1,000 x basic tax allowance) UAH302,500
b) large understatement of tax liabilities (3,000 x basic tax allowance) UAH907,500
c) extra large understatement of tax liabilities (5,000 x basic tax allowance) UAH1,512,500
The amount of tax understatement, which allows the tax authorities to assess an additional 50% penalty UAH907,500
APPENDIX 2 (Not included in this e-mail copy of the DLA Piper Newsletter)
FOOTNOTES:
1 The living wage should be regularly adjusted for inflation, but there is no procedure for such adjustment.
2. New Labour legislation effective from 1 January 2009 demands that the minimum salary be not less than the living wage. The Budget Law does not
observe this requirement. It is hard to predict how the authorities would resolve the legal conflict.
3 Draft law No 3353 of 23 December 2008.
4 Draft law No 3379 of 23 December 2008.
5 Draft law No 3430 of 17 December 2008
DLA Piper Ukraine LLC is part of DLA Piper, a global legal services organization. International Law Firm of the Year 2008 in Ukraine. The matters covered in this newsletter are intended as a general overview. This newsletter is not intended, and should not be used, as a substitute for taking legal advice in any specific situation. DLA Piper Ukraine LLC will accept no responsibility for any actions taken or not taken on the basis of this newsletter. If you would like further advice, please contact Tax Team at +380 44 490 9575, http://www.dlapiper.com/ukraine/.
FOOTNOTE: DLA Piper Ukraine LLC is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.usubc.org.
6. MAGISTERS LAW FIRM OPENS IN LONDON
New Representative Office Strengthens Client Relationships and Fuels Business Growth
Magisters law firm, Kyiv, Ukraine, Friday, January 16, 2009
LONDON/KYIV - CIS-based law firm Magisters today announces the opening of a new representative office in London. The office will serve as Magisters'
conduit to service multinational clients investing in CIS markets and for CIS blue chips with interests in the EU market.
Magisters' presence in London will raise the firm's commitment to existing relationships and enhance the quality of client service to its significant European client base. More than two-thirds of Magisters' clients are multinationals of European and US origins.
The London office increases Magisters' international growth momentum along with its merger with the Belarus law firm, BelJurBureau, in December 2008,
and the opening of another new office in Astana, Kazakhstan later this month. Magisters remains focused on providing a full range of legal services supporting clients working in CIS jurisdictions.
ANDY HUNDER AND ANDREW MAC
The London office is located at 88 Wood Street at the heart of the Square Mile and led by Andy Hunder, who serves as the firm's International Business
Development Director. Partner Andrew Mac will direct activities of the new office and will as such make regular visits to London.
Commenting on the London office opening, Mr. Mac said: "Magisters London launch, coupled with strategic openings in Belarus and Kazakhstan, is a
direct response to our clients' needs and requests. The London office will allow us to discuss more regularly with our clients the rapidly changing
investment and legal environments in our region relevant for their investment plans. To this end, I will be regularly present in London and Andy Hunder, a native Londoner, with over a decade of hands-on experience in the CIS, will be based full-time in London."
Mr. Hunder, a British citizen, has more than a decade of experience in business development and managing external affairs and corporate communications issues in the CIS and the UK. He previously held senior management positions with both GlaxoSmithKline and Ukrainian Mobile Communications (now the MTS brand).
Mr. Hunder added: "Magisters' London presence brings the firm physically closer to our European clients and provides a gateway for them to access the
CIS and Magisters' expert legal services. Also, our CIS-based clients will find it now more convenient to access overseas business opportunities by
utilizing the Magisters London hub.
LINK: http://www.magisters.com:80/news.php?en/789/
FOOTNOTE: Magisters law firm is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.usubc.org.
7. SOFTSERVE'S 2008: ANOTHER GREAT YEAR
SoftServe Inc., a leading global provider of software development and
consulting company, wraps up for the year 2008 activities in the world market.
SoftServe, Lviv, Ukraine, Wednesday, January 14, 2009
LVIV, UKRAINE - Without a doubt, 2008 was a dynamic year for SoftServe being filled with numerous important events and marked by outstanding achievements. In the year of its fifteenth anniversary, the company put strong emphasis to such aspects in strategic development as aggressive growth with ISV clients, diversification to end clients and differentiation to various competencies (account management, project management, business analysis etc).
