General legal framework
On 7 February 2019, the new Law of Ukraine 'On Currency and Currency Transactions' was enacted. The Law abolished a number of irrelevant restrictions, in particular:
- The regime of individual licensing/suspension of foreign economic activity was lifted.
- The requirement of registration of loans from non-residents with the National Bank of Ukraine (NBU) was lifted.
- Maximum interest rates under loan agreements were cancelled.
As of May 2020, the Law stipulates the following key requirement for currency control/supervision over currency transactions:
- All remittances abroad in the amount not exceeding UAH 400,000 are not subject to currency control (supervision) and shall be performed without any limitations.
- Remittances in excess of UAH 400,000 may be performed only after the servicing bank verifies that there are no grounds to believe that the remittance may be related to money-laundering or other violations of Ukrainian law. The servicing bank shall verify such transactions according to the 'risk-based' approach, which means that the banks should have an understanding of the money-laundering/terrorist financing risks to which they are exposed and apply respective anti-money laundering/countering financing of terrorism (AML/CFT) measures in a manner and to an extent which would ensure mitigation of these risks.
Key limitations to currency transactions
- Trade-related settlements between residents and non-residents can be made in foreign currency and Ukrainian hryvnia.
- Payments in foreign currencies in the territory of Ukraine are possible only for certain specific transactions (e.g. transactions related to foreign investments, provision of banking and financial services by banks and other financial institutions, payments in duty-free shops).
- Proceeds from exports must be credited to the exporter's Ukrainian bank account in general within 365 days from the date of customs clearance (for goods) or the date of signing the act of acceptance (for certain services). The mentioned rule does not apply to export of services/works (except for transport and insurance services/works), IP rights, and other non-property rights. Similarly, prepaid goods must be imported and cleared through customs in general within 365 days of payment. Failure to do so will result in a fine of 0.3% of the amount due or paid for each day of delay, but not more than the debt itself.
- Loans from non-residents shall be registered with a special NBU database. The interest rate under loans shall be at market rates.
Remittance/movement of funds across the Ukrainian border by individuals
Ukrainian individuals are allowed to remit funds abroad through banks and non-banking payment institutions in the amount up to EUR 100,000 per calendar year for the following transactions:
- Depositing funds from Ukraine in personal accounts held in foreign banks.
- Fulfilment of obligations before non-residents under life insurance contracts.
- Provision of loans to non-residents.
Payments under other transactions (e.g. acquisition of goods for own needs) are not subject to limits.
There is also no limit for remittance of funds by post or physical cash movement across the Ukrainian border. However, they are subject to the following requirements:
- Physical movement of cash across the border in excess of EUR 10,000 is subject to filing a customs return.
- Remittance of funds by post is subject to declaring the value of the transfer.
Remittance of funds across the Ukrainian border by business entities
Ukrainian legal entities and private entrepreneurs can remit funds abroad under trading transactions (standard export-import transactions, payments under loans from non-residents, etc.) without limits. Legal entities are allowed to invest abroad in the amount of up to EUR 2 million per calendar year.
Choice of business entity
Generally, a limited liability company is the most widely used corporate vehicle in Ukraine for both residents and non-residents. A limited liability company has a quite straightforward registration procedure and is generally easy to maintain. It also provides certain flexibility in terms of repatriation of dividends from Ukraine.
There is no statutory fee for the state registration of newly established legal entities.
The new Law on ‘limited and additional liability companies’ entered into force on 17 June 2018 and introduced a new legal framework for operation of limited liability companies in Ukraine.
Business and tax treatment of intellectual property (IP)
Ukraine ratified major international treaties in the IP field, including the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement), Paris Convention for the Protection of Industrial Property, Patent Cooperation Treaty, Berne Convention for the Protection of Literary and Artistic Works, and Rome Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organization. In 2014, Ukraine also ratified the Association Agreement between the European Union and Ukraine, which means that Ukraine must ensure an adequate level of effective protection and enforcement of IP rights.
The key legal aspects of IP protection in Ukraine to consider are as follows:
- Copyright in Ukraine protects the authors and their successors’ (i) moral (non-proprietary) rights, e.g. a right to require recognition of authorship by properly indicating the author’s name on a work, and (ii) economic (proprietary) rights. Copyright in Ukraine does not allow to transfer or assign the moral (non-proprietary) rights of the author to third parties.
- Trademark and patent protection is territorial and will cover Ukraine only and it is granted for a specific period of time, generally a maximum of 20 years. Ukraine applies a first-to-file system for registering IP rights, i.e. the right to the IP right lies with the first person to file an application for protection.
Tax treatment for IP transactions is subject to separate analysis on a case-by-case basis since the Ukrainian tax legislation provides different approaches depending on the nature of the concluded agreement. For instance, the transfer of IP may be treated as a sale of non-tangible assets, the provision of services, or a royalty agreement.
For tax purposes, the term ‘royalty’ does not include payments for the use of computer programs by the end user or for purchasing electronic copies of IP for final consumption.
Mergers and acquisitions (M&A) from a business and tax perspective
There are no specific laws regulating public takeovers or mergers in Ukraine.
The Ukrainian Tax Code provides some guidance on the tax regime for corporate mergers and acquisitions. CIT consequences of such transactions will depend on their accounting in accordance with the financial accounting rules.
Legal regime of the Occupied Territory
Starting from 12 August 2014, temporarily (for ten years), there is an established free customs zone on the territory of Crimea, which means that all goods delivered to/from Crimea will be subject to customs clearance by the Ukrainian customs authorities.
The general rules are as follows:
- Goods delivered from the mainland of Ukraine to Crimea are subject to customs clearance with payment of export duty (if any) and 0% VAT. For tax purposes, such supplies will be considered as an export.
- Goods delivered from Crimea to the mainland of Ukraine are subject to general import procedures with payment of import duty and VAT.
- Delivery of goods in both directions is subject to veterinary, phytosanitary, ecological, and other state control measures.
Legal regime of the anti-terrorism operation
Temporarily, for the period of the anti-terrorism operation (from 30 April 2018 – Joint Forces Operation), there are certain specific regulations in respect of legal entities and individuals residing and/or doing business in the territory of the anti-terrorism operation (certain areas of Donetsk and Luhansk regions). These rules include, in particular:
- Moratorium on penalties under loan obligations (for agreements concluded or amended before 1 January 2018).
- Release from payments for state and/or municipal property.
United States (US) Foreign Account Tax Compliance Act (FATCA) rules compliance
The United States and Ukraine have reached an agreement in substance with regard to implementing the US FATCA under a Model 1 Intergovernmental Agreement (IGA), and Ukraine has consented to disclose this status. On 29 October 2019, Ukraine’s Parliament ratified the IGA.
Under the IGA between Ukraine and the United States, Ukrainian financial institutions are obligated to annually report to the State Tax Service of Ukraine information about financial accounts held in Ukraine by US taxpayers or foreign entities in which US taxpayers hold a substantial ownership interest. This information will be further transferred to the US Internal Revenue Service (IRS). The first reporting deadline for Ukrainian financial institutions is 1 September 2020, and it should cover periods starting from July 2014.