Wrapping up for 2008, Taras Kytsmey, SoftServe’s President, stated significant growth in the number of clients, staff and revenue growth. Among the important events of 2008 for SoftServe was acquisition of Alvion Europe, a transaction that added significant technical expertise and new market opportunities to the company.
The client conference held in December served as a powerful driver for further improvement of communication with the clients leading to improvement of SoftServe services quality.
In addition to that, according to Taras Vervega, SoftServe’s EVP Business Development, the opening of the US headquarters in Florida resulted in recognition by the clients, growth in overall customer satisfaction and customer revenue.
The industry recognition was proved by SoftServe’s position in the top 10 of Global Services 100-2008 and company’s award as Microsoft Partner of the Year in Central and Eastern Europe (Mobility Solutions). Also, the company became an exclusive delivery partner for the Microsoft NXT program, first in Eastern Europe, in new top-notch technologies such as Microsoft Silverlight™ and Office Business Applications (OBA).
SoftServe’s EVP Business Development also made prognosis for industry trends of 2009 which could affect any outsourcing company. Among those he mentioned slower growth of business, hardships for small settings in the industry and more attention to outsourcing destinations as alternative to Asia.
SoftServe does not plan to slow down in 2009, Vervega claims. Recession or not, it is planned that company’s business development initiatives for next year will put special focus to lead generation, existing client development and value added service offering. Among the strategic goals are development and implementation of end-user service methodology and expansion of the range of services.
ABOUT SOFTSERVE:
SoftServe, Inc. is an independent multinational software development and consulting company that helps global organizations enhance their customer's competitive capabilities by providing the technology and processes that achieve strategic results.
With Europe headquarters in Lviv, Ukraine and U.S. headquarters in Fort Myers, Florida, SoftServe Inc. has its development facilities located throughout Ukraine. Since 1993, SoftServe Inc. has been partnering with over hundred companies worldwide offering superior level of capability in technical skills and project leadership. SoftServe's state of the art infrastructure, ISO- and CMMI-certified processes and unrivaled talent ensure our promise of excellence in even the most complex of projects.
For more information please visit our site at http://www.softservecom.com/. SoftServe PR contact, Yuliya Kovalyova in Lviv, Ukraine, ykoval@softservecom.com/.
FOOTNOTE: SoftServe, Inc. is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.usubc.org.
8. CHADBOURNE & PARKE APPOINTS COUNSEL IN KYIV AND
LOS ANGELES, TWO INTERNATIONAL PARTNERS IN ALMATY
Corporate, Project Finance, Banking, M&A Among Practices Represented
Chadbourne & Parke LLP, Kyiv, Ukraine, Wednesday, January 21, 2009
KYIV - The international law firm of Chadbourne & Parke LLP announced the appointments of Olena V. Repkina in Kyiv, Ukraine, and Lloyd MacNeil in Los Angeles, USA, as counsel and the appointments of Victor Mokrousov and Sergei Vataev as international partners in Almaty, Kazakhstan.
"These four lawyers have demonstrated skill and creativity in serving the needs of our clients," said Chadbourne’s Managing Partner Charles K. O’Neill.
"We are pleased to recognize the abilities of these outstanding lawyers. They reflect the broad expertise and geographic presence of Chadbourne and are helping to maintain the Firm’s growth in their practice areas. We congratulate them on their new roles and responsibilities."
MS. OLENA V. REPKINA IN KYIV, UKRAINE
Ms. Repkina, 28, joined the Firm in 2007 and advises clients on matters regarding mergers and acquisitions, corporate law, banking and finance, securities, employment and intellectual property in Ukraine.
She was named in Ukrainian Lawyers - Client's Choice as one of the top 10 young and talented Ukrainian lawyers, and was mentioned in and interviewed for the directory's corporate and mergers and acquisitions section. Ms. Repkina graduated from the Law Faculty of Taras Shevchenko National University of Kyiv where she earned a master’s degree (with honors) in 2003.
Mr. MacNeil's practice in Los Angeles focuses on project development, project financing, and mergers and acquisitions matters in the energy and infrastructure sector, with particular emphasis on renewable energy. Joining the Firm in 2007, he has worked for developers, sponsors, lenders and investors on a variety of renewable and non- renewable energy project developments, financings and acquisitions. Mr. MacNeil, 41, graduated with a B.S. in 1990 from Dalhousie University, Faculty of Science, and earned an LL.B. in 1994 from Dalhousie University, Faculty of Law in Halifax, Nova Scotia.
Mr. Mokrousov, 36, is active in the corporate, finance, mergers and acquisitions, energy, oil and gas practices in Kazakhstan. He joined the Firm in 2005 and since then has been featured among the recommended lawyers for Kazakhstan in the Chambers Global - Guide to the World’s Leading Lawyers. Mr. Mokrousov received a law degree (with honors) in 1995 from Kazakh State National University, and earned an LL.M. in 1999 from the University of Minnesota Law School.
Mr. Vataev's practice concentrates on litigation and arbitration, corporate law and project finance matters in Kazakhstan. Joining the Firm in 2005, he has substantial experience in dispute resolution. During the past 10 years, he has advised and represented a large number of major oil and gas companies and other businesses in contractual and regulatory litigations and arbitrations. Mr. Vataev, 41, received a law degree in 1992 from Kazakh State National University, and earned an LL.M. in 2001 from the University of Virginia School of Law.
ABOUT CHADBOURNE & PARK LLP
Chadbourne & Parke LLP, an international law firm headquartered in New York City, provides a full range of legal services, including mergers and acquisitions, securities, project finance, private funds, corporate finance, energy, communications and technology, commercial and products liability litigation, securities litigation and regulatory enforcement, special investigations and litigation, intellectual property, antitrust, domestic and international tax, insurance and reinsurance, environmental, real estate, bankruptcy and financial restructuring, employment law and ERISA, trusts and estates and government contract matters.
Major geographical areas of concentration include Central and Eastern Europe, Russia and the CIS, the Middle East and Latin America. The Firm has offices in New York, Washington, DC, Los Angeles, Houston, Mexico City, London (a multinational partnership), Moscow, St. Petersburg, Warsaw, Kyiv, Almaty, Dubai and Beijing. For additional information, visit www.chadbourne.com.
FOOTNOTE: Chadbourne & Parke LLP is a member of the U.S.-Ukraine Business Council, Washington, D.C., www.usubc.org.
9. VAST MAJORITY OF BANKS LACK ENTERPRISE-WIDE VIEW OF RISK
Financial crisis creates shift in strategic priorities, says Ernst & Young’s second annual risk study
Ernst & Young, New York, NY & Kyiv, Ukraine, Monday, December 22, 2008
NEW YORK, KYIV - Only 14% of respondents in a survey of top executives at nearly 40 global banks indicated they have a consolidated view of risk across their organizations.
According to Ernst & Young’s second annual study on risk governance entitled Navigating the Crisis, the current economic crisis has exposed inherent weaknesses in risk management, forcing banks to improve their risk governance processes, increase the collaboration between risk and finance functions, and make instilling a risk culture a true priority.
Organizational silos, decentralization of resources and decision-making, inadequate forecasting, and lack of transparent reporting were cited as major barriers to effective enterprise-wide risk management. The need to create a risk-aware culture throughout the institution emerged as a top priority in the study – three-quarters of all respondents cited its vital importance – as banks struggle to develop a consolidated view of risk across business units and various risk dimensions.
“In light of recent events, there was strong agreement that managing risk effectively requires both top-down oversight and bottom-up involvement from front-line risk takers,” says Bill Schlich, leader of Ernst & Young’s Global Banking & Capital Markets practice. “In order to create and instill a culture of risk awareness within banks, risk management must become everyone’s business.”
ROMAN TATARSKY, ERNST & YOUNG UKRAINE
Roman Tatarsky, Business Risks Services Leader with Ernst & Young Ukraine, adds: “Banks and other financial institutions have been leaders in the Ukrainian market with respect to initiating, building and evolving their risk management functions and instilling a risk-aware culture within their organisations. This is due partly to the nature of the banking business itself but also due to close coordination and regulation by the central bank of Ukraine.
"Having said this, risk management functions in Ukrainian banks are receiving ever increasing levels of attention and executive management support, especially as the Ukrainian market goes through various stages of challenge and evolution.
Shareholders, executive management and all stakeholders are demanding more comprehensive, timely, collaborative and forward-looking risk management information and analysis of all parts of the business. The evolution of enterprise-wide risk management as a strategic management tool is particularly relevant during these times of financial turmoil.”
To do that, respondents agreed that the discussion of risk must be elevated to the strategic level with much closer collaboration across functions, business units and risk classes. Eighty-six percent of those surveyed indicated that their banks are implementing a variety of projects designed to provide a more comprehensive approach to risk. However, only 16 percent said they have a well-defined, shared vision of what it would look like.
Respondents consistently cited the need for better information flow and reporting in the area of risk. Poor data quality, gaps in data flow, and the sheer volume of data are just a few challenges banks face.
Sixty-seven percent of executives indicated that they were under way with the process of implementing consolidated risk reporting across their organizations but only 9% felt they have truly been able to aggregate data across the enterprise. Survey participants agreed greater transparency, faster delivery and better synthesis of data must be top priorities.
“In last year’s study, identifying emerging risk was reported to be a relatively low priority on the path to better risk management,” says Hank Prybylski, head of Ernst & Young’s Global Financial Services Risk Management practice. “The current crisis demonstrates the need for firms to focus on emerging and unforeseen risk.”
A vast majority of this year’s survey respondents said that their organizations do not have well-defined, rigorous processes for forecasting risk. However, all recognized the need to strengthen forecasting by developing more formal processes and more forward-looking risk assessment tools. This includes implementing more frequent executive risk committee meetings to monitor issues and events, creating detailed scenario modeling, and mandating periodic portfolio reviews to monitor leading risk indicators.
Many of those interviewed said this crisis might ultimately lead to more robust risk governance. The crisis is already acting as a catalyst by dismantling silos, promoting more dialogue between risk and finance, and stimulating broader discussion of risk as a core issue. As one executive observed, “The survivors of this 500-year flood will emerge as much stronger global institutions.”
ABOUT THE STUDY
Ernst & Young commissioned Broderick & Company, an independent market strategy firm, to conduct a global market survey of key industry opinion leaders from leading banks. From May through October 2008, Broderick completed in-depth, qualitative interviews with 48 senior executives from 36 major banking institutions around the world. Interviewees included a mix of senior executives in each organization, including chief financial officers, chief risk officers and heads of business units, as well as heads of functional divisions including finance, operational risk, internal audit, compliance, legal and strategy.
ABOUT ERNST & YOUNG
Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 135,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve potential.
In Ukraine Ernst & Young established its practice in 1991. Ernst & Young Ukraine now employs more than 570 professionals providing a full range of services to a number of multinational corporations and Ukrainian enterprises. For more information, please visit www.ey.com/ukraine or contact Ernst & Young Senior PR Specialist in Kyiv, Natalia Partach, Natalia.Partach@ua.ey.com.
FOOTNOTE: Ernst & Young Ukraine is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.usubc.org.
10. NATIONAL BANK OF UKRAINE (NBU) INTRODUCES FURTHER CHANGES
INTO INTERBANK FOREIGN CURRENCY EXCHANGE MARKET OPERATION
DLA Piper Ukraine LLC, Kyiv, Ukraine, Wednesday, December 24, 2008
KYIV - On 18 December 2008 the National Bank of Ukraine ("NBU") issued another regulation aimed at controlling interbank foreign currency exchange market operations.
Under Regulation 435, which is effective from 22 December 2008, Ukrainian banks must perform foreign currency exchange transactions in the following stages within one banking day:
[1] Stage 1 (from 10 am to 2 pm) - a bank may buy foreign currency from its customers (excluding banks) to sell it to other customers who instructed the bank to buy such currency. All such transactions must be performed at an exchange rate agreed by the bank and its customers.
If the amount of foreign currency purchased by a bank during such a stage is insufficient to satisfy its customers' requirements (where the term 'customer'
excludes other banks), the bank must aggregate such amounts and bid in the afternoon session for its further requirements of such currency under the NBU's
reconciliation system called the NBU's System of Confirmation of Agreements. Excess amounts of foreign currency purchased by the banks during Stage 1 may be sold during Stage 2.
[2] Stage 2 (from 2 pm to 4 pm) - banks may perform interbank currency exchange operations using the NBU's System of Confirmation of Agreements at an exchange rate agreed by the banks. Please note that a bank may either buy or sell a given foreign currency, but it may not act both as a buyer and a
seller of the same currency during one trading session (ie Stage 2).
The NBU has also required that if a bank's open position in a foreign currency exceeds a limit established by the NBU, such bank must sell its excess currency either to its customers or to other banks on the following banking day. If the bank fails to sell such excess currency, the bank must sell such excess currency to the NBU at the official exchange rate.
Please do not hesitate to contact us should you have any questions on the above. Oleksandr Kurdydyk, Partner, oleksandr.kurdydyk@dlapiper.com;
Illya Muchnyk, Senior Associate, illya.muchnyk@dlapiper.com, www.dlapiper.com.
DLA Piper Ukraine LLC is part of DLA Piper, a global legal services organisation. International Law Firm of the Year 2008 in Ukraine. DLA Piper ranked 3rd in Financial Times Law 50 Innovative Lawyers 2008.
FOOTNOTE: DLA Piper Ukraine LLC is a member of the the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.usubc.org.
11. UKRAINE: SALANS KYIV TAX NEWSLETTER
SALANS law firm, Kyiv, Ukraine, January 2009
IN THIS ISSUE:
1. Change in Social Security Contribution Rates
2. VAT on Services Provided to Non-Residents
3. Change in Excise Duty Rates on Certain Products
4. Change in Vehicle Tax Rates
5. Increase in Gas Rent Payments
6. Parliament Passes Law to Minimise Impact of Financial Crisis on Industrial Development
1. Change in Social Security Contribution Rates
The Verkhovna Rada of Ukraine changed the rates for some social security contributions. Such changes became effective on 13 January 2009. The current rates for social security contributions are summarized in the table below (altered rates are in bold):
No. |
Type of Mandatory Security |
Contribution rate (%) |
|
Employer |
Employee |
||
1 |
Pension |
33.2 |
2 |
2 |
Unemployment |
1.6 (previously – 1.3) 2.2 |
0.6 (previously – 0.5) |
3 |
Temporary disability |
1.4 (previously – 1.5) |
1 |
4 |
Accident at work |
0.56 - 13.5 (previously – 0.66 – 13.6) |
N/A |
Notably, from 13 January 2009 mandatory unemployment security payments extend to the following categories of individuals: (1) individuals who provide “work and services” under civil law agreements; (2) foreigners working in Ukraine on a temporary basis (until 1 January 2011); and (3) persons of pensionable age still in employment (until 1 January 2011).
2. VAT on Services Provided to Non-Residents
In letter No. 26903/7/16-1517 dated 23 December 2008 the State Tax Administration of Ukraine (“STA”) set out its opinion on the taxation of certain types of services provided to non-residents according to Article 6.5(d) of the Ukrainian Law “On Value Added Tax” (the “VAT Law”).
The STA confirms that the place of supply for services specified in Article 6.5(d) of the VAT Law (in particular, advertising services; services of consultants, lawyers, auditors, accountants and engineers; and data processing and information-provision services [IT services]) will be deemed to be outside of the customs territory of Ukraine when such services are provided by Ukrainian residents (VAT payers) to non-residents.
An exception to this rule is where a non-resident has a permanent establishment in Ukraine.
Consequently, if such services are provided by Ukrainian residents to non-residents, they will not be subject to Ukrainian VAT (provided that such non-residents do not have permanent establishment in Ukraine).
It is worth mentioning that this STA letter appears to be more favourable for taxpayers vis-à-vis its previous letters as regards the application of Article 6.5(d) of the VAT Law.
3. Change in Excise Duty Rates on Certain Products
The Verkhovna Rada of Ukraine changed the excise duty rates on ethyl spirit, alcoholic drinks, tobacco products, fuel and cars.
Excise duty on ethyl spirit and alcoholic drinks. The excise duty rate on ethyl spirit will be increased gradually: until 30 June 2009 – UAH 21.5 per litre of 100% spirit, from 1 July to 31 December 2009 – UAH 23, in 2010 – UAH 27 and from 1 January 2011 – UAH 34.
The excise duty rate on cognac will also be increased: until 30 June 2009 – UAH 10 per litre of 100% spirit, from 1 July to 31 December 2009 – UAH 14, in 2010 – UAH 20 and from 1 January 2011 – UAH 27.
The excise duty rate on natural wine will be reduced gradually: from 1 January to 30 June 2009 – UAH 0.25 per litre of 100% spirit and from 1 July 2009 – UAH 0.01 per litre of 100% spirit.
Excise duty on tobacco products. In particular, the excise duty rate on filter cigarettes will be increased gradually: from 1 February to 30 June 2009 – UAH 37.5 per 1000 items, from 1 July to 31 December 2009 – UAH 45, in 2010 – UAH 52 and from 1 January 2011 – UAH 60.
Excise duties on certain types of fuel and vehicles. In particular, the excise duty rate on engine fuels increased from EUR 60 to EUR 110 per 1,000 kg. It is worth mentioning the dramatic (tenfold) increase in the excise duty rate on new cars with an engine volume of more than 3 litres (from EUR 0.1 to EUR 1 per cubic centimetre).
The excise duty rate on new cars with an engine volume of 1.5-3 litres increased to EUR 0.12 per cubic centimetre. The excise duty rate on new cars with an engine volume of 1-1.5 litres increased from EUR 0.02 to EUR 0.03.
4. Change in Vehicle Tax Rates
The Verkhovna Rada of Ukraine has changed certain vehicle tax rates for cars. Whereas tax rates for cars with an engine volume of less than 2,200 cubic centimetres have increased slightly, there has been a sharp increase in tax rates for cars with an engine volume of more than 2,200 cubic centimetres (except for cars that have been used for more than 8 years with respect to tax payable for first registration).
Notably, the vehicle tax rate on new cars with an engine volume from 2,201 to 3,000 cubic centimetres which are subject to first registration in Ukraine increased to UAH 75 per 100 cubic centimetres.
For cars with an engine volume from 2,201 to 3,000 cubic centimetres which are subject to re-registration or technical inspection, the tax rate has also increased to UAH 75 per 100 cubic centimetres.
5. Increase in Gas Rent Payments
The Verkhovna Rada of Ukraine passed a law which provides for an increase in rent payments for natural gas by an adjustment coefficient. The adjustment coefficient applies to applicable rent payment rates in every tax period. The adjustment coefficient is calculated and approved by the Ukrainian Ministry of Finance.
6. Parliament Passes Law to Minimise Impact of Financial Crisis on Industrial Development
The Verkhovna Rada of Ukraine passed, and then overruled the Ukrainian President’s veto of, the law “On Amending Certain Legislative Acts with a view to Minimising the Impact of the Financial Crisis on the Development of National Industry” (the “Law”). The Law is effective as of the date of its publication.
The following provisions of the Law are of particular note:
1. Industrial enterprises are entitled to apply an accelerated 25% annual depreciation rate (instead of 6% rate per tax quarter) for assets in group 3 (i.e., other fixed assets).
2. A temporary (until 1 January 2011) exemption from customs duties for certain categories of equipment and assembly parts that are not manufactured in Ukraine (in particular, nuclear reactors, boilers, equipment for sound recording and sound reproduction, cinematographic and medical equipment) and are imported into Ukraine by industrial enterprises.
This exemption also extends to fixed assets, materials, equipment, tools and assembly parts (except for excisable goods) that are imported into Ukraine by industrial enterprises with the purpose of establishing new production facilities by implementing energy-saving technology, including the import of such goods as contributions to the charter capital of such enterprises.
The list of such enterprises and the permitted amounts of such goods is set by the Cabinet of Ministers of Ukraine.
3. A temporary (until 1 January 2011) VAT exemption on the import of fixed assets, materials, equipment, tools and assembly parts (except for excisable goods) by industrial enterprises that are establishing new production facilities by implementing energy-saving technology, including the import of such goods as contributions to the charter capital of such enterprises. The list of such enterprises and goods is set by the Cabinet of Ministers of Ukraine.
ABOUT SALANS: Salans is ranked among the top 50 law firms in the world by PLC WhichLawyer?. In 2007 and 2008 Salans was shortlisted to win “The International Law Firm of the Year” from The Lawyer. Salans is ranked as a top tier law firm in Ukraine and globally by the leading international legal directory Chambers Global.
Salans is a full service international law firm with offices in Almaty, Baku, Barcelona, Beijing, Berlin, Bratislava, Bucharest, Budapest, Frankfurt, Istanbul, Kyiv, London, Madrid, Moscow, New York, Paris, Prague, Shanghai, St. Petersburg and Warsaw.
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NOTE: Salans law firm is a member of the U.S.-Ukraine Business Council (USUBC), Washington D.C., www.usubc.org.